Making Tax Digital for Income Tax and VAT: what to know

Making Tax Digital (MTD) is HMRC's programme to move tax records and returns online. Instead of a single paper or online form once a year, you keep digital records and use software that links directly to HMRC.

MTD for VAT

Since April 2022, every VAT-registered business must follow MTD for VAT, whatever its turnover. This means you must:

• keep VAT records digitally
• file VAT returns through MTD-compatible software
• keep digital links between your records and the return (no retyping figures by hand between systems)

A business must register for VAT if its taxable turnover over the last 12 months goes over £90,000, or if it expects to go over £90,000 in the next 30 days. You can also register voluntarily below that level.

MTD for Income Tax

MTD for Income Tax applies to individuals – sole traders and landlords – who file Self Assessment. It does not apply to limited companies, which pay corporation tax instead. It is being introduced in stages:

• From April 2026: qualifying income over £50,000 on the 2024-25 tax return
• From April 2027: qualifying income over £30,000 on the 2025-26 tax return
• From April 2028: qualifying income over £20,000 on the 2026-27 tax return

"Qualifying income" means your gross income from self-employment and property added together – total sales and rents before expenses. It is not your profit. Employment income and dividends do not count.

What changes under MTD for Income Tax

If you are in MTD for Income Tax, you must:

1. keep digital records of your business and property income and expenses
2. send a quarterly update to HMRC through compatible software
3. submit a final declaration after the end of the tax year

For the standard quarters, the update deadlines are:

• 7 August (for 6 April to 5 July)
• 7 November (for 6 April to 5 October)
• 7 February (for 6 April to 5 January)
• 7 May (for 6 April to 5 April)

You can choose calendar quarters instead, but the deadlines stay the same. You must send an update even if there was no activity in the quarter.

Exemptions

Some people are exempt, for example if it is not reasonably practical for them to use digital tools. You can apply to HMRC for an exemption. Check the GOV.UK guidance to see if this applies to you.

Does MTD affect my limited company?

• If your company is VAT registered, it must follow MTD for VAT.
• MTD for Income Tax does not apply to the company itself.
• As a director, you may still need to file Self Assessment for your dividends or other income. MTD for Income Tax only applies to you personally if you also have self-employment or property income above the thresholds.

How to get ready

1. Check your qualifying income on your latest tax return.
2. Choose MTD-compatible software. HMRC lists options on GOV.UK.
3. Move your records from paper or spreadsheets into the software.
4. Open a separate bank account for business income, if you have not already.
5. Put the quarterly deadlines in your calendar.
6. Talk to your accountant about who will file the updates.

Should I become a limited company instead?

Some sole traders consider forming a company. This changes how you are taxed and adds company duties, such as annual accounts and a confirmation statement. It is not a way to "avoid" MTD, and the right choice depends on your profits and plans. Get advice before you switch.

How Form My Company can help

Our Self Assessment and MTD service starts at £120 for a Self Assessment return, VAT included. For VAT returns and bookkeeping, see Bookkeeping, VAT and Payroll (price on request). Forming a company? Our Fully Inclusive Package registers it for VAT as part of the order.

Frequently asked questions