What is Making Tax Digital (MTD)?

3 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 and can no longer rely on paper-based ledgers.

MTD went live on 1 April 2019 for VAT payments, and on 6 April 2026 for Income Tax.

Other types of business tax, such as corporation tax, are not part of the MTD initiative — HMRC confirmed in July 2025 that MTD for Corporation Tax would not be introduced, so limited companies continue filing Company Tax Returns as they do now.

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

MTD for Income Tax

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. If you’re newly in scope, the MTD for Income Tax crash course walks through exactly what to do and when.

MTD for VAT

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.

MTD for Income Tax vs MTD for VAT

Requirement	MTD for Income Tax	MTD for VAT
Who it applies to	Sole traders and landlords above the qualifying income threshold	All VAT-registered businesses, any turnover
Live since	April 2026 (phased to 2028)	April 2019, extended to all VAT-registered businesses in April 2022
Reporting frequency	At least quarterly, plus one annual digital tax return	Per VAT Return period (usually quarterly)
Replaces	Self Assessment, for those in scope	The legacy VAT online account
Digital records and digital linking required	Yes	Yes

Frequently asked questions

Does Making Tax Digital apply to corporation tax?

No. HMRC confirmed in its July 2025 Transformation Roadmap that MTD for Corporation Tax would not be introduced. Limited companies continue filing Company Tax Returns as they do now.

What happens if I don’t comply with MTD?

You can face penalty points and, eventually, fines under HMRC’s points-based penalty system, along with separate late payment penalties.

Do I need the same software for MTD for VAT and MTD for Income Tax?

No, the two schemes are entirely independent, so you can use different software for each if you prefer — though many accounting packages, including Sage’s, can handle both.

Can I use spreadsheets under MTD?

Yes, but only alongside bridging software or a genuine digital link to HMRC — manually copying and pasting data between a spreadsheet and your accounting software isn’t allowed.

What counts as a “digital link”?

Data moving automatically between two digital systems, without being retyped or copied and pasted by hand. See Am I excluded or digitally exempt from MTD for Income Tax? if you’re unsure whether the rules apply to you at all.