The UK tax system is undergoing a significant transformation through Making Tax Digital (MTD) — an HMRC initiative designed to modernise tax administration. MTD aims to reduce tax errors, improve efficiency, and simplify the process for individuals and businesses across the UK.
Since its launch, MTD has gradually expanded from VAT to other tax regimes. As more businesses and taxpayers fall within its scope, understanding how MTD works and preparing for its phased rollouts is more important than ever.
In this article, we’ll explore the current status of MTD, key deadlines, who it applies to, and how to stay compliant — especially with the changes coming in 2025 and beyond.
What Is Making Tax Digital (MTD)?
Making Tax Digital is HMRC’s flagship digital initiative aimed at replacing paper-based and manual tax processes with automated, digital systems. At its core, MTD requires businesses and individuals to maintain digital records and submit tax information to HMRC using MTD-compatible software.
The objectives of MTD are clear: reduce tax administration errors, improve compliance, provide real-time tax visibility, and streamline communication between taxpayers and HMRC.
Initially rolled out for VAT, MTD is now extending into income tax and will eventually apply to corporation tax.
Who Is Affected by MTD?
MTD currently affects VAT-registered businesses and will soon impact millions of individuals with income from self-employment or property. Here’s how it applies by tax type:
MTD for VAT
Since April 2019, MTD has been mandatory for VAT-registered businesses with taxable turnover above the £85,000 VAT threshold. In April 2022, this was extended to all VAT-registered businesses, regardless of turnover.
Under MTD for VAT, businesses must:
- Keep digital VAT records
- Submit VAT returns using MTD-compatible software
MTD for Income Tax (MTD for ITSA)
From April 2026, MTD for Income Tax will apply to self-employed individuals and making tax digital for landlords earning over £50,000 per year. From April 2027, the threshold will drop to £30,000.
Affected taxpayers must:
- Keep digital records of income and expenses
- Submit quarterly updates to HMRC
- File an End of Period Statement (EOPS) and a final declaration annually
Partnerships and limited companies are not yet within scope, but MTD for ITSA is expected to be extended further in the coming years.
MTD for Corporation Tax
Making Tax Digital for Corporation Tax is still in development, with no confirmed start date. However, HMRC has indicated that it will not become mandatory before April 2026 at the earliest.
Key MTD Deadlines and Timeline
Understanding the phased rollout of MTD is essential to avoid penalties and prepare your systems in time.
- April 2019: MTD for VAT becomes mandatory for businesses with turnover over £85,000
- April 2022: All VAT-registered businesses brought under MTD rules
- April 2026: MTD for Income Tax begins for those earning over £50,000
- April 2027: MTD for Income Tax extends to individuals earning over £30,000
- 2026+ (TBC): MTD for Corporation Tax may begin, subject to consultation
These dates represent the government’s staged approach to digitisation. Businesses and individuals must act in advance of these deadlines to ensure full compliance.
Choosing the Right MTD Software
To comply with MTD, businesses and individuals must use HMRC-recognised software that can:
- Maintain digital records
- Submit VAT returns or income tax updates directly to HMRC
- Create a digital audit trail of tax activity
There are several MTD-compatible solutions on the market, ranging from basic tools for sole traders to more advanced platforms for accountants and large businesses. Popular choices include Xero, QuickBooks, Sage, FreeAgent, and Zoho Books.
Bridging software can temporarily connect spreadsheet records to HMRC, but it is not a long-term solution. Full-featured digital platforms are better suited to meet evolving MTD requirements, especially with Income Tax and Corporation Tax on the horizon.
Benefits of MTD for UK Taxpayers
While MTD introduces new responsibilities, it also offers long-term benefits. For businesses, the move to digital record-keeping can significantly reduce errors associated with manual entry. It also allows for better visibility of tax obligations throughout the year, rather than relying on a once-a-year assessment.
For accountants and tax agents, MTD streamlines workflows and enables more frequent client interaction, allowing for proactive financial advice and real-time reporting.
Digital submissions and automated reminders reduce the risk of missing deadlines and help ensure that penalties are avoided. Over time, MTD is expected to make the UK tax system more accurate, transparent, and efficient for all parties.
Challenges of Adopting MTD
Transitioning to MTD is not without its hurdles. Small businesses and sole traders often cite lack of time, cost of software, and digital inexperience as key concerns.
Data migration from existing spreadsheets or paper records can be time-consuming, and some may find quarterly updates more demanding than the traditional annual cycle.
Additionally, businesses with complex tax arrangements or multiple income streams may need more advanced tools or professional help to stay compliant.
Despite these challenges, early adoption and preparation can minimise disruption and reduce the risk of costly mistakes.
How to Prepare for MTD in 2025
If you haven’t yet prepared for MTD, now is the time to act. Here are a few essential steps:
First, determine whether MTD currently applies to you — or will apply soon based on your income or business type. Review your record-keeping practices to ensure they align with MTD requirements, especially for digital storage and submission.
Next, evaluate and choose suitable MTD-compatible software. If you’re an accountant or tax adviser, look for solutions that support multi-client management, automated reminders, and seamless integration with HMRC.
Finally, ensure that your staff (or clients, if you’re an adviser) understand what’s required. Training, system testing, and workflow reviews can help ensure a smooth transition before deadlines arrive.
Streamlining MTD Compliance with Practice Management Tools
For accounting practices and tax professionals, MTD has added pressure to manage more frequent filing, tighter deadlines, and client education. This is where practice management platforms like FigsFlow come in.
FigsFlow is an all-in-one platform for accountants and bookkeepers that integrates client onboarding, AML compliance, engagement letters, and digital tax workflows. It supports MTD for VAT and will soon expand to accommodate MTD for ITSA, offering real-time tracking, secure document exchange, and automated reminders.
By centralising MTD compliance within a broader workflow, tools like FigsFlow help reduce admin time and improve accuracy, while keeping firms competitive and compliant.
Conclusion: Embracing the Future of Tax with MTD
Making Tax Digital is not a passing trend — it’s a permanent shift in the UK’s tax landscape. As HMRC continues to roll out new phases of MTD, the pressure to digitise and streamline tax processes will only increase.
Businesses, landlords, and professionals who act early will benefit from more accurate records, better financial insights, and reduced compliance risk. Those who delay may face penalties, inefficiencies, and mounting stress as deadlines approach.
Whether you’re a sole trader, a growing business, or a multi-client firm, the time to prepare for MTD is now. By investing in the right systems and understanding your obligations, you can turn MTD from a compliance burden into a business advantage.
