What Is Making Tax Digital?

Making Tax Digital was first announced by HMRC in 2015 as part of a long-term programme to digitise the UK tax system. The aim is to reduce errors, improve accuracy and give taxpayers a clearer real-time view of their tax position. MTD has been rolled out in phases beginning with VAT.

MTD for VAT was the first phase, becoming mandatory for most VAT-registered businesses in April 2019 and extended to all VAT-registered businesses in April 2022. It requires digital record-keeping and VAT return submission through compatible software.

MTD for Income Tax Self Assessment (MTD ITSA) starts in April 2026 for sole traders and landlords with qualifying income above £50,000. Affected taxpayers must keep digital records, submit four quarterly updates per year, and file a final declaration at year end (replacing the traditional Self Assessment return).

HMRC has previously consulted on extending MTD to limited companies through MTD for Corporation Tax, but no mandatory start date has been confirmed and the programme is not currently a near-term priority.

HMRC introduced MTD to reduce the “tax gap” — the difference between tax that should be paid and tax actually collected — a large part of which comes from avoidable mistakes rather than deliberate evasion. Keeping records digitally and submitting straight from software is designed to cut transcription errors, give people a clearer real-time view of what they owe, and bring UK tax reporting into line with everyday digital banking and accounting.

Under the traditional system you could keep paper or spreadsheet records all year and file one Self Assessment return by 31 January. MTD changes three things:

• How you keep records — they must be digital, captured close to the point of each transaction.
• How often you report — four quarterly updates a year instead of a single annual return (for Income Tax).
• How you submit — directly from compatible software via HMRC’s API, not by typing figures into an online form.

What does not change is how much tax you pay or when you pay it — the 31 January payment date stays the same.

A few myths cause needless worry. MTD does not mean you pay tax four times a year — the quarterly updates are estimates, with tax still due once a year. It does not abolish accountants — many people still use one, and MTD simply changes the tools. And being asked for “digital records” does not necessarily mean expensive software: for simple affairs a spreadsheet linked to bridging software can be enough. The threshold is also based on gross income, not profit, which catches more people than expected.

For affected taxpayers, MTD means moving away from paper records and the annual Self Assessment return towards continuous digital record-keeping and quarterly digital reporting. In practice it front-loads a little admin through the year in exchange for a far smaller year-end job and fewer surprises about your tax bill. Compatible software — or a support service that files for you — handles the mechanics.

Check if MTD applies to you →

• MTD for VAT — live now for all VAT-registered businesses.
• MTD for Income Tax — from April 2026 for sole traders and landlords above the qualifying-income threshold (£50k, then £30k in 2027 and £20k in 2028).
• MTD for Corporation Tax — proposed for limited companies, no confirmed start date.

Whichever part of MTD applies to you, three things are required: keep your records digitally; use HMRC-recognised compatible software (or spreadsheets connected via bridging software); and submit to HMRC through that software rather than typing figures into an online portal. For MTD for Income Tax you also send four quarterly updates a year and a final declaration after year end. You do not need to be an accountant to do this — the right software, or a support service, handles the mechanics.