Making Tax Digital (MTD) is HMRC’s initiative to move the UK tax system online. It’s already mandatory for VAT-registered businesses and is being extended to income tax. Here’s everything you need to know.
What Is Making Tax Digital?
Making Tax Digital requires businesses to keep digital records and submit tax information to HMRC using compatible software. The aim is to reduce errors, make tax administration more efficient and give businesses a real-time view of their tax position.
💡 Key takeaway
Making Tax Digital for Income Tax applies from April 2026 for self-employed individuals with income over £50,000 — quarterly digital submissions replace annual returns.
Who Does MTD Apply To?
MTD for VAT has been mandatory since April 2019 for businesses above the VAT threshold. MTD for Income Tax Self Assessment (ITSA) will apply to sole traders and freelancers with income over £50,000 from April 2026, and those with income over £30,000 from April 2027.
📄 Current System
- Annual self assessment return
- Paper or online filing by 31 Jan
- One filing per year
- Works on spreadsheets
- Simpler but less real-time
📱 MTD for ITSA
- Quarterly digital updates to HMRC
- Compatible software required
- End-of-period statement
- Annual tax return still filed
- Phased rollout from April 2026
What Software Do I Need?
You need HMRC-recognised accounting software. The most popular options are Xero, QuickBooks and FreeAgent. These connect directly to HMRC’s systems, making submissions straightforward. Your bookkeeper can set this up for you.
What Happens If I’m Not Compliant?
HMRC can issue penalties for late or incorrect submissions. The points-based penalty system means repeated failures can result in significant fines. Getting compliant now — before deadlines hit — protects your business.
How to Get MTD Ready
The fastest route to MTD compliance is to start using compatible software, migrate your existing records and ensure your bookkeeper is set up to submit on your behalf. We help businesses across South Gloucestershire and Bristol get MTD-ready every week.
Frequently Asked Questions
Is Making Tax Digital mandatory?
Yes — for VAT-registered businesses it’s already mandatory. MTD for income tax is being phased in from 2026 onwards.
What software is MTD compliant?
Xero, QuickBooks, FreeAgent and Sage are all HMRC-recognised MTD-compliant options. We recommend Xero or QuickBooks for most small businesses.
Can my bookkeeper handle MTD submissions for me?
Yes — a professional bookkeeper can set up your software, maintain your digital records and submit directly to HMRC on your behalf.
