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What Is Making Tax Digital (MTD) and Who Needs to Comply in 2025?
Making Tax Digital (MTD) is a UK government initiative that requires businesses and landlords to keep digital financial records and submit tax returns using approved software. Designed to improve accuracy and reduce paperwork, MTD is being rolled out in phases, with new income tax rules coming into effect from April 2026.
This move aims to reduce errors, improve accuracy, and make tax reporting more efficient.
Who Does Making Tax Digital Affect?
✔ VAT-registered businesses (mandatory from April 2022).
✔ Self-employed individuals & landlords earning over £50,000 (April 2026) and £30,000 (April 2027).
✔ Businesses subject to Corporation Tax (expected rollout in 2027).
Making Tax Digital Deadlines – When Do You Need to Comply?
- MTD for VAT – Already mandatory for all VAT-registered businesses.
- MTD for Income Tax (ITSA) – April 2026 (for self-employed & landlords over £50,000).
- MTD for Corporation Tax – Expected from 2027.
Who Must Use MTD for VAT and What Are the Requirements?
✔ All VAT-registered businesses must keep digital records and use MTD-compatible software.
✔ Returns must be submitted electronically via HMRC-approved platforms.
✔ Manual VAT return submissions are no longer allowed.
How Do Self-Employed Workers comply with MTD for Income Tax
From April 2026, self-employed individuals and landlords earning over £50,000 must:
✔ Keep digital records of income and expenses.
✔ Submit quarterly tax updates via MTD-compatible software.
✔ File an End of Period Statement (EOPS) annually.
Making Tax Digital for Corporation Tax
The MTD Corporation Tax framework is expected to launch in 2027, requiring businesses to:
✔ Maintain digital financial records.
✔ Submit corporation tax returns electronically.
Making Tax Digital Software – Which One Should You Use?
To comply, you must use HMRC-approved accounting software, such as:
✔ Xero
✔ QuickBooks
✔ Sage
✔ FreeAgent
These tools help with automated tax calculations, digital record-keeping, and direct HMRC submissions.
How to Sign Up for Making Tax Digital with HMRC
To register for MTD for VAT or ITSA, follow these steps:
- Check eligibility – Confirm whether your business must comply with MTD.
- Select an MTD-compatible software – Choose a recognised accounting tool.
- Register via HMRC – Sign up through the Making Tax Digital portal.
- Start keeping digital records – Ensure all income and expenses are logged digitally.
- Submit returns via MTD software – File tax returns on time.
What Are the Common Mistakes People Make with MTD
❌ Waiting until the last minute – Start early to avoid compliance issues.
❌ Using non-MTD software – Ensure your accounting tool is HMRC-recognised.
❌ Not keeping accurate digital records – Incomplete records may lead to penalties.
❌ Missing quarterly submission deadlines – Late filings could result in fines.
Benefits of Making Tax Digital
✔ Fewer errors – Digital tax returns reduce miscalculations.
✔ Time-saving – Automated processes simplify tax filing.
✔ Improved accuracy – Avoid costly tax misreporting.
✔ Better financial control – Real-time tracking helps with cash flow management.
Frequently Asked Questions About Making Tax Digital
- What Happens If I Don’t Comply?
HMRC has introduced a points-based penalty system for non-compliance. Missed deadlines accumulate points, and repeated non-compliance leads to fines. - Can I Still File Paper Tax Returns?
No, MTD eliminates paper-based returns. All submissions must be digital. - MTD? Is Making Tax Digital Mandatory for Everyone.
Yes, if your business meets the MTD income threshold. - Do Sole Traders Need to Register for MTD?
Yes, if you earn over £50,000 (from 2026) or £30,000 (from 2027). - Find out more about how small businesses like, Etsy and Airbnb sellers need to pay attention to tax.
- And, if you’re still deciding who to trust, check out our guide on what to look for in a small business accountant.
How Can I Get Help with Making Tax Digital?
At TaxRelax, we specialise in helping businesses and individuals transition to MTD smoothly. Contact us for expert guidance on MTD compliance, software setup, and tax efficiency.
With Making Tax Digital deadlines approaching, businesses and self-employed professionals must prepare now. Choosing the right software, keeping accurate digital records, and submitting returns on time will ensure compliance and make tax management stress-free.
About TaxRelax
With decades of combined experience supporting UK businesses and sole traders, our team at TaxRelax provides tailored guidance on digital compliance, VAT, and income tax. We’re here to help you understand and meet HMRC’s Making Tax Digital requirements with confidence.
Not sure if MTD applies to you? Our team can walk you through your specific obligations and help you choose the right software.
Last updated: May 2025 to reflect the latest HMRC guidance.