Making Tax Digital (MTD) is transforming how UK businesses and individuals manage and report taxes. Whether you’re a business owner, self-employed professional or landlord with property income, MTD brings a new era of digital compliance that affects how you handle your records, returns and financial planning.
In this comprehensive making tax digital guide, we explain what MTD is, who it applies to, key dates like April 2026 and April 2028, and how to stay compliant.
What is Making Tax Digital?
Making Tax Digital is a UK government initiative aimed at modernising the tax system. It requires individuals and businesses to keep digital records and submit tax information to HMRC using MTD-compatible software. The goal is to reduce errors, streamline reporting, and ensure more accurate tax collection.
MTD applies to VAT, income tax and eventually corporation tax. As HMRC continues rolling out the initiative, more people will need to comply with new digital rules.
Why Making Tax Digital matters
Making Tax Digital (MTD) is more than just a regulatory update — it changes the way you manage your finances:
- Reduce errors and penalties: Real-time data entry and quarterly updates help reduce misreporting and the risk of fines.
- Stay organised: Keeping digital records makes it easier to track income and expense details throughout the tax year.
- Improve business decisions: Accurate, timely reporting gives business owners a clearer view of their finances.
- Increase sustainability: Going digital reduces reliance on paper and cuts down your carbon footprint.
Who needs to comply?
If you are one of the following, MTD likely applies to you:
- A VAT-registered business
- A self-employed individual
- A landlord with property income
- Anyone with gross income from self-employment or property over £30,000 (and eventually £20,000)
You’ll be required to keep digital records and submit returns via MTD software. Over time, the annual assessment tax return will be replaced by more frequent digital submissions.
Making Tax Digital for VAT
Since April 2022, all VAT-registered businesses, regardless of turnover, must follow MTD rules. This includes:
- Maintaining digital records of all transactions
- Submitting VAT returns using MTD-compatible software
- Ensuring digital links between all systems (manual copy and paste is no longer accepted)
If you’ve not yet implemented digital links between your software, now is the time to act. These links ensure your data flows seamlessly and compliantly from one system to another.
MTD for income tax self assessment (ITSA)
Starting from April 2026, MTD for ITSA will apply to:
- Self-employed individuals
- Landlords with gross income above £50,000 from employment or property
From April 2027, this will extend to those earning more than £30,000, with further expansion expected by April 2028 to individuals earning over £20,000.
Under MTD for income tax:
- You must keep digital records of all income and expenses.
- Submit quarterly updates to HMRC via MTD software.
- File a final end-of-period statement instead of the traditional personal tax return.
This new approach allows you to pay tax based on your business activity throughout the year rather than relying on estimates filed by 31 January.
What counts as digital records?
HMRC requires businesses to store the following data in digital format:
- Date and value of each transaction
- Type of income or expense
- VAT (if applicable)
- Income from employment or property
This information must be maintained using software that can interface with HMRC’s systems through its API (Application Programming Interface).
Upcoming: MTD for corporation tax
Although there is no confirmed launch date yet, HMRC has consulted on extending MTD to corporation tax. It’s likely to follow once MTD for income tax is fully implemented.
Businesses should stay alert to future announcements and begin considering how their systems will need to adapt. This comprehensive making tax digital guide will be updated with new information as it becomes available.
Compliance checklist: Are you ready?
To stay compliant under making tax digital, you should:
- Keep digital business records (including VAT, income, and property details)
- Submit returns and updates using approved MTD-compatible software
- Ensure all software systems use digital links (no manual transfer of data)
- Plan ahead for quarterly updates and year-end submissions
- Work with an advisor to ensure correct categorisation of income and expenses
For more detailed insights from the accounting profession, you may also find the resources provided by the Institute of Chartered Accountants in England and Wales (ICAEW) helpful in navigating MTD for your business.
Setting up a digital accounting system for your finances
Getting your accounting system ready for MTD will help to iron out many of the potential pitfalls. For businesses that are operating in the digital domain, the whole process of submitting your VAT and self-assessment income Tax Returns becomes far easier to action.
If you’re using a cloud accounting platform, such as Xero, Quickbooks or Sage, then you’re already primed and ready for MTD. If not, now’s the perfect time to switch from a paper based system, or a desktop accounting set up, over to the multiple benefits of cloud accounting.
How Horsfield & Smith can support your transition
We help businesses and individuals across the North West navigate their MTD journey with expert advice and hands-on support.
Software selection & setup
With hundreds of tools on the market, choosing the right one can be overwhelming. We help you select MTD-compatible software that fits your needs and integrate it with your current systems.
Training & ongoing support
We don’t just set you up – we ensure your team knows how to use the system, maintain accurate digital records, and avoid common mistakes.
MTD compliance reviews
We’ll review your record-keeping and reporting processes to confirm they meet HMRC’s requirements. Peace of mind and compliance – all in one.
Need help with MTD?
Whether you’re preparing for MTD for income tax, managing quarterly VAT submissions or planning your digital transition, this making tax digital guide, combined with our tailored advice and support from Horsfield & Smith, can help you navigate your MTD journey.
Call us on 0161 761 5231 or email theteam@horsfield-smith.co.uk
Make sure you’re ready – and compliant – for the digital future of tax.
