The UK tax system is undergoing one of the biggest digital transformations in decades. Making Tax Digital (MTD) is at the heart of HMRC’s plan to modernise tax reporting, reduce errors, and make it easier for businesses and individuals to get their tax right.
If you are a business owner, accountant, bookkeeper, landlord, or sole trader, understanding MTD is no longer optional – it’s essential. With new rules rolling out from 2026 onwards, preparing early can save you time, money, and stress.
In this guide, we’ll cover everything you need to know about Making Tax Digital, including what it is, who it affects, deadlines, requirements, and how the right software can make compliance simple.
What is Making Tax Digital?
Making Tax Digital (MTD) is a government initiative designed to modernise the UK tax system. Instead of relying on manual returns and paper records, businesses and individuals must use MTD-compatible software to maintain digital records and submit tax returns online.
MTD is already mandatory for VAT-registered businesses, and over the next few years it will be extended to Income Tax Self-Assessment (ITSA), with further expansion expected to cover partnerships and corporation tax in the future.
The aim of MTD is simple:
- Reduce tax errors
- Improve record-keeping accuracy
- Provide businesses with real-time visibility of their tax liabilities
Why is Making Tax Digital Important?
According to HMRC, billions of pounds are lost each year due to tax errors and inaccurate record keeping. By moving to a digital-first system, MTD ensures that businesses and individuals can:
- Stay compliant with HMRC regulations
- Avoid penalties for late or inaccurate submissions
- Save time through automated bookkeeping
- Plan better with regular tax updates throughout the year
For businesses, it’s not just about compliance – MTD can simplify financial management and improve decision-making.
Who Does Making Tax Digital Apply To?
As of now, MTD applies to:
- VAT-registered businesses – Since April 2022, all VAT-registered businesses must keep digital records and submit VAT returns using MTD software.
- Sole traders and landlords – From April 2026, individuals with income over £50,000 will need to follow MTD rules.
The rollout will expand as follows:
- April 2026: Sole traders and landlords earning over £50,000
- April 2027: Sole traders and landlords earning over £30,000
- April 2028: Sole traders and landlords earning over £20,000
- TBC: General partnerships and Corporation Tax
What are the Key Requirements Under MTD?
To comply with MTD, you must:
- Keep digital records – Income and expense records must be stored in MTD-compliant software.
- Submit quarterly updates – Instead of filing an annual return, you will submit updates every three months.
- Make a final declaration – At the end of the tax year, you will make a final declaration to confirm total income and expenses.
What is Changing for Income Tax?
Traditionally, sole traders and landlords submitted one annual Self-Assessment return. Under MTD for Income Tax, the process changes significantly:
- Quarterly updates – You will submit four updates a year instead of one.
- Final declaration – A year-end statement confirms your income.
- Digital-first system – All records must be maintained in HMRC-approved software.
This provides a clearer and more frequent picture of your tax liabilities, helping you budget better throughout the year.
Benefits of Making Tax Digital
While MTD may sound like extra work, the benefits outweigh the challenges:
- ✅ Accurate record-keeping – Fewer errors mean fewer penalties.
- ✅ Real-time insights – See your tax position throughout the year.
- ✅ Automated processes – Save time with automatic bank feeds and transaction matching.
- ✅ Better business management – Track cash flow, payroll, and expenses in one place.
- ✅ Reduced stress – No more last-minute scrambling to prepare for tax deadlines.
Challenges of MTD
Of course, there are also challenges to be aware of:
- ❌ Software costs – Businesses must invest in MTD-compliant software.
- ❌ Learning curve – Moving from manual to digital systems takes time.
- ❌ Increased frequency of submissions – Quarterly updates may feel like more work.
However, with the right software and support, these challenges can be managed effectively.
How Tax Care Makes MTD Simple
Tax Care software is designed to make MTD compliance stress-free. Whether you are an accountant managing multiple clients, a bookkeeper, or a business owner, Tax Care provides:
- 🔹 All-in-one platform – Manage VAT, Income Tax, payroll, and final accounts in one place.
- 🔹 Automation tools – Reduce manual data entry with automated bank feeds and transaction matching.
- 🔹 Dashboards & insights – Get real-time visibility of your business finances.
- 🔹 Integration – Connect with apps and bring financial data into one central hub.
- 🔹 Compliance guaranteed – Fully HMRC-recognised and MTD-compliant.
With Tax Care, you don’t need multiple tools – everything you need for digital tax reporting is in one solution.
MTD for Accountants and Bookkeepers
For accountants and bookkeepers, MTD presents both a challenge and an opportunity. Clients will expect guidance on compliance, software setup, and ongoing support.
To stay ahead:
- Stay updated on MTD legislation
- Train your team to use MTD software effectively
- Automate bookkeeping and compliance tasks to save time
- Offer value-added services such as tax planning and cash flow forecasting
By adopting MTD software like Tax Care, accountants can improve accuracy, efficiency, and client satisfaction.
Deadlines You Need to Know
Here’s a quick summary of the key MTD deadlines:
- April 2022 – MTD for VAT mandatory for all VAT-registered businesses
- April 2026 – Sole traders and landlords earning over £50,000 join MTD for Income Tax
- April 2027 – Sole traders and landlords earning over £30,000 join
- April 2028 – Sole traders and landlords earning over £20,000 join
- TBC – General partnerships and Corporation Tax
Preparing for Making Tax Digital
If you haven’t already, now is the time to prepare for MTD. Here are the steps to take:
- Check if you are affected – Look at your income and see when the rules apply to you.
- Choose MTD software – Select an HMRC-approved software provider like Tax Care.
- Go digital with records – Start keeping your income and expense records digitally.
- Plan ahead – Get used to quarterly submissions before the deadlines.
- Seek support – Work with an accountant or software provider for a smooth transition.