Making Tax Digital (MTD) is HMRC's programme to move tax record-keeping and submission entirely into compatible software. MTD for VAT is already mandatory for all VAT-registered businesses since April 2022, per HMRC. MTD for Income Tax Self Assessment (ITSA) is mandatory from April 2026 for self-employed individuals and landlords with gross income over £50,000 — the most significant change to personal tax filing in a generation.
What are the phases of Making Tax Digital in the UK?
HMRC has rolled out MTD in stages, starting with larger VAT-registered businesses in 2019 and expanding progressively to smaller businesses and individuals. The table below shows the full rollout timeline including confirmed and proposed future phases.
| Phase | Who it affects | Mandatory from | Status |
|---|
| MTD for VAT — Phase 1 | VAT-registered businesses with turnover above £85,000 | April 2019 | Live |
| MTD for VAT — Phase 2 | All VAT-registered businesses (any turnover) | April 2022 | Live |
| MTD for ITSA — Tranche 1 | Self-employed & landlords with gross income > £50,000 | April 2026 | Confirmed |
| MTD for ITSA — Tranche 2 | Self-employed & landlords with gross income > £30,000 | April 2027 | Confirmed |
| MTD for ITSA — Tranche 3 | Self-employed & landlords with gross income > £20,000 | TBC | Proposed |
| MTD for Corporation Tax | Limited companies (all) | TBC (still in consultation) | Consultation |
The income threshold for MTD for ITSA refers to gross income — that is, total receipts before any expenses are deducted. If you have both self-employment income and rental income, these are added together for the purposes of the threshold. Someone with £35,000 of self-employment income and £20,000 of rental income would have gross income of £55,000 and would therefore be in scope for April 2026.
What does Making Tax Digital for VAT require?
If your business is VAT-registered, you are already required to comply with MTD for VAT. The three core obligations are: keeping digital VAT records in MTD-compatible software, submitting VAT returns directly from that software (not manually typing figures into the HMRC online portal), and maintaining unbroken digital links between any source data and the figures in your VAT return.
The "digital links" requirement is the most commonly misunderstood aspect. It means that if you copy a figure from one piece of software to another — for example from a spreadsheet to your accounting package — that link must be digital (a formula, import, or API connection), not a manual re-keying. Emailing a spreadsheet and retyping the numbers does not constitute a digital link per HMRC guidance.
Penalties for non-compliance with MTD for VAT include a £400 fixed penalty per return not submitted via the MTD route, on top of any late-filing penalties. HMRC has stated it expects businesses to be using approved software and that it will enforce compliance. If you are not yet using MTD-compatible software, switching is urgent.
What is Making Tax Digital for Income Tax Self Assessment?
MTD for ITSA fundamentally changes how self-employed individuals and landlords report their income to HMRC. Instead of a single annual self assessment return, affected taxpayers will be required to submit quarterly updates — digital summaries of income and expenses for each three-month period — plus an annual end of period statement (EOPS) and a final declaration that replaces the current self assessment return.
It is important to understand what quarterly updates are not: they are not tax payments (those remain on existing payment on account schedules), and they are not detailed line-by-line submissions. They are summaries of totals by category — total income, total allowable expenses — sent digitally through MTD-compatible software directly to HMRC. The end of period statement is where you make any adjustments, claim reliefs, and finalise the numbers for the year.
From April 2026, self-employed individuals and landlords with gross income above £50,000 will no longer file an annual self assessment return in the traditional sense. The annual return is replaced by the EOPS and final declaration process, which are completed through MTD software rather than the HMRC self assessment portal. For some taxpayers, this represents a cleaner process with fewer year-end surprises; for others, it increases the frequency of admin considerably.
What software is compatible with Making Tax Digital?
HMRC publishes an approved software list at GOV.UK — only software on that list can be used to submit MTD returns. The main options for small businesses and individuals are shown below. Spreadsheets can be used alongside bridging software that transmits the data to HMRC via the MTD API, but this adds complexity and manual risk.
Xero
- · MTD for VAT: live and approved
- · MTD for ITSA: in development for April 2026
- · Best for: SMEs, multi-entity businesses, accountant-client workflows
QuickBooks
- · MTD for VAT: live and approved
- · MTD for ITSA: Self-Employed plan in development
- · Best for: sole traders, freelancers, micro-businesses
FreeAgent
- · MTD for VAT: live and approved
- · MTD for ITSA: approved for pilot testing
- · Free with most NatWest, RBS, and Mettle business accounts
Sage & TaxCalc
- · Sage Accounting: MTD for VAT approved
- · TaxCalc: specialist MTD for ITSA software used by accountants
- · Both on HMRC's approved software list
If you currently use a spreadsheet for bookkeeping, bridging software such as DataDear or Absolute Tax Bridging can read your spreadsheet and submit MTD returns to HMRC without you needing to switch your entire workflow. This is a legitimate approach but requires careful maintenance of digital links to avoid compliance failures.
What do UK businesses need to do to prepare for Making Tax Digital?
The actions required depend on where your business currently sits in the MTD journey. The checklist below separates the actions by situation — for VAT-registered businesses that are already live, for self-employed individuals and landlords approaching the April 2026 deadline, and for limited companies watching the MTD for Corporation Tax consultation.
VAT-registered businesses (already in MTD)
- · Confirm you are using HMRC-approved MTD software
- · Check your software is submitting directly — not via the old portal
- · Ensure digital links exist between all data sources and your return
- · Review whether your current software will also support MTD for ITSA if you are self-employed or a landlord
Self-employed / landlords: income > £50,000
- · Confirm gross income level — self-employment plus rental, before expenses
- · Choose MTD for ITSA compatible software before April 2026
- · Register with HMRC for MTD for ITSA (separate from VAT registration)
- · Start keeping digital records now to build the habit before quarterly submissions begin
- · Brief your accountant — they will need to adapt their annual workflow
For limited companies, MTD for Corporation Tax remains in active consultation as of 2026. HMRC has not announced a mandatory start date. Limited companies should monitor GOV.UK for updates, but no immediate action is required beyond ensuring good bookkeeping practices. For related reading, see our guide to bookkeeping for UK small businesses and the VAT registration threshold guide. Further accounting resources are available in the accounting and tax hub.
Frequently asked questions
Is Making Tax Digital mandatory for all UK businesses?
MTD for VAT is mandatory for all VAT-registered businesses since April 2022, per HMRC. MTD for Income Tax Self Assessment is mandatory from April 2026 for self-employed individuals and landlords with gross income above £50,000, and from April 2027 for those above £30,000. MTD for Corporation Tax is still in consultation and has no confirmed start date.
Do I need to file quarterly tax returns under MTD for ITSA?
No — quarterly updates are not quarterly tax returns. They are digital summaries of income and expenses for each quarter sent through MTD software to HMRC. You do not pay tax quarterly based on these updates. You still make one annual final declaration (replacing the self assessment return), and tax payments continue on existing payment on account schedules.
What happens if I miss a quarterly MTD for ITSA update?
Per HMRC guidance, MTD for ITSA will use a points-based penalty system similar to MTD for VAT. Each missed quarterly update will incur a penalty point, and accumulated points lead to fixed financial penalties. HMRC has signalled a light-touch approach during the initial transition period, but persistent non-compliance will be penalised.
Can I use a spreadsheet for Making Tax Digital?
Yes, per HMRC guidance, spreadsheets are permitted for MTD provided they are used with bridging software that creates a digital link between the spreadsheet and the HMRC submission API. Manually re-keying spreadsheet totals into any portal does not meet the digital links requirement. HMRC publishes a list of approved bridging software at GOV.UK.
Does MTD for ITSA apply to partnerships?
The current confirmed MTD for ITSA mandation dates (April 2026 and April 2027) apply to sole traders and individual landlords. General partnerships and LLPs are expected to be brought into MTD for ITSA in a later phase. HMRC has not confirmed a date for partnerships — businesses should monitor GOV.UK for updates.