Making Tax Digital: what small businesses need to know

Making Tax Digital, usually shortened to MTD, is HMRC's long-running programme to move business tax reporting away from a single annual paper-style return and toward digital record-keeping with more frequent updates sent straight from compatible software. It has been rolling out in stages for several years now rather than arriving all at once, which is part of why it is easy to lose track of exactly what applies to which businesses and when — so it is worth being precise about where things actually stand.

MTD for VAT is the part of the programme that has been in place longest, and by now it applies to essentially all VAT-registered businesses, regardless of turnover. VAT-registered businesses are required to keep VAT records digitally and submit VAT returns to HMRC using MTD-compatible software, rather than typing figures directly into HMRC's older online portal. If your business is VAT-registered and you are still filing VAT returns manually rather than through compatible software, this is very likely already a compliance gap worth addressing promptly rather than a future concern.

The newer, and currently more significant, change is Making Tax Digital for Income Tax, often shortened to MTD for Income Tax Self Assessment or MTD ITSA. This became mandatory from 6 April 2026 for sole traders and landlords with qualifying income above £50,000. Qualifying income here means gross income — turnover before expenses are deducted — from self-employment and property combined, not profit, which catches some businesses by surprise if they assumed the threshold worked on take-home profit rather than gross receipts. HMRC identified who this applied to by reviewing 2024-25 Self Assessment returns filed by the 31 January 2026 deadline, and wrote to affected taxpayers ahead of the April 2026 start date.

For anyone within scope, the shift is a genuine change in how tax reporting works, not just a software update. Instead of one annual Self Assessment return, affected taxpayers must keep digital records throughout the year using MTD-compatible software, submit a quarterly update to HMRC roughly every three months summarising income and expenses, and then complete a Final Declaration after the tax year ends, which replaces the old Self Assessment return for the income covered by MTD. Other income not covered by MTD — employment income taxed through PAYE, for instance — is still reported through the Final Declaration process rather than a separate return.

The £50,000 threshold now in effect is only the first phase of a wider rollout that HMRC has set out, though it is worth treating later phases as the government's stated plan at the time of writing rather than a fixed certainty, since the timeline for MTD has shifted before. The threshold is due to drop to £30,000 from April 2027, bringing in a further group of smaller sole traders and landlords, and then to £20,000 from April 2028, extending the requirement further still. Anyone currently below £50,000 in qualifying income is not yet required to join, but is worth keeping an eye on gov.uk as their own income approaches whichever threshold will eventually apply to them.

Corporation tax has its own separate MTD proposals that have been discussed for longer without a confirmed mandatory start date, so limited companies should not assume the sole trader and landlord timeline above applies to them directly — company accounts and Corporation Tax returns continue to follow the existing CT600 process for now, distinct from MTD for Income Tax.

Getting ready generally means a few practical steps rather than a single big change: choosing MTD-compatible software (a list of recognised software is maintained on gov.uk), moving away from spreadsheet-only or paper record-keeping if that has been the previous approach, and building in the habit of quarterly submissions rather than a once-a-year scramble in January. For anyone already using accounting software day to day, the transition tends to be considerably smoother than for someone moving off paper records or a shoebox-of-receipts approach for the first time, which is one reason many accountants recommend starting the switch well before a business is legally required to.

None of this is a recommendation of any specific software or provider, and exact requirements depend on your own qualifying income and circumstances, which can change from year to year. This article is general information, not tax or accounting advice, and MTD rules and thresholds should always be checked against the current guidance on gov.uk, since this is an area that has changed on more than one occasion already. An accountant who already works with MTD-compliant clients can also help confirm whether, and when, it applies to you, and our directory lists UK accountants by area.

Frequently asked questions