Making Tax Digital (MTD): A Guide Based on HMRC Guidelines
Making Tax Digital (MTD): A Guide Based on HMRC Guidelines
The UK’s Making Tax Digital (MTD) initiative is transforming how businesses manage their tax obligations. Introduced by HMRC , MTD aims to simplify tax reporting, reduce errors, and improve efficiency by requiring digital record-keeping and submissions.
If you’re a business owner or self-employed individual, understanding MTD is crucial to staying compliant. Here’s what you need to know based on the latest HMRC guidelines
What is Making Tax Digital (MTD)?
MTD is a government initiative designed to modernize the tax system by moving from manual processes to digital tax reporting. The goal is to:
– Reduce errors in tax submissions
– Improve accuracy through digital records
– Streamline tax administration for businesses and HMRC
Who Needs to Comply with MTD?
Currently, MTD applies to:
✅ VAT-registered businesses (with taxable turnover above £90,000) – already mandatory since April 2022.
✅ Self-employed individuals & landlords with income over £50,000 (from April 2026) and those earning over £30,000 (from April 2027).
*Note: MTD for Income Tax Self Assessment (ITSA) is being rolled out in phases.*
Key Requirements of MTD
To comply with MTD, businesses must:
- Keep digital records – Use approved accounting software (Excel alone is not sufficient).
- Submit VAT returns via MTD-compatible software – Manual submissions through the HMRC portal are no longer allowed.
- Submit quarterly updates (for Income Tax from 2026) – Along with a final end-of-period statement.
Approved MTD Software
HMRC requires businesses to use MTD-compatible software such as:
– QuickBooks
– Xero
– Sage
– FreeAgent
– HMRC’s own bridging tools (for simple submissions)
Check the full list of approved software on the [HMRC website](https://www.gov.uk/guidance/find-software-thats-compatible-with-making-tax-digital-for-vat) .
How to Sign Up for MTD
- Check if you need to register (based on turnover and business type).
- Choose compatible software and set up digital record-keeping.
- Sign up via HMRC’s MTD service ([VAT sign-up here](https://www.gov.uk/guidance/sign-up-for-making-tax-digital-for-vat)).
- Submit returns digitally through your software.
Deadlines & Penalties
– VAT-registered businesses must submit returns one month + seven days after the end of their accounting period.
– Late submissions or incorrect filings may result in penalties under HMRC’s points-based system.
Preparing for MTD for Income Tax (2026/2027)
If you’re self-employed or a landlord, prepare for MTD ITSA by:
✔ Moving to digital accounting software now.
✔ Keeping accurate income and expense records .
✔ Understanding quarterly submission requirements.
Need help with MTD? Consult an accountant or visit [HMRC’s MTD hub](https://www.gov.uk/government/collections/making-tax-digital) for official guidance.
