What does Making Tax Digital (MTD) mean?

Making Tax Digital, or MTD, is HMRC’s plan to move the UK tax system online. Instead of filing one tax return at the end of the year, you’ll keep digital records and send regular updates to HMRC throughout the year using approved software. It’s a big shift, but the goal is to make tax simpler, more accurate, and less stressful in the long run.

MTD has been rolling out in stages since 2019. The next major milestone, Making Tax Digital for Income Tax,  is now live, starting with the 2026/27 tax year. If you’re self-employed or a landlord, this change is likely to affect you.

Why is HMRC making tax digital?

HMRC estimates that billions of pounds are lost each year through avoidable tax errors – things like miscalculations, missing income, or simply forgetting to declare something. Going digital is designed to fix that.

Here’s what HMRC is trying to achieve:

• Fewer errors. Digital record-keeping reduces the mistakes that come with manual data entry and end-of-year scrambles.
• Real-time visibility. Taxpayers will be able to see an estimate of what they owe throughout the year, rather than getting a surprise bill in January.
• A more efficient system. Quarterly updates mean HMRC has up-to-date information, making it easier to spot discrepancies early.
• Keeping pace internationally. Many countries already use digital tax systems. MTD brings the UK in line with global standards.

It’s worth noting that MTD doesn’t change what you owe – only how you report it.

Who does Making Tax Digital apply to?

MTD is being introduced in two main phases. Here’s a quick overview of both.

MTD for VAT

MTD for VAT has been mandatory since April 2019 for VAT-registered businesses with a taxable turnover above the VAT threshold. Since April 2022, it applies to all VAT-registered businesses, regardless of turnover. If you’re already doing this, you’re ahead of the game – MTD isn’t entirely new territory. You can find more details in HMRC’s VAT guidance on GOV.UK.

Making Tax Digital for Income Tax

This is the big one for sole traders, freelancers, and landlords. Making Tax Digital for Income Tax requires you to keep digital records and submit quarterly updates to HMRC, replacing the traditional annual Self Assessment tax return.

Here’s who it applies to, and when:

• From April 2026 (2026/27 tax year): Self-employed individuals and landlords with gross income over £50,000
• From April 2027 (2027/28 tax year): Self-employed individuals and landlords with gross income over £30,000
• From April 2028 (2028/29 tax year): Self-employed individuals and landlords with gross income over £20,000
• General partnerships: Timeline to be confirmed by HMRC

A few important points:

• The £50,000 and £30,000 thresholds refer to your gross income from self-employment or property, not your total income from all sources.
• Making Tax Digital for Income Tax applies to Self Assessment taxpayers, not PAYE-only employees. If your only income is from an employer, you don’t need to worry about this.

When does Making Tax Digital for Income Tax start?

MTD has been rolling out gradually. Here’s a summary of the key dates:

These dates refer to the start of the tax year (6 April), so April 2026 means the 2026/27 tax year. HMRC may update these timelines, so it’s always worth checking the latest GOV.UK guidance. 

How does Making Tax Digital work?

In practice, MTD for Income Tax changes your reporting from once a year to four times a year – plus a final wrap-up at the end. Here’s how it works, step by step:

Check out our Making Tax Digital Timeline for a full overview of when you’ll need to submit your quarterly filings and Final Declaration.

Important: MTD does not change how much tax you pay or when you pay it. You’ll still pay tax via Self Assessment through payments on account and a balancing payment as you do now.

One genuine benefit: because your software is connected to HMRC, you’ll be able to see an estimate of your tax bill throughout the year. No more nasty surprises in January.

What software do I need for Making Tax Digital?

MTD-compatible software

You’ll need to use software that’s been approved by HMRC for Making Tax Digital. This software must be able to:

• Keep digital records of your income and expenses
• Submit quarterly updates directly to HMRC
• File your End of Period Statement and final declaration

HMRC maintains a full list of approved Making Tax Digital software. Options range from Making Tax Digital free software (suitable for very straightforward cases) to paid platforms with more advanced features.

Taxfix is a Making Tax Digital-compliant platform that connects you with UK-qualified accountants and gives you simple digital tools to manage your quarterly updates and final declaration – without needing any accounting knowledge.

Can you use Excel or spreadsheets for MTD?

This is one of the most common questions, and the answer is: not directly.

You cannot submit quarterly updates to HMRC straight from Excel or Google Sheets. However, you can use a spreadsheet for your record-keeping, as long as you connect it to HMRC via bridging software – a separate tool that acts as the link between your spreadsheet and HMRC’s systems.

That said, bridging software adds an extra layer of complexity. Most sole traders and landlords find it simpler and less error-prone to use dedicated Making Tax Digital software from the start.

Is there free MTD software?

Yes, HMRC’s approved software list includes free options, which may suit sole traders and landlords with straightforward tax affairs. Free software typically covers the basics: digital record-keeping and quarterly submissions.

Paid software tends to offer more features such as bank feed integration, receipt scanning, expense categorisation, and multi-user access. The right choice depends on how complex your finances are.

Who is exempt from Making Tax Digital?

Not everyone will need to comply with MTD for Income Tax. HMRC recognises that digital filing isn’t possible for everyone. You may be eligible for an exemption if:

• Your income is below the threshold (£50,000 from April 2026, dropping to £30,000 from April 2027)
• You’re a PAYE-only employee with no Self Assessment obligation
• You’re digitally excluded, for example, due to age, disability, or religious beliefs that prevent you from using digital tools
• You live in a remote area without reliable internet access
• HMRC has granted you a specific exemption for another reason

What are the Making Tax Digital penalties?

Missing MTD deadlines or failing to keep proper digital records can result in penalties. Here’s what to be aware of:

• Failing to keep digital records: HMRC can issue a penalty for not maintaining records in the required digital format
• Missing a quarterly update deadline: late submissions can attract penalty points under HMRC’s points-based system
• Submitting inaccurate information: penalties may apply if errors are found in your updates or final declaration
• Missing the End of Period Statement or final declaration deadline: similar to existing Self Assessment late filing penalties

HMRC has indicated it intends to take a light-touch approach in the first year of Making Tax Digital for Income Tax (the 2026/27 tax year), focusing on helping taxpayers adapt rather than issuing penalties immediately. However, this has not been confirmed as official policy, so it’s best not to rely on it.

Under the existing Self Assessment penalty regime, a late filing penalty starts at £100, with escalating charges the longer a return remains outstanding. MTD penalties start at £200 once a threshold of four penalty points is reached, with another £200 penalty each time you miss another submission deadline. Fortunately, you can only get one penalty point per deadline.

The good news? The new points-based penalty system for MTD is actually designed to be fairer than the current one. The occasional slip-up won’t automatically trigger a fine.

 How to register for Making Tax Digital

Step 1: Check if you need to register

Work out whether Making Tax Digital for Income Tax applies to you. If your gross income from self-employment or property is over £50,000, you’ll need to be compliant from the 2026/27 tax year (starting April 2026). If it’s over £30,000, you’ll need to comply from April 2027.

Step 2: Choose MTD-compatible software

Pick a Making Tax Digital software provider from HMRC’s approved list. Make sure it can handle quarterly updates, the End of Period Statement, and your final declaration.

Step 3: Sign up for MTD via HMRC

You’ll need to sign up through your HMRC online account. HMRC will confirm your registration and give you a start date for your first quarterly update. You can find step-by-step sign-up guidance on GOV.UK.

Step 4: Start keeping digital records

Once you’re registered, begin logging your income and expenses digitally from the start of your MTD period. Don’t wait! The sooner you get into the habit, the easier it’ll be.

Making Tax Digital for different taxpayer groups

Making Tax Digital for self-employed and sole traders

If you’re self-employed or a sole trader with gross business income over £50,000, Making Tax Digital for Income Tax applies to you from April 2026. You’ll need to keep digital records of your business income and expenses, submit four quarterly updates each year, and file a final declaration instead of a traditional Self Assessment return.

Making Tax Digital for landlords

Landlords with UK property income over £50,000 are also in scope from April 2026. This applies to both residential and commercial property income. You’ll follow the same process as self-employed taxpayers: digital records, quarterly updates, and a final declaration.

Making Tax Digital for individuals (general Self Assessment)

MTD for Income Tax is currently focused on business and property income. If you file Self Assessment for other reasons, such as high income, investment income, or foreign income, MTD may still apply to you if you also have self-employment or property income above the threshold. If your Self Assessment obligation is purely for non-business income, you’re not currently in scope.

How Taxfix can help with Making Tax Digital

Getting your head around MTD can feel overwhelming – but it doesn’t have to be. Taxfix is designed to make the whole process straightforward, even if you’ve never used accounting software before.

Here’s what you get with Taxfix:

• Making Tax Digital-compliant software: approved and ready for quarterly submissions
• Simple, user-friendly interface: no accounting knowledge needed
• Automated quarterly updates: so you never miss a deadline
• Expense tracking: log costs as you go, throughout the year
• Final declaration filing: we handle the end-of-year wrap-up, too
• Accountant-led support: UK-qualified tax accountants on hand when you need them
• Transparent, affordable pricing: with your first month free

Frequently asked questions about Making Tax Digital

When does Making Tax Digital start for Self Assessment?

Making Tax Digital for Income Tax starts in April 2026 for self-employed individuals and landlords with gross income over £50,000. It extends to those with an income over £30,000 from April 2027.

Will Making Tax Digital replace Self Assessment?

MTD for Income Tax replaces the traditional annual Self Assessment tax return (SA100) for those in scope. Instead, you’ll submit quarterly updates and a final declaration through Making Tax Digital software. You’ll still pay tax through the Self Assessment payment system.

How much does Making Tax Digital cost?

The cost depends on the software you choose. Free options exist for straightforward cases. Paid platforms, like Taxfix, offer more features and accountant support, typically for a monthly or annual fee. Check individual providers for current pricing.

What happens if I miss a quarterly MTD deadline?

Under HMRC’s points-based penalty system, missing a deadline earns you a penalty point. Once you accumulate enough points, a financial penalty is triggered. HMRC has indicated a light-touch approach in the first year of MTD for Income Tax, but it’s still best to stay on top of your deadlines.

Can I opt out of Making Tax Digital?

No. If Making Tax Digital for Income Tax applies to you, it’s mandatory. The only way to avoid it is if you qualify for an official HMRC exemption. You can contact HMRC by phone or in writing to request an exemption. HMRC will assess your circumstances and confirm whether you qualify.

Do I need to register for MTD if I’m already registered for Self Assessment?

Yes. Being registered for Self Assessment doesn’t automatically enrol you in MTD for Income Tax. You’ll need to sign up separately through your HMRC online account.

Will MTD change how much tax I pay?

No. MTD changes how you report your income, not how much tax you owe. Your tax liability is calculated in the same way as before.

What’s the difference between MTD for VAT and MTD for Income Tax?

MTD for VAT applies to VAT-registered businesses and requires digital VAT record-keeping and online VAT return submissions. Making Tax Digital for Income Tax applies to self-employed individuals and landlords, requiring quarterly income and expense updates and a final declaration instead of an annual Self Assessment return. A sole trader can be subject to both.

Can my accountant submit MTD updates on my behalf?

Yes. You can authorise an accountant or tax agent to manage your MTD submissions for you. They’ll need to be registered as your agent with HMRC.