What Is Making Tax Digital?

Making Tax Digital (MTD) is a UK government mandate requiring businesses, sole traders, and landlords to keep digital tax records and submit tax information to HMRC using compatible accounting software. For many taxpayers, it also means moving to quarterly updates as MTD for Income Tax rolls out in phases.

MTD is designed to reduce manual errors, improve record-keeping, and create a clearer digital audit trail between your records and HMRC. In practice, that means using compliant software and maintaining proper digital links rather than relying on disconnected spreadsheets or paper-only processes.

For UK sole traders and landlords with higher qualifying income, the first major MTD for Income Tax deadline begins on 6 April 2026. HMRC’s guidance confirms phased entry based on qualifying income thresholds.

What Is Making Tax Digital?

Making Tax Digital is part of HMRC’s long-term programme to modernise tax administration. The core aim is simple: move businesses and landlords away from manual, fragmented processes and toward digital record-keeping and digital submission.

Under MTD, taxpayers may need to:

• Keep records digitally
• Use HMRC-compatible software
• Maintain digital links between records and submissions
• Submit periodic updates instead of relying only on a single year-end process (MTD for Income Tax only)

MTD is a staged rollout covering different taxes and taxpayer groups at different times. Learn when you need to comply by jumping to that section below.

Why Was Making Tax Digital Introduced?

Making Tax Digital was introduced to improve the accuracy and efficiency of tax reporting.

1) Simpler tax administration

Digital record-keeping reduces paperwork, duplicate data entry, and manual filing steps.

2) Better accuracy

Using software helps reduce common errors caused by rekeying figures, mismatched records, or missing documents.

3) Better visibility over tax obligations

More frequent updates can give businesses a clearer view of what they owe throughout the year, instead of getting hit with a surprise at year-end.

4) Predictive cash flow intelligence

Today, the bigger advantage is via better forecasting. When records are maintained digitally and updated regularly, finance tools can provide more accurate cash flow projections and tax planning.

When Do You Need To Comply With MTD?

This is the section most readers actually need, so let’s get straight to it.

MTD for VAT: already in effect

VAT-registered businesses are already within the MTD framework for VAT filing, using compatible software.

MTD for Income Tax (ITSA): phased start dates

HMRC’s current guidance says MTD for Income Tax becomes mandatory in phases based on qualifying income:

• Qualifying income over £50,000 (for tax year 2024–25) → use MTD for Income Tax from 6 April 2026
• Qualifying income over £30,000 (for tax year 2025–26) → use MTD for Income Tax from 6 April 2027
• Qualifying income over £20,000 (for tax year 2026–27) → HMRC states the government has set out plans to introduce legislation to lower the threshold.

Partnerships

HMRC says partnerships will also need to use MTD for Income Tax in future, but the timeline will be set out later.

Making Tax Digital for Income Tax from April 2026

If you are a sole trader or landlord with qualifying income over £50,000, the first mandatory MTD for Income Tax start date is 6 April 2026.

HMRC’s guidance says it will review returns and contact affected taxpayers, but it is still your responsibility to check and prepare even if you have not yet received a letter.

Why this matters now

Waiting until the last minute is how people end up with messy records, broken spreadsheets, and panic-buy software. Your software setup is effectively the invisible infrastructure that supports:

• Digital record-keeping
• Quarterly update workflows
• Evidence trails
• Year-end reconciliation

That is why software adoption should be treated as a surefire way to stay compliant rather than an add-on.

Which Accounting Tools Are HMRC-Compatible for MTD 2026?

Check out these three key tools that will help your business stay compliant with Making Tax Digital.

1. QuickBooks

Best for: Sole traders and business owners new to Making Tax Digital.
Features:

• Mileage tracking
• VAT calculations
• Invoice creation
• Subcontractor costs

QuickBooks is a popular accounting software that helps businesses manage their finances. With over 6.5 million users, it’s suitable for sole traders, landlords, and business owners looking to manage their finances and stay compliant with HMRC’s Making Tax Digital requirements.

QuickBooks provides tools like mileage tracking, VAT calculations, invoice creation, subcontractor costs, and more. It also offers a free trial, a promotional £1 account for the first six months, and free phone support. These handy features make QuickBooks a beginner-friendly and cost-effective option for those new to online accounting.

Intuit Quickbooks Online is registered as a Making Tax Digital-compliant tool on HMRC’s website.

2. Xero

Best for: Small- to medium-sized businesses looking for a scalable accounting solution.
Features:

• Online invoicing
• Bank reconciliation
• Customer quotes
• Invoice tracking

Xero is another option for business owners looking to automate their accounting processes while staying compliant with Making Tax Digital and UK GAAP.

Xero is best for small- and medium-sized businesses due to its range of features and scalable pricing plan. For example, you can pay business bills through Xero, accept payments, claim expenses, process payroll, track projects, and store important records like VAT documents, customer quotes, and invoices. Xero also has interesting analytics tools and a dedicated accountancy dashboard to give real-time insight into your finances.

Xero is also registered on HMRC’s website as a Making Tax Digital-compliant tool.

3. Sage Accounting

Best for: Those experienced with online accounting tools.
Features:

• Automatic VAT submissions
• Bank transfers
• Invoice creation
• Inventory management

Sage Accounting is a customisable and scalable online accounting tool for businesses of all sizes. With an online and mobile app, cloud-based backup, automated VAT submissions, and simple collaboration tools, it’s a great option for those looking for flexible, all-in-one accounting software.

We recommend Sage Accounting for those experienced with online accounting tools due to its advanced features like inventory management and multi-currency support. While handy, these features can come with a bit of a learning curve, which less experienced business owners don’t need the hassle of.

Transitioning Into Digital Filing

If you’re struggling with the transition to Making Tax Digital, try following these six steps to make the process smoother.

1. Collect your invoices

First things first—you need to collect your invoices, receipts, bills, and other tax documents and store them properly. You should collect paper and digital receipts and documentation and store them in a lockable filing cabinet or password-protected folder on your computer as appropriate. Categorise them by date and invoice type so that when you’re ready to file them, you’re already organised.

2. Choose your software

The next step is to choose the software that feels right for you. Create a shortlist of potential tools based on those listed on HMRC’s website. Compare their features, prices, and user reviews to find which one feels right for your business.

Be sure to consider the following:

• What features are essential to your business? Do you need invoice creation, expense tracking, the ability to pay bills, or any other features?
• Are you looking for something scalable? If you’re hoping to grow your business within the next one to five years, you may want to look for something with the capacity to grow with you.
• What’s your skill level? Are you a pro, or do you need more hands-on support? Tailor your choice to your comfort level—some software is super intuitive, while others might have a bit of a learning curve.
• What’s your budget? Beginners will likely benefit from tools with free trials, while larger businesses may benefit from the savings associated with enterprise plans.

3. Follow the tutorial

Whether you have experience with accountancy software or are a complete novice, it’s always a good idea to follow the tutorial of your new software.

A tutorial highlights the key features and functions of a tool, helping you get familiar with how it works. The tutorial usually walks you through basic tasks, like setting up an account, uploading an invoice, and navigating the homepage, as well as more advanced features.

It also highlights tips, shortcuts, and any hidden features that may not be obvious to a new user.

4. Upload your documents

The next step is to upload all your documents to your new accountancy tool. If you’re using a phone, you can simply snap a quick photo or use a scanning app that links to your computer. For desktops and laptops, you may need to upload your documents via a scanner or drag and drop files into your software. You can also use AirDrop if you’re using an iPhone/Mac combo.

We recommend starting with your oldest documents first. Be sure to name them accordingly so you can find them easily. Titles like ‘INVOICE_[business name]_[date received in DDMMYYYY format]’ are the simplest to find. While many tools will organise your documents on your behalf, it’s still good practice to keep things tidy from the start.

If possible, use a feature like Optical Character Recognition (OCR), which picks out the important parts of bills and invoices to create balance statements automatically. This is a feature found in many accountancy programs, so be sure to ask your provider if it’s included. OCR can pull out dates, account names, balances, invoice numbers, and more, which saves a ton of administration time.

5. Keep on top of deadlines

Good accountancy software should automatically notify you of any upcoming deadlines. However, if it doesn’t, you should be aware of:

• 31 January: Deadline to submit your online self-assessment tax return, pay your tax for the last tax year, and make your first payment for the following tax year.
• 5 April: End of the tax year.
• 6 April: Beginning of the new tax year.
• 3 July: Deadline for the second payment on your tax account.
• 5 October: Deadline for registering any new businesses for a self-assessment tax return.

VAT-registered businesses must process their VAT returns once every three months. These three months are called the ‘accounting period.’ The deadline to submit your quarterly VAT returns is one calendar month and seven days after the end of the accounting period. For example, you must submit your VAT returns for 1 January 2025 to 31 March 2025 by 7 April 2025.

6. Reach out if you need support

If you find yourself lost or confused at any point, reach out for help. Whether this is to your accounting software provider or HMRC directly, they can offer guidance to ensure you’re compliant with Making Tax Digital.

You can contact HMRC at 0300 200 3300 to ask any questions about Making Tax Digital. You can also set up payment plans, request a deadline extension, or get clarification on VAT rules if you’re unsure about anything. You can also contact HMRC via live chat.