Making Tax Digital is HMRC's programme to move UK tax administration to a fully digital system. For many UK businesses it is already mandatory; for others the deadlines are approaching. Understanding what it requires and whether your current setup is compliant is worth doing before HMRC asks the question.
What Making Tax Digital actually requires
Making Tax Digital for VAT has applied to VAT-registered businesses above the VAT threshold since April 2019, and to every VAT-registered business since April 2022 (HMRC, extension of MTD for VAT). It requires keeping digital records and submitting VAT returns using MTD-compatible software. Most businesses using Xero, QuickBooks, Sage, or FreeAgent are already compliant without realising it - these platforms have had MTD functionality built in for years. The businesses most at risk are those still submitting VAT returns manually through the HMRC portal or using software that has not been updated.
Making Tax Digital for Income Tax - the next phase
Making Tax Digital for Income Tax went live on 6 April 2026 for sole traders and landlords whose qualifying income from self-employment and property was over £50,000 in the 2024 to 2025 tax year. It extends to those over £30,000 from 6 April 2027 and over £20,000 from 6 April 2028, each time based on income two tax years earlier (GOV.UK, check if you are eligible). It requires quarterly updates to HMRC with totals for each category of income and expense, due by 7 August, 7 November, 7 February and 7 May (GOV.UK, send quarterly updates). It does not replace the annual return. You still submit a tax return by 31 January after the end of the tax year, now through the same software (GOV.UK, finalise your Income Tax position). This is a more significant change than MTD for VAT - it affects the frequency of reporting and requires businesses to have their records sufficiently organised to produce quarterly summaries. Businesses that maintain their books monthly are well-positioned; those that reconcile annually will need to change their habits.
What you need to check right now
Three questions determine your MTD readiness. First, are you using MTD-compatible software for VAT? If you are on Xero, QuickBooks, Sage, or FreeAgent, almost certainly yes - but worth confirming. Second, are your digital records being maintained throughout the year rather than reconstructed at quarter-end? MTD requires contemporaneous digital records, not year-end summaries. Third, if you are a sole trader or landlord above the income threshold, do you know when your MTD for Income Tax obligation begins and what it requires? If the answer to any of these is unclear, your accountant can clarify the specific requirements for your situation.
The practical impact on how you run your books
For most businesses already using modern accounting software, MTD is already embedded in their processes without any conscious effort. The practical impact of MTD for Income Tax is primarily on businesses that currently manage their books manually or annually. Moving to monthly reconciliation, using accounting software consistently, and keeping digital copies of receipts and invoices are all practices that MTD encourages - and that make the whole business better managed, not just MTD-compliant. The compliance requirement and the good practice are aligned.
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