What Is Making Tax Digital? A Guide for 2026/27
Making Tax Digital explained: who must use it for VAT and Income Tax, the 2026, 2027 and 2028 thresholds, and what to do now.
Making Tax Digital (MTD) is HMRC’s programme to move tax reporting online. It requires you to keep digital records, use compatible software and send information to HMRC electronically. MTD for VAT has applied to all VAT-registered businesses since April 2022, and MTD for Income Tax started on 6 April 2026 for sole traders and landlords with qualifying income above £50,000.
This article explains what MTD is, how the two parts work, who is affected, the key dates and the most common myths. For the Income Tax rules in depth, see our complete guide to MTD for Income Tax, and for tailored help you can use our Making Tax Digital service.
Making Tax Digital in one table
| MTD for VAT | MTD for Income Tax | |
|---|---|---|
| Who | All VAT-registered businesses | Sole traders and landlords above the income threshold |
| Start | April 2019 (above threshold), April 2022 (all) | April 2026 (over £50,000), April 2027 (over £30,000), April 2028 (over £20,000) |
| Reports | VAT return, usually quarterly | Quarterly updates and a final declaration |
| Records | Digital VAT records | Digital income and expense records |
| Companies? | Yes, VAT-registered companies use MTD for VAT | No, companies are not in MTD for Income Tax |
Why HMRC introduced MTD
HMRC says that digital reporting reduces errors, because software calculates figures and reduces the need to retype information. It also gives taxpayers a more up-to-date view of what they owe. In practice many small businesses welcome the clearer view of tax during the year, while others find the extra reporting a burden. Either way, it is now the standard approach and the rules are expanding.
Accountants for London individuals and businesses, paid online.
Get an instant quoteBook a free callMTD for VAT: how it works
If you are VAT-registered you must keep digital records and file VAT returns using software that connects to HMRC. Spreadsheets are allowed only if they are linked to MTD-compatible software. Returns are normally quarterly and are due one month and seven days after the end of the VAT period. A points-based penalty system applies to late returns. See our VAT guide and how to register for VAT.
MTD for Income Tax: how it works
If you are in scope you keep digital records of income and expenses, send a quarterly update to HMRC and make a final declaration after the year end, which replaces the traditional annual return process. The standard quarterly deadlines are 7 August, 7 November, 7 February and 7 May. Income tax payment dates do not change. See our articles on MTD for sole traders and MTD for landlords.
Who is not affected?
- Limited companies, for Income Tax purposes, because they pay Corporation Tax.
- Sole traders and landlords whose qualifying income is £20,000 or less from April 2028 (and below the thresholds before that).
- People whose income is only from employment, pensions, dividends or savings.
- People who HMRC has exempted because they cannot use digital services.
What counts as digital record keeping?
Digital records are records of every sale and expense kept in software or in a spreadsheet that connects to HMRC. Paper-only records are no longer enough. You must record the date, amount and category of each transaction. You do not need to keep receipts as originals, but you need digital copies. Bank feeds and receipt capture tools make this much easier.
Choosing software
HMRC publishes a list of MTD-compatible software. Features to look for are bank feeds, receipt scanning, invoicing, mileage tracking and the ability to submit directly to HMRC. If you prefer not to use the software yourself, you can authorise an accountant to keep your digital records and submit for you.
Common myths about MTD
| Myth | Reality |
|---|---|
| MTD means paying tax every quarter | No. Payment dates stay the same. Only the reporting changes |
| Everyone must use MTD | No. It depends on your type of income and the threshold |
| Limited companies must use MTD for Income Tax | No. Companies are not in MTD for Income Tax, although VAT-registered companies use MTD for VAT |
| Spreadsheets are banned | Not if they are linked to compatible software |
| MTD is only about software | It is also about keeping better records throughout the year |
The benefits of MTD for small businesses
- A running view of your income, costs and tax during the year.
- Fewer errors because figures are calculated automatically.
- Less last-minute scramble at the January deadline.
- Better decisions based on up-to-date numbers.
The challenges
- More frequent reporting and record keeping.
- Learning new software.
- Software costs, although many options are inexpensive.
- Penalties for late updates under the points system.
How to get ready for MTD
- Work out whether you are in scope and from when.
- Choose compatible software or appoint an accountant.
- Open a separate business bank account and connect bank feeds.
- Set up a weekly or monthly bookkeeping routine.
- Diary the quarterly deadlines and your payment dates.
Making Tax Digital for London businesses
London has a high concentration of self-employed people, landlords and VAT-registered businesses, so MTD affects many of them. Freelancers in Hackney, landlords in Newham and small businesses in Croydon are examples of those who may need to act. We set up digital records and file MTD updates across every borough. See our bookkeeping services for help with records.
What if…? Common situations
What if my income goes up and down?
HMRC looks at qualifying income for an earlier tax year to decide whether you must join. If you are close to a threshold, ask your accountant to check each year, because crossing it in one year can bring you into MTD the following year.
What if I have two businesses or a business and rental income?
All self-employment and property income is added together for the threshold test. You report each source separately in your quarterly updates, and the final declaration brings everything together.
What if I join part-way through a tax year?
Your obligations start at the beginning of the tax year in which you must join, and you set up software and digital records before the first quarter. Do not wait for the first deadline to start.
Who does what: you or your accountant?
Under MTD you stay responsible for keeping accurate records. An accountant can do the bookkeeping, send updates and complete the final declaration for you, but you must still approve what is submitted. A good arrangement is a monthly routine where you upload bank statements and receipts and your accountant reconciles them, then submits the quarterly update. This keeps the workload low while meeting every deadline.
Where to start
Work out your qualifying income, pick compatible software or an accountant, and diary the quarterly deadlines of 7 August, 7 November, 7 February and 7 May. Read our sole trader guide or landlord guide next.
Frequently asked questions
What does Making Tax Digital mean in simple terms?
It means keeping your tax records digitally and sending information to HMRC through software, instead of using paper records and one annual return.
Who has to use MTD for Income Tax?
Sole traders and landlords with qualifying income above £50,000 from April 2026, above £30,000 from April 2027 and above £20,000 from April 2028.
Do limited companies have to use MTD?
Limited companies use MTD for VAT if VAT-registered, but not MTD for Income Tax.
Can I still use a spreadsheet?
Yes, if it is linked to MTD-compatible software that can send data to HMRC.
Can my accountant do MTD for me?
Yes. We keep your digital records, submit updates and complete your final declaration for a fixed fee.
Fixed fees, paid online. Call 020 3441 1258 or get your quote now.
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