What is Making Tax Digital?

2 min read

In a business context, Making Tax Digital (MTD) is HMRC’s requirement for businesses to digitally keep and maintain financial records relating to tax, and to report taxes digitally, via software that’s linked to HMRC’s computers.

Essentially, the introduction of Making Tax Digital means businesses should use computer software for their accounting, so can no longer rely on paper book-based ledgers.

MTD was live as of 1 April 2019 for VAT payments, and it goes live for Income Tax on April 2026.

Other types of business tax, such as corporation tax, are not part of the MTD initiative although are being digitised by HMRC in other ways.

The requirements for MTD vary depending on whether it’s VAT or Income Tax, as follows.

MTD for Income Tax

MTD for Income Tax affects sole traders and landlords who earn above a certain threshold. Those within scope must:

Keep income tax accounting records digitally e.g. using MTD-compatible accounting software.
Use MTD-compatible software to make updates about income and expenditure at least quarterly to HMRC. This must be done for each business you run, as well as separately for any landlord income.
Ensure accounting systems or software used for income tax are digitally linked.
Submit a digital tax return by 31 January each year, following the end of a tax year. Again, this must be done using MTD-compatible software.

If you use MTD for Income Tax, it replaces the need to use Self Assessment.

MTD for VAT

MTD for VAT affects anybody registered for VAT. Those within scope must:

Keep VAT accounting records digitally e.g. using MTD-compatible accounting software.
Use MTD-compatible software to submit VAT Returns to HMRC.
Ensure VAT accounting systems or software are digitally linked.