What Is Making Tax Digital (MTD)?
Making Tax Digital is HMRC's programme to move tax record-keeping and filing online. Learn what it requires and when each phase applies.
Key Takeaways
- MTD for VAT applies to all VAT-registered businesses — returns must be filed using compatible software
- MTD for Income Tax applies to self-employed people and landlords from April 2026
- MTD for Corporation Tax is planned but no timeline confirmed yet
- Cloud accounting software now is the simplest way to comply with current and future MTD requirements
What Making Tax Digital is
Making Tax Digital (MTD) is HMRC's programme to digitise tax record-keeping and filing for businesses and individuals. The aim is to reduce errors from manual calculations, make tax accounts more accurate and up-to-date, and eventually enable near-real-time tax assessment. MTD is being rolled out in phases across different tax types.
MTD for VAT
MTD for VAT applies to all VAT-registered businesses since April 2022. Requirements: keep digital records of all transactions relevant to VAT, and submit returns using HMRC-compatible software with a direct API connection. You cannot manually type VAT figures into the HMRC portal. Compatible software includes Xero, QuickBooks, Sage, and FreeAgent. Bridging software connects spreadsheets to HMRC for those not ready to move to full cloud accounting.
MTD for Income Tax Self Assessment
MTD ITSA applies from April 2026 to self-employed individuals and landlords with income above £50,000, extending to those above £30,000 from April 2027. Affected taxpayers will need to keep digital records and submit quarterly updates to HMRC — four times per year instead of the current annual self-assessment. This is a significant change for sole traders and landlords who currently file once a year.
MTD for Corporation Tax
HMRC has announced MTD will eventually extend to corporation tax, but no confirmed implementation date has been set. Most commentators expect it in the late 2020s at the earliest. Limited companies can prepare by moving to cloud accounting software now — software compliant for VAT is likely to be compatible when MTD for Corporation Tax is implemented.
Preparing for MTD
If you are not already using cloud accounting software, now is the time to adopt it. Cloud accounting (Xero, QuickBooks, Sage, FreeAgent) automates the record-keeping required by MTD, connects directly to HMRC for filing, and provides real-time visibility of your accounts. The transition is far easier done proactively rather than reactively close to a compliance deadline.