Making Tax Digital: Complete UK Guide 2026
Making Tax Digital (MTD) is HMRC’s programme to move the UK tax system entirely online. If you run a business or are self-employed in the UK, MTD will affect you. This guide covers what it requires, when it applies, and exactly how to comply.
Quick Summary: MTD for VAT is already mandatory for all VAT-registered businesses. MTD for Income Tax Self Assessment (MTD ITSA) is being phased in from April 2026 for sole traders and landlords with income over 50,000 per year.
What is Making Tax Digital?
Making Tax Digital requires businesses and individuals to keep digital records of income and expenses, and to submit tax information to HMRC using MTD-compatible software rather than manually through the HMRC portal.
MTD Timeline and Key Dates
| MTD Phase | Who It Affects | Mandatory From | Status |
|---|---|---|---|
| MTD for VAT | All VAT-registered businesses | April 2022 | Active now |
| MTD ITSA Phase 1 | Sole traders and landlords, income over 50,000 | April 2026 | Active April 2026 |
| MTD ITSA Phase 2 | Sole traders and landlords, income over 30,000 | April 2027 | Upcoming |
| MTD ITSA Phase 3 | Sole traders and landlords, income over 20,000 | April 2028 (proposed) | Proposed |
| MTD for Corporation Tax | Limited companies | TBC | Planned |
MTD for VAT: What You Need to Do Now
- Use MTD-compatible software to keep your VAT records and submit returns
- Keep digital records of all VAT-relevant transactions including sales, purchases, and input and output tax
- Submit VAT returns from your software via the HMRC MTD API – manual entry in the HMRC portal is no longer permitted
- Sign up for MTD for VAT through your Government Gateway account if you have not already done so
MTD for Income Tax: Key Changes
MTD ITSA introduces quarterly reporting. Instead of one annual self-assessment return, affected taxpayers will submit quarterly updates of income and expenses, one end-of-period statement, and one final declaration. Tax payment schedules remain unchanged – you will not pay tax more frequently, just report more often.
Best Software for MTD Compliance
- Xero – excellent MTD VAT and ITSA tools, HMRC recognised
- QuickBooks – strong MTD ITSA preparation, good for sole traders
- FreeAgent – built for freelancers with outstanding MTD self-assessment tools
- Bokio – free option with full MTD for ITSA support from April 2026
See full accounting software comparison for MTD readiness
MTD Frequently Asked Questions
Do I need to register for MTD if I am below the VAT threshold?
If you are VAT-registered, even voluntarily, MTD for VAT is mandatory. If you are not VAT-registered, MTD for VAT does not apply to you currently.
Can I use a spreadsheet for MTD?
You can keep records in a spreadsheet but must use bridging software to connect to HMRC for submissions. Dedicated accounting software is simpler and less error-prone.
What are the penalties for MTD non-compliance?
HMRC uses a points-based penalty system. Accumulating points leads to financial penalties ranging from 200 to 400 or more depending on the number of failures. Missing the MTD signup deadline can also result in penalties.