Making Tax Digital (MTD) makes it compulsory for businesses to use a digital system to keep tax records, submit tax data and make payments.

Currently, MTD applies only to VAT, although a pilot for income tax is in progress. 

This article explains how MTD works, what it means for how businesses operate, and how to register for the scheme.

What is Making Tax Digital?

Making Tax Digital (MTD) will help reduce the tax gap. 

To do this, businesses will be required to keep digital records, use compatible software, and submit updates every quarter to bring the tax system closer to real-time. 

It aims to simplify the process of record keeping and payment and ease the burden of costly administrative errors.

How does it work?

At present, MTD applies only to VAT, although a pilot for Income Tax is underway that applies to sole traders and landlords. 

Individuals with a gross income from self-employment and/or property of more than £50,000 will need to use Making Tax Digital for Income Tax from April 2026.

All VAT-registered businesses with a taxable turnover above the current VAT threshold set out by HM Revenue & Customs (HMRC) must use MTD-compatible software to manage their VAT records and send VAT returns to HMRC.

This applies both to limited companies and sole traders, and is mandatory for VAT return periods starting on or after 1 April 2019.