Making Tax Digital (MTD)

Making Tax Digital (MTD) is a UK HMRC programme requiring VAT-registered businesses (and, in stages, income-tax payers) to keep digital records of their transactions and submit returns to HMRC through MTD-compatible software rather than the older online VAT-return form.

Applies in: United Kingdom

MTD started with VAT in April 2019 for businesses above the VAT registration threshold, then expanded to all VAT-registered businesses in April 2022. The substance is straightforward: businesses must keep their VAT records digitally (no spreadsheets-only handed to an accountant for re-keying) and submit VAT returns through API-connected software. HMRC publishes a list of recognised software, and either the business uses one directly or works with an agent who does.

The bridging-software route lets businesses that prefer spreadsheets keep using them, with a separate tool that connects to HMRC's API and submits the totals from the spreadsheet. This was originally a transitional concession but has stuck. "Bridging software" still satisfies MTD compliance as long as the underlying records are digital and the data flow into HMRC is API-based.

MTD for Income Tax (MTD ITSA) is the next phase, currently scheduled for April 2026 for self-employed individuals and landlords with income above GBP 50,000, with thresholds dropping later. It will require quarterly digital updates to HMRC plus an annual finalisation, replacing the once-a-year Self Assessment return. Implementation has slipped multiple times and the dates may move again.

Common questions about Making Tax Digital

Is MTD compulsory?

For VAT, yes, for all VAT-registered businesses since April 2022 (regardless of turnover). For income tax (MTD ITSA), it is phasing in for self-employed and landlords with income above GBP 50,000 from April 2026, dropping to lower thresholds in following years. PAYE and corporation tax are not yet covered.

What is bridging software?

Bridging software is a lightweight tool that connects spreadsheet-based VAT records to HMRC's API, submitting the VAT-return totals without requiring the business to move to full accounting software. It satisfies MTD compliance for businesses that prefer spreadsheets, as long as the underlying records are kept digitally and the data flow into HMRC is API-based rather than manual.

When will MTD apply to self-employed income tax?

Currently scheduled for April 2026 for self-employed individuals and landlords with annual gross income above GBP 50,000. The threshold drops to GBP 30,000 from April 2027. Implementation has been pushed back multiple times since the original 2020 target, so further changes are possible. Once active, quarterly updates to HMRC replace the annual Self Assessment cadence.

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