Making Tax Digital: Where are we now?

What is Making Tax Digital?

Making Tax Digital requires businesses to keep digital records using compatible software and submit quarterly updates to HM Revenue and Customs (HMRC).

The main aims of Making Tax Digital are to:

• maximise tax revenue
• make the tax system more effective and efficient
• improve customer service
• make it easier for taxpayers to get their tax right

HMRC introduced the first phase of Making Tax Digital in 2019, which covered VAT. Making Tax Digital for Income Tax is next on the cards, followed by Corporation Tax.

What is Making Tax Digital-compatible software?

Under the Making Tax Digital rules, businesses must use compatible software. This can be either:

• traditional spreadsheets, or non-compatible software, and connect to HMRC systems using ‘bridging software’
• fully compatible software packages.

Fully compatible software, such as QuickBooks and Xero, will make the process much simpler. These are cloud-based digital platforms that have many advantages over traditional record keeping. The software uses your business’ information to show your current tax data in real time and can help you spot any possible errors. You and your accountant can use the software to submit updates directly to HMRC.

Making Tax Digital: What has happened so far?

Making Tax Digital for VAT

Businesses that are VAT-registered must keep digital records and use MTD-compatible software to submit VAT returns.

For more details on the requirements for businesses under Making Tax Digital for VAT, read this guide.

Business tax account

As part of Making Tax Digital, individuals, sole traders, partnerships and limited companies have access to an online business tax account. It can be used to check their tax position for over 40 taxes including self-assessment, VAT, PAYE and corporation tax.

Making Tax Digital: What will happen next?

Making Tax Digital for Income Tax

Making Tax Digital for Income Tax (MTD for IT) was originally scheduled to begin April 2018 but has suffered from a series of delays. The first group of taxpayers are set to join MTD for IT on a compulsory basis from April 2026, and they will be sole traders and landlords who have £50,000 or more qualifying income based on the 2024/25 tax year. 

HMRC has begun writing to taxpayers it thinks will be affected from April 2026 by sending ‘mandation letters’ to those over the qualifying income threshold based on self-assessment tax returns filed before September 2025. If you file your 2024/25 tax return between September 2025 and January 2026 showing qualifying income above the £50,000 threshold, you should expect a mandation letter in February or March 2026. 

HMRC has stated that even if you don’t receive a mandation letter it is still your responsibility to check when you need to join MTD for IT. If you are unsure when you will need to start, speak to an accountant or use HMRC’s checking tool here. 

​Sole traders and landlords

• For sole traders and landlords with combined income from self-employment and property above £50,000, MTD for IT will start from April 2026
• For sole traders and landlords with combined income from self-employment and property above £30,000, MTD for IT will start from April 2027

The Government announced in its 2025 Spring Statement that MTD will be rolled out for sole traders and landlords with business or property income over £20,000 from April 2028.

For further HMRC guidance please click here.

Partnerships

The Government remains committed to extending Making Tax Digital for Income Tax to partnerships but no start date has been announced.

Exemptions

Exemption to MTD for IT will apply for:

• Digitally excluded individuals, if the following conditions apply:
  * impractical because of location, disability, age or another reason, or
  * your beliefs in your religious society or order are against the use of electronic submissions or retention of electronic records.
• Those without a National Insurance Number
• Foster carers

You need to make an application to HMRC, including details of your personal circumstances. You can find HMRC guidance on the application here.

Threshold guidance

To determine if the thresholds for Making Tax Digital for Income Tax Self-Assessment apply, there are some important points to note:

• The thresholds apply to gross income/turnover, i.e. before expenses have been deducted.
• It applies to the total gross income where the individual has more than one trade or property business.

For example, if you have rental income of £15,000 and £40,000 of sales in your sole trade business, you will need to comply with MTD for IT from April 2026.

Quarterly updates

Taxpayers will need to keep digital accounting records and use MTD-compatible software to submit quarterly updates to HMRC. These updates are summaries of income and expenditure and will be cumulative. Businesses can therefore correct and amend submissions throughout the year rather than having to resubmit previous quarterly updates. After submission of an update you'll be able to see an estimate of your tax bill.

The following deadlines will apply:

	Period covered	Filing deadline
1st quarterly update	6th April to 5th July	7th August
2nd quarterly update	6th July to 5th October	7th November
3rd quarterly update	6th October to 5th January	7th February
4th quarterly update	6th January to 5th April	7th May

If preferred, businesses can choose to use a calendar quarter instead:

	Period covered	Filing deadline
1st quarterly update	1st April to 30th June	7th August
2nd quarterly update	1st July to 30th September	7th November
3rd quarterly update	1st October to 31st December	7th February
4th quarterly update	1st January to 31st March	7th May

Our current understanding is that if you have more than one business, it will be preferable to make separate submissions for each business. 

End of year

Throughout the year, you will be expected to keep your digital records up to date to ensure your next submission is correct.  

Once you have submitted your fourth quarterly update, your software will show your self-employment and property income and expenses for the entire tax year, for each business that you have.   

You may have to adjust the data you have sent, before you finalise your Income Tax position and submit your self-assessment tax return. It is important to note that MTD for IT does not replace the requirement to submit a self-assessment tax return. Adjustments that may be needed could include:  

• Making tax adjustments, such as removing disallowable expenses   
• Making accounting adjustments, e.g. for prepayments or accruals  
• Adjusting your income and expenses, if you use an accounting period that isn’t aligned to the tax year (for example, 1st April to 31st March)  
• Claiming reliefs or allowances, such as capital allowances, Rent A Room relief or using the trading or property income allowance  

Tax payments

Although the Government is changing the way individuals report income tax, the current system of payments on account and balancing payment by 31st January/31st July is expected to remain.

Making Tax Digital for corporation tax

In it's Transformation Roadmap, HMRC has said it has no forseeable plans to introduce Making Tax Digital for corporation tax. However, it will be developing an approach to the future administration of corporation tax that is suited to the varying needs of the diverse range of corporation tax payers.

Last updated 22 Apr 2025 | First published 19 May 2022

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This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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