If you’re VAT-registered, MTD already applies to you. If you’re a sole trader or landlord, with qualifying income of over £50,000, MTD for Income Tax has been mandatory since April 2026 – with further groups to follow in 2027 and 2028.
We’ll explain what MTD is, and whether it’ll affect you.
What is MTD?
In simple terms, it’s a government-led initiative to try and modernise the tax system, while also minimising mistakes in the process.
It’s arguably the biggest change since HMRC launched Self Assessment more than 30 years ago. Okay, but… how does it work?
Well, it aims to replace existing analogue processes with digital, or cloud-based, record keeping, the idea being that this will ultimately make it easier for people to submit their tax returns.
Some of the other proposed benefits include:
- The ability to review all your tax information from your personal digital tax account
- A faster, more streamlined process of submitting your information to HMRC
- Increased accuracy and fewer errors
Who does MTD apply to?
Making Tax Digital applies to all VAT-registered businesses, as well as sole traders and landlords who pay Income Tax (depending on their gross qualifying earnings).
Making Tax Digital for VAT
Compliance with the Making Tax Digital rules is mandatory for every business which registers for VAT.
Now, how exactly do you comply?
By keeping digital records, and using compatible Making Tax Digital software to submit your VAT returns.
Making Tax Digital for Income Tax
If you’re a sole trader or landlord, MTD for Income Tax may already apply to you, depending on how much you earn.
The rules are based on your gross income (your turnover before expenses) from self-employment and/or property, not your profit. If your 2024/25 return showed income over £50,000, you were required to follow the MTD for Income Tax rules since 6th April 2026.
If you haven’t yet signed up, HMRC may register you. You’ll receive a letter if this happens, although it’s usually better to sign up yourself, so you can check the details are right from the start.
Further groups will follow in stages:
- From April 2027: Those with gross income over £30,000
- From April 2028: Those with gross income of £20,000 or more
To meet the requirements, you need to digitise all records relating to your business income and expenditure, and make this a habit going forwards. You also need to submit quarterly updates using HMRC-recognised software and provide a Final Declaration by the 31st of January following the tax year it relates to.
If you’re already over the £50,000 threshold and haven’t yet set up compatible software, it’s worth speaking to your accountant as soon as possible.
Read our guide to choosing a property accountant if you need more help in this area.
How do I prepare my business for MTD?
Making Tax Digital is being rolled out in stages, so what you need to do depends on which group you fall into.
If MTD already applies to you
If you’re VAT-registered, or you’re a sole trader or landlord with gross income over £50,000, you should already be keeping digital records and sending your information to HMRC using approved software. If you haven’t got this set up yet, speak to your accountant as soon as you can so you can get compliant.
If MTD applies to you soon
If your gross income from self-employment and/or property is over £30,000, your start date is April 2027. If it’s £20,000 or more, it’s April 2028. You’re not in scope yet, but now is a good time to:
- Move your bookkeeping into digital software
- Get into the habit of recording income and expenses as they happen
- Try out quarterly reporting before you’re required to do it
What is MTD software?
MTD accounting software allows you to create digital records and make submissions to HMRC. Lots of software providers offer an all-in-one solution which can be used to both create the records and submit them.
This type of software is often hosted online, with data stored on several servers in multiple locations, meaning it’s protected from things like power outages, or hardware and software malfunctions.
A note on bridging software
In some cases, you may need bridging software to make the actual submission. Bridging software is basically just a means by which you can link your financial records to HMRC in a way that’s compliant with the MTD rules.
After all, not all digital record-keeping systems (such as spreadsheets, and even some bookkeeping software providers) include a direct connection to HMRC, so you may need a way to “bridge” the gap.
Will my accountant make sure I’m MTD compliant?
Online accounting software means you can give multiple people access to your data, simultaneously and in real time. This means your accountant and anyone else in your business is always kept in the loop and knows what’s what.
This in turn makes it easier for them to help you maintain good and accurate bookkeeping records, as there’s no need to transfer files manually. Everyone is always working on the most up-to-date versions of things, which helps in terms of collaboration.
So, yes, your accountant can absolutely help make sure you’re complying with the Making Tax Digital rules if you need to be.
What are some other benefits of digital record keeping?
We’ve established that online accounting software provides an extra layer of security, with your data being hosted on multiple servers in multiple locations at any one time, but what are some other benefits to using it?
Well, one of these would undoubtedly be increased collaboration, as every change is universal and real-time data can be seen by anyone with access.
Your data is also generally more accessible, with you being able to view it from anywhere with a secure login and access to the internet.
Find more help in our online accounting hub, and learn more about how to find the right accountant for your business.
