Making Tax Digital (MTD)
What Is Making Tax Digital (MTD)?
Making Tax Digital (MTD) is a UK government initiative to modernise taxation by requiring businesses and individuals to keep digital records and submit tax information online. Its long-term goal is to eliminate traditional tax returns and move toward a fully digital system.
MTD for VAT has been mandatory for all VAT-registered businesses since April 2022.
MTD for Income Tax (ITSA) is being phased in. It mandates quarterly digital updates and end-of-year declarations via compatible software.
The Latest Developments
1. MTD ITSA Timeline (2026–2028)
From 6 April 2026: Mandatory for self-employed individuals and landlords with gross income over £50,000 per year.
From 6 April 2027: Threshold drops to £30,000.
By April 2028: Those earning over £20,000 will fall under MTD ITSA.
2. Penalties and Enforcement
HMRC is ramping up penalties within the MTD system — introducing a points-based system for missed submissions, with financial penalties once thresholds are exceeded.
Late penalties for MTD VAT and ITSA will progressively rise — starting at 3%, escalating up to 10% for prolonged delays.
3. Software & Compliance Improvements
Recent changes aimed to streamline MTD ITSA include:
Abolishing redundant End-of-Period Statements (EOPS) to simplify compliance.
Allowing shared property owners to simplify joint submissions.
Automatic exemptions for vulnerable groups, such as foster carers and those without National Insurance Numbers.
Multiple agents support — allowing both accountants and bookkeepers to work on behalf of clients.
Cumulative quarterly updates, enabling easier correction of past discrepancies.
4. Legislation & HMRC Notifications
Draft legislation for MTD ITSA and penalty reforms was published in July 2025, covering exemptions, deferrals, and a streamlined end-of-year filing process.
In early 2025, HMRC started notifying agents and clients who may fall under MTD ITSA, ahead of the April 2026 deadline. Agents were also invited to participate in testing programs.
In Public Discussion
From a recent Reddit thread:
"HMRC identified those who need to comply from April 2026 and started sending notifications."
Another reader confirmed:
"It's mandatory from 6 April 2026 if you meet the identified criteria from 2024."
Summary Table
| Aspect | Details |
|---|---|
| Scope | VAT (since 2022), ITSA (phased: 2026–2028) |
| Thresholds | 2026 – £50k; 2027 – £30k; by 2028 – £20k income from self-employment/property |
| Requirements | Digital record-keeping, quarterly updates, software integration |
| Penalties | Stricter, delayed penalties up to 10%, points system |
| Recent Changes | EOPS removed, joint landlord simplification, agent flexibility, software improvements |
What You Should Do
Use MTD-compatible software (e.g. Xero, QuickBooks, Sage, FreeAgent).
Track your annual gross income from 2024/25 to anticipate MTD requirements.
Register early rather than waiting for HMRC notification.
Stay informed on penalty structures and software updates.
