Making Tax Digital
The UK government's program requiring businesses to keep tax records digitally and file returns through compatible software.
In short
- All VAT-registered UK businesses must follow it for VAT.
- It is being extended to income tax for self-employed people and landlords from April 2026.
- Records must be kept digitally and connected to the filing software by digital links, not retyped.
Making Tax Digital, or MTD, is an initiative by HMRC, the UK tax authority, to move tax record-keeping and filing from paper and manual entry to software. Businesses in scope must keep their records digitally and submit returns directly from software that connects to HMRC's systems.
MTD for VAT
MTD applied first to VAT. Since April 2022, every VAT-registered business must keep digital VAT records and file returns using MTD-compatible software, whatever its turnover. Data must flow between programs through digital links, such as software integrations or linked spreadsheets; copying figures by hand from one system into another is not allowed.
MTD for Income Tax
The program is being extended to income tax self-assessment. Self-employed people and landlords with qualifying income over £50,000 must follow it from April 2026, and those over £30,000 from April 2027. They will keep digital records and send quarterly updates to HMRC, followed by a year-end return.
What it means in practice
MTD rewards getting data into software at the source. Receipts and invoices captured digitally, categorized and posted to accounting software fit naturally. Businesses that keep paper records and summarize them in a spreadsheet at quarter end have to change how they work. The same trend, tax authorities asking for digital, structured records, is visible in e-invoicing mandates across Europe.
Worked example
A UK café's VAT return
A café in Leeds records sales from its point-of-sale system and purchase invoices in cloud accounting software. At quarter end, the software calculates the VAT return from those records and submits it to HMRC directly. Nothing is retyped, which is what MTD requires.