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Making Tax Digital (MTD) – Everything You Need to Know
Taxes aren’t exactly anyone’s favorite topic, right? And just when you feel like you’ve got the hang of things, along comes something new - Making Tax Digital (or MTD).
Sounds a bit official (and maybe even stressful), but it’s actually not as complicated as it looks.
Think of MTD as HMRC’s big push to make taxes easier, faster, and more accurate. Instead of wrestling with paper forms or worrying about mistakes, you’ll use digital tools that keep everything neat and compliant.
Here’s the good news: MTD isn’t just for HMRC’s benefit, it can actually save you time, reduce stress, and help your business stay on top of things.
So, what exactly is MTD, why is it happening, and what do you need to do about it?
You’re in the right place! In this guide, I’ll walk you through everything step by step.
1. What is Making Tax Digital?
What does Making Tax Digital mean?
Making Tax Digital means replacing paper-based tax processes with digital record-keeping and online submissions through approved software.
Making Tax Digital basically means saying goodbye to paper forms and moving everything online. Instead of posting stuff to HMRC or digging through piles of receipts, you keep your records on a computer and send your tax returns using software.
In other words: less paperwork, fewer shoeboxes full of receipts, and a bit more clicking buttons instead.
How does Making Tax Digital work?
- You record sales, purchases, and expenses digitally
- MTD-compatible software calculates figures and prepares returns
- The software submits updates to HMRC every quarter
- A final end-of-year submission confirms everything
Who does Making Tax Digital apply to?
- VAT-registered businesses (all turnover levels since April 2022)
- Self-employed individuals and landlords earning over £50,000 from April 2026
- Self-employed and landlords earning £30,000–£50,000 from April 2027
- Corporation Tax (expected in the future)
2. What is Making Tax Digital for VAT?
Making Tax Digital for VAT was the first phase of the rollout.
Since April 2019, VAT-registered businesses with turnover above £85,000 have been required to keep digital records and submit VAT returns through software. Since April 2022, this applies to all VAT-registered businesses, regardless of turnover.
Key rules:
- Maintain VAT records digitally
- Use MTD-compatible software
- Submit VAT returns via digital links (no manual copy-paste allowed)
3. When Does Making Tax Digital Start?
A common question is: When did Making Tax Digital start, when is it coming in, and when is it compulsory?
Here’s the timeline:
- April 2019 – MTD for VAT starts for businesses above £85,000 turnover
- April 2022 – All VAT-registered businesses included
- April 2026 – MTD for Income Tax Self-Assessment (ITSA) starts for self-employed/landlords earning over £50,000
- April 2027 – MTD for ITSA expands to £30,000–£50,000 income range
- Future date – MTD for Corporation Tax (details to be confirmed)
4. Digital Record-Keeping: Making Tax Digital – What Do I Need to Do?
To comply with MTD, you must keep and submit specific records digitally.
What digital records are required?
- Date, value, and VAT rate of each transaction
- Sales and purchase records
- Adjustments such as partial exemptions
What isn’t required?
- Scanned copies of receipts (optional)
- Notes for internal use
How will Making Tax Digital work in practice?
MTD software links your transactions, calculates figures, and submits the totals directly to HMRC without manual entry.
5. How to Register for Making Tax Digital
If you’re asking how to sign up for Making Tax Digital or how do I register, here’s the process.
Step-by-step: How to set up Making Tax Digital
- Get a Government Gateway ID - https://www.gov.uk/log-in-register-hmrc-online-services
- Choose MTD-compatible software - https://www.gov.uk/guidance/find-software-thats-compatible-with-making-tax-digital-for-vat
- Visit HMRC’s MTD sign-up page
- VAT: https://www.gov.uk/guidance/sign-up-for-making-tax-digital-for-vat
- Income Tax (ITSA): https://www.gov.uk/guidance/sign-up-your-business-for-making-tax-digital-for-income-tax
- Agents (VAT): https://www.gov.uk/guidance/sign-up-your-clients-for-making-tax-digital-for-vat
- Agents (Income Tax): https://www.gov.uk/guidance/sign-up-your-clients-for-making-tax-digital-for-income-tax
- Enter your VAT or tax details
- Authorise your software to communicate with HMRC
- Wait for HMRC’s confirmation email
Common questions
1. When do I need to register for Making Tax Digital?
Before your first affected return deadline
2. How do I register for Making Tax Digital?
Through HMRC’s online portal
3. How do I know if I have signed up for Making Tax Digital?
HMRC will confirm via email once complete
6. How to Prepare for Making Tax Digital
Getting ready for MTD is more than just signing up.
Steps to prepare
- Select suitable MTD software
- Train staff or work with your accountant
- Update internal processes to ensure digital records
What does MTD mean for different groups?
- Businesses – More frequent reporting, but fewer errors and better accuracy
- Self-employed – Quarterly returns instead of one yearly submission
- Accountants – More focus on advisory work, less on manual data entry
How will Making Tax Digital affect accountants?
Accountants will need to shift their role from processing returns to providing insights, planning, and compliance support.
7. Making Tax Digital Compatible Software
Do I need special software for MTD?
Short answer: yes.
MTD isn’t something you can do with pen and paper, or even by just filling in an online form. HMRC now wants tax records kept digitally and returns submitted through approved accounting software.
If you’re wondering, “But I love my spreadsheets, can I still use them?” the answer is sort of. You can keep using Excel, but only if you connect it to bridging software that links your spreadsheet to HMRC’s system. On its own, a spreadsheet won’t cut it anymore.
So, your options are:
- Switch to MTD-compatible accounting software (easiest in the long run).
- Stick with spreadsheets but pay for bridging software to stay compliant.
In other words: HMRC’s not banning spreadsheets outright, but they’re nudging you toward proper software to make life easier (and their data cleaner).
What counts as MTD-compatible software?
- Ability to store digital records
- Direct submission to HMRC through APIs
- Creation of digital links (no manual copying)
Benefits of using MTD software
- Automated calculations
- Fewer errors in reporting
- Time savings
- Real-time financial data
Popular examples
- Xero
- QuickBooks
- Sage
- FreeAgent
- Zoho Books
8. Making Tax Digital HMRC – The Bigger Picture
MTD is more than VAT.
What is Making Tax Digital for Income Tax?
From April 2026, individuals and landlords earning over £50,000 will need to file quarterly returns under MTD for ITSA. From 2027, the threshold lowers to £30,000.
Corporation Tax in the future
HMRC plans to roll out MTD for Corporation Tax, though no date has been confirmed.
Making Tax Digital: What can HMRC see?
HMRC receives summary totals (e.g., VAT owed, sales figures). They do not see each individual invoice unless an investigation occurs.
9. Common Challenges & FAQs
Who is exempt from Making Tax Digital?
You can apply for exemption if:
- You cannot use digital tools due to age, disability, or remoteness
- You have religious grounds preventing the use of technology
Other common issues
- Cost of software
- Training and adaptation time
- Internet access challenges in rural areas
10. Future of Making Tax Digital
MTD will continue to expand.
- VAT is already live
- Income Tax comes in 2026/2027
- Corporation Tax expected later
What does this mean for businesses and accountants?
The future is digital-first. Businesses must embrace software and accountants will move towards higher-value advisory roles.
Conclusion
So, what does Making Tax Digital mean in simple terms? It’s HMRC’s effort to modernise the UK tax system, make reporting easier, and reduce errors.
Whether you’re asking how does MTD work, when is it compulsory, or how to register, the answer lies in preparing early and embracing digital tools.
The future of UK taxation is digital — the sooner you adapt, the smoother the transition will be.
Quick FAQs
1. How do I register for Making Tax Digital?
Through HMRC’s online portal with MTD-compatible software.
2. When do I need to register for Making Tax Digital?
Before your first MTD VAT or ITSA deadline.
3. Who is exempt from Making Tax Digital?
People with disabilities, age, remoteness, or religious exemptions.
4. What does Making Tax Digital mean for self-employed?
Quarterly reporting instead of annual returns.
5. What does Making Tax Digital mean for accountants?
Less manual work, more advisory opportunities.
