Making Tax Digital
Making Tax Digital is HMRC's programme requiring businesses to keep digital records and file through compatible software. It already applies to all VAT-registered businesses and is being phased in for income tax self assessment by income level.
Also known as: MTD
How it works
For VAT, Making Tax Digital is settled law. Every VAT-registered business, whatever its turnover, must keep digital records and submit returns through compatible software with digital links between the records and the return. Typing figures from a spreadsheet into the HMRC portal is no longer allowed, and copy-paste between systems breaks the digital link requirement.
For income tax, the rollout is staged by qualifying income from self-employment and property — sole traders and landlords, not limited companies. If you run a company, MTD for income tax does not apply to the company's profits, though it may well apply to you personally if you also have rental income or a side trade above the relevant threshold.
Making Tax Digital for corporation tax has been discussed but not implemented, so company accounts and CT600s continue under the existing online filing rules.
Practically, the work is in the bookkeeping rather than the filing. Businesses that keep clean digital records in the software they already use rarely notice the change. Those still working from a carrier bag of receipts feel it immediately, which is usually the point at which bookkeeping moves to a monthly rhythm.
Who this affects
- Every VAT-registered company, regardless of turnover
- Directors with personal rental income or a sole trade above the MTD for income tax thresholds
- Businesses still keeping VAT records in spreadsheets without bridging software
- Companies choosing accounting software for the first time
Common mistakes
- Re-typing VAT figures instead of preserving a digital link
- Assuming MTD for income tax applies to limited company profits
- Leaving software set-up until the week the return is due
Frequently asked questions
Does Making Tax Digital apply to limited companies?
For VAT, yes, for every VAT-registered company. Making Tax Digital for income tax applies to individuals with self-employment or property income, not to company profits.
What counts as compatible software?
Software recognised by HMRC that keeps the digital records and submits the return directly, or bridging software that connects a spreadsheet to HMRC through a digital link.
Can I still use spreadsheets?
Yes, provided the spreadsheet is linked digitally to compatible software. Manual retyping of figures between systems is not permitted.
Is there a penalty for not complying?
Yes. VAT uses a points-based late submission regime, with a financial penalty once the points threshold is reached, plus separate late payment penalties and interest.
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Reviewed by Waqas Sagar ACA FCCA FMAAT · Last reviewed 13 September 2026 · Figures for 2026/27 · About our practice
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