Making Tax Digital (MTD) is HMRC's programme to move tax records and returns into software. It already covers VAT, and Income Tax for the self-employed and landlords is now being phased in.
This article explains what MTD requires, who it applies to and when, and what to check.
Key PointMTD does not change what you owe. It changes how the figures are kept and sent to HMRC.
What Making Tax Digital requires
- Digital records. You keep your records in software.
- Digital submission. Returns go to HMRC from compatible software.
- Digital links. HMRC's VAT Notice 700/22 says it does not consider copy and paste to be a digital link.
A spreadsheet can still be part of a compliant set-up. The notice says a spreadsheet can be a component of functional compatible software if it is used together with programs that perform the other functions, such as bridging software, linked digitally.
MTD for VAT
GOV.UK says all VAT-registered businesses should now be signed up for Making Tax Digital for VAT. If your business is VAT-registered, check that your returns are sent from software, not typed in.
Watch OutTyping figures from a spreadsheet into another system by hand is not a digital link under HMRC's rules.
MTD for Income Tax
GOV.UK's guide on when you need to use MTD for Income Tax sets the bands by qualifying income from self-employment or property:
- over £50,000 for the 2024 to 2025 tax year: from 6 April 2026;
- over £30,000 for the 2025 to 2026 tax year: from 6 April 2027;
- over £20,000 for the 2026 to 2027 tax year: from 6 April 2028.
HMRC uses a return from an earlier tax year to decide, so a figure you have already filed can bring you into scope. Those in scope keep digital records and send HMRC quarterly updates through the year.
What software qualifies
HMRC publishes lists of compatible software on GOV.UK. Business Central's UK version can submit VAT returns to HMRC and retrieve VAT obligations, liabilities and payments.
Pro TipAgree with your accountant who submits each return, before your first MTD deadline.
What quarterly updates mean in practice
Quarterly updates do not mean doing your accounts four times a year. They mean keeping the books current enough to send a summary each quarter.
If your books are already up to date, that is a small change. If the year-end involves weeks of catching up, it means changing how the books are kept day to day.
Common mistakes
- assuming you comply because you use accounting software, without checking how returns are sent;
- leaving the change to the last quarter before a deadline;
- not agreeing with your accountant who submits what.
What to do now
- check whether and when you are in scope, using GOV.UK or your accountant;
- confirm your software is compatible and that returns go from it;
- if you need to change, plan the move before your start date, not during it.
Our article on what breaks when systems don't talk covers digital links between systems, and our business systems and integration pages show how we help. For independent guidance, see the ICAEW technology resources, or book a free call.