March 2025 marked 10 years since then Chancellor, George Osborne, laid the foundations to transform the UK’s tax system with a promise to abolish the tax return altogether. This initiative, known as Making Tax Digital (MTD), aimed to redefine tax collection by using technology to simplify processes for both taxpayers and HMRC alike.
In the decade since its introduction, MTD has significantly reshaped how businesses and individuals manage their taxes. The journey began with MTD for VAT in April 2019, mandating digital record-keeping and submissions for VAT-registered businesses. Another MTD rollout had been originally planned for April 2018 and was to focus on income tax self assessment (ITSA). However, it was postponed and has been delayed several times in the years since. The latest plans and proposed dates are outlined in more detail below and is now re-badged as Making Tax Digital for Income Tax (MTD for IT).
What is MTD?
MTD is an initiative launched by the government as an attempt to modernise the tax system by requiring taxpayers to maintain digital records and submit updates to HMRC using relevant, compatible software.
It was established to reduce common mistakes in tax returns such as underpaying or overpaying tax as a result of human error. The main ambition is to make tax administration more effective and efficient, and by moving to a digital system, the government hopes to make tax reporting a smoother, more transparent and accurate process.
Unlike the original tax return, the introduction of MTD encourages taxpayers to be more actively involved in managing their finances, as opposed to entering a state of panic each year as the annual deadline looms. Instead, MTD asks taxpayers to keep their records up to date throughout the year, including summaries of their income and expenses on a quarterly basis. This new digital approach aims to ensure a more accurate and timely picture of tax liabilities throughout the year.
Will MTD affect you?
The implementation of MTD has been phased to give businesses and individuals the chance to prepare and adapt accordingly. At present, the following phased initiatives have been either launched or scheduled:
MTD for VAT
Since April 2019, MTD has been mandatory for VAT-registered businesses with a taxable turnover above the VAT threshold, which at the time was £85,000.
However, as of April 2022, MTD was extended to all VAT-registered businesses, regardless of turnover. This means that even smaller organisations must now keep digital records and submit their VAT returns using MTD-compatible software.
MTD for IT
The implementation of MTD for IT has been a much longer process than originally anticipated. It was originally scheduled for 2018, though it has been delayed several times to ensure taxpayers and software providers are fully prepared. MTD for IT won’t apply to everyone straight away, but it will eventually impact a wide range of self-employed people and landlords.
The rollout will happen in stages:
- From 6 April 2026, MTD for IT will be mandatory for self-employed individuals and landlords with a total gross aggregated business and/or property income over £50,000 per year.
- From 6 April 2027, it will extend to those with gross income over £30,000.
- From 6 April 2028, it will extend to those with gross income over £20,000.
If your income falls below this, you won’t need to follow MTD rules for now. However, the short answer to the question at the beginning of this section ‘does MTD affect you?’ is yes. Though it may not necessarily have a direct impact today, tomorrow, or even in a couple of years, the government is going to change MTD and extend to more taxpayers over time, so it is worth staying informed and starting to think about going digital early and planning for when it does impact you.
Preparing for MTD for IT
Switching to digital record-keeping may seem like a big change and you may be feeling like you don’t quite know where to begin, but with the right tools and support, it will actually make your tax planning and administration much easier and more efficient.
At UHY, we’re here to help, so you don’t have to figure this all out on your own. Below we’ve compiled some tips and advice to get you started.
Decide how you are going to keep your digital records
The method you choose will depend on the needs of your business record keeping. Many larger trades and landlords will already be using some form of accounting software to keep their records. We recommend that you check with your software provider that it will be compatible with MTD for IT. Many leading software packages are already certified as compliant such as Sage, Xero, QuickBooks, Dext etc.
There will be many smaller traders and landlords currently using spreadsheets to keep their records. You can continue using spreadsheets, but you will need to purchase separate ‘bridging software’ which can transmit the relevant figures to HMRC.
HMRC have a dedicated area of their website which contains a list of products that are already compatible with MTD for IT. To view this list, please click here.
Choosing the right software can make your MTD compliance seamless and easy to follow, saving time and reducing the risk of errors.
Start keeping digital records
Once you’ve chosen the right software, you’ll need to keep your records up to date by regularly uploading your income and expenses to avoid any last-minute rushes. Your expenses will need to be categorised in accordance with the categories currently on the self assessment tax return.
Get into the routine of quarterly updates
Rather than sending one big tax return at the end of the year, you’ll submit quarterly updates.
Q1 06/04/2026 to 05/07/2026 submit by 07/08/2026
Q2 06/07/2026 to 05/10/2026 submit by 07/11/2026, and so on.
Please note that the quarters are cumulative, so that if you omit an expense claim in Q1, you can add it in when you submit Q2. These submissions will give a snapshot of your income and expenses, while helping you to stay on top of your tax position throughout the year.
A summary of what you will need to do
| Keep digital records | Send quarterly updates | File a final declaration (Tax Return) |
| Use HMRC-approved software to record your income and expenses throughout the year. | Submit a summary of your income and expenses to HMRC every three months. | This is where you adjust the quarterly updates for tax purposes, confirm any other income, calculate your final tax bill and pay what you owe. |
Conclusion
In the coming years, MTD is set to shift how UK taxpayers report their income. While the transition might feel overwhelming at first, the goal of MTD is to simplify the process, reduce errors and help you to keep on top of your obligations all year round.
By preparing early, choosing the right software and understanding what’s expected of you, you can make the transition smoothly and confidently. But don’t forget, you’re not alone. If you’re unsure how MTD will affect you, speak to your usual UHY adviser or get in touch with us directly. We’re here to help you every step of the journey.
This article was provided by Des Pearson, personal tax manager in our Nottingham office.
