Making Tax Digital UK Guide 2024
This Making Tax Digital UK guide covers everything you need to know about HMRC’s ongoing programme to move tax administration fully online. Many sole traders, landlords, and limited company directors are confused about deadlines, software requirements, and what happens if they miss the cut-off. By the end of this guide, you will know exactly where you stand and what steps to take next.
Key Takeaways
- MTD for VAT is already mandatory for all VAT-registered businesses.
- MTD for Income Tax starts in April 2026 for sole traders and landlords.
- You must use HMRC-approved software to keep digital records.
- Quarterly updates replace the traditional annual Self Assessment return.
- Penalties apply from day one for businesses that ignore the rules.
What is Making Tax Digital and why did HMRC introduce it?
Making Tax Digital (MTD) is HMRC’s programme to replace paper-based and manual tax record-keeping with fully digital systems. The aim is to reduce the estimated £9 billion lost each year through avoidable taxpayer errors, according to HMRC’s own published figures.
Before MTD, many businesses kept records in spreadsheets, paper ledgers, or not at all. This led to mistakes, missed deadlines, and underpaid or overpaid tax. HMRC designed Making Tax Digital to create a single, accurate view of each taxpayer’s financial position in something closer to real time.
The programme also benefits taxpayers who engage with it properly. Keeping digital records throughout the year means fewer last-minute scrambles at filing time, more accurate accounts, and a clearer picture of what tax you owe before the bill arrives. For many small business owners, that alone is worth the effort of switching.
Statistic: HMRC estimates that avoidable taxpayer errors cost the UK approximately £9 billion per year in lost tax revenue, which is the core reason the MTD programme was launched. (Source: HMRC, Making Tax Digital Overview, GOV.UK)
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Who does Making Tax Digital currently apply to?
MTD currently applies to all VAT-registered businesses, regardless of their turnover. From April 2026, it will also apply to sole traders and landlords with qualifying income above £50,000, with a second threshold of £30,000 following in April 2027.
If your business is VAT-registered, you are already legally required to keep digital VAT records and submit returns using MTD-compatible software. This has been the case for businesses above the VAT threshold since April 2019, and it extended to all VAT-registered businesses, including voluntarily registered ones, in April 2022. There are no exemptions based on business size for VAT purposes.
For Income Tax Self Assessment, the picture is different. The rules are being phased in by income level, so a landlord earning £55,000 in rental income will be affected in 2026, while someone earning £35,000 will join the scheme in 2027. General partnerships are expected to follow later, though HMRC has not yet confirmed a firm date for that group.
Statistic: As of early 2024, over 2.2 million businesses have signed up to MTD for VAT since the programme launched in 2019. (Source: HMRC, Making Tax Digital Statistics, GOV.UK)
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What are the MTD deadlines you need to know in 2024?
The most important MTD deadline for 2024 is that MTD for VAT is already fully in force. If you are VAT-registered and not yet using compliant software, you are already late and could face penalties. The next major milestone is MTD for Income Tax, which starts in April 2026.
Here is a clear timeline of the key dates. MTD for VAT above the £85,000 threshold began in April 2019. Voluntarily VAT-registered businesses joined in April 2022. MTD for Income Tax Self Assessment (ITSA) begins in April 2026 for those earning over £50,000 from self-employment or property. Those earning over £30,000 follow in April 2027.
If you are a sole trader or landlord approaching either threshold, now is the time to prepare rather than wait. Choosing software, getting your records in order, and speaking to a tax accountant before the deadline lands will save you significant stress. HMRC has already delayed MTD for ITSA twice, but the April 2026 date is currently confirmed and the department has shown no sign of pushing it back again.
Statistic: HMRC confirmed in December 2022 that MTD for Income Tax would be phased in from April 2026, following two previous delays from the original 2018 and 2023 start dates. (Source: HMRC Press Release, December 2022
Who exactly needs to sign up for Making Tax Digital for Income Tax?
From April 2026, self-employed individuals and landlords with a combined gross income above £50,000 must comply with MTD for Income Tax. From April 2027, the threshold drops to £30,000. Those below £30,000 are not currently required to join, though HMRC may review this threshold in future.
It is important to understand that the £50,000 and £30,000 thresholds refer to gross income, not profit. This catches a significant number of sole traders and buy-to-let landlords who might assume their taxable profit is too low to qualify. For example, a landlord receiving £52,000 in rental income but making only £15,000 profit after mortgage interest and allowable expenses would still fall within the April 2026 rules. Checking your gross figures against the relevant threshold should be your first step when assessing whether MTD for Income Tax applies to you.
Partnerships were initially expected to follow, but HMRC has yet to confirm a firm start date for general partnerships. Limited liability partnerships and more complex business structures are likely to face a separate, later timeline. If you operate through a partnership, it is worth monitoring HMRC announcements closely over the coming months, as guidance remains limited at the time of writing.
Statistic: According to HMRC’s own impact assessment, approximately 700,000 self-employed people and landlords will be brought into MTD for Income Tax from April 2026 when the £50,000 threshold applies. (Source: HMRC Tax Information and Impact Note, December 2022)
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“The gross income threshold is the single most misunderstood element of MTD for Income Tax. We regularly see landlords assume their net rental profit puts them safely below the limit, when in fact their gross rental receipts bring them firmly into scope. Getting this wrong could mean missing mandatory deadlines and facing avoidable penalties.” — Chartered Tax Adviser, member of the Chartered Institute of Taxation
What software do you actually need to use for Making Tax Digital?
MTD requires you to use HMRC-recognised software to keep digital records and submit quarterly updates. You cannot use spreadsheets alone unless they are linked to bridging software that connects to HMRC’s systems. Free options exist, but functionality varies significantly between providers.
HMRC maintains an approved software list on its website, which includes well-known accounting platforms such as QuickBooks, Xero, FreeAgent, and Sage, alongside a growing number of smaller specialist providers. Each product is tested and recognised by HMRC before being added to the list, giving you a reasonable assurance that compliant submissions can be made directly from the platform. When choosing software, consider not just the upfront cost but also whether it handles multiple income sources, such as both self-employment and property income, within a single account, as this will simplify your quarterly reporting considerably.
Bridging software is a legitimate option for those who prefer to continue working in spreadsheets, particularly landlords who already manage their property finances in Excel. Bridging tools sit between your spreadsheet and HMRC’s API, pulling the relevant figures and formatting them correctly for submission. However, this approach adds an extra step to your workflow and an additional software cost, so it is worth weighing up whether a dedicated accounting package might ultimately save time and reduce the risk of manual errors when submitting quarterly updates four times a year.
Statistic: As of mid-2024, HMRC’s recognised software list for MTD for Income Tax Self Assessment includes over 30 compatible products, ranging from free-tier tools to full accountancy suites. (Source: HMRC Making Tax Digital Software Choices, updated 2024)
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In practice, one of the most common mistakes during the MTD pilot has been business owners signing up for software that covers VAT submissions but assuming it automatically covers Income Tax quarterly updates — these are separate products, and many providers charge for them independently. Always verify that the specific MTD for Income Tax module is included in your chosen subscription before committing.
How does the quarterly update process actually work under Making Tax Digital?
Under MTD for Income Tax, you will submit a summary of your income and expenses to HMRC four times a year, roughly every three months. This replaces the single annual Self Assessment return for the income sources within scope, though you will still complete an end-of-period statement and a final declaration annually.
Each quarterly update covers a set period aligned to your accounting year. For most taxpayers using the standard tax year, the four quarters will run from 6 April to 5 July, 6 July to 5 October, 6 October to 5 January, and 6 January to 5 April, with each submission due within one month of the quarter end. HMRC has confirmed that taxpayers with a non-April accounting year end will have some flexibility in aligning their quarters, though the specifics of this are still being finalised in guidance. The quarterly updates are summaries rather than detailed transaction logs — you report totals for income and expense categories, not individual invoices or receipts, although your underlying digital records must be kept in full.
After the four quarterly updates, you submit an end-of-period statement for each source of income, making any final adjustments such as allowances or reliefs. You then complete a final declaration — effectively the replacement for the current Self Assessment tax return — pulling together all your income sources, including any that fall outside MTD scope, such as employment income or dividends. HMRC’s intention is that by the time you reach the final declaration, much of the computational work will already be done, having been built up through the quarterly cycle, making the year-end process considerably less burdensome than completing a full return from scratch in January.
Statistic: HMRC’s own research found that businesses already operating under MTD for VAT spent an average of 3.4 hours less per year on VAT administration after 12 months of use, suggesting quarterly digital reporting can reduce overall compliance time
| MTD-Compatible Software | Best For | Monthly Cost (approx.) |
|---|---|---|
| QuickBooks Simple Start | Sole traders and freelancers new to digital accounting | From £10/month |
| Xero Starter | Small businesses wanting bank reconciliation and invoicing | From £15/month |
| Sage Accounting Start | Established SMEs already using Sage products | From £14/month |
| FreeAgent | Freelancers and contractors; free with NatWest/RBS business accounts | From £19/month (or free) |
| HMRC Free MTD Bridging Tools | Businesses with simple affairs wanting a no-cost short-term solution | Free |
Frequently Asked Questions
Who does Making Tax Digital apply to in the UK?
Currently, Making Tax Digital is mandatory for VAT-registered businesses with taxable turnover above the £90,000 VAT threshold. From April 2026, MTD for Income Tax Self Assessment (ITSA) will extend to sole traders and landlords earning over £50,000 annually, followed by those earning over £30,000 from April 2027. Limited companies will be brought in under a separate, later schedule.
What software do I need for Making Tax Digital?
You need HMRC-recognised MTD-compatible software that can keep digital records and submit updates directly to HMRC via an API. Popular options include QuickBooks, Xero, Sage, and FreeAgent. HMRC maintains an official list of approved software on its website. Some businesses use bridging software to connect existing spreadsheets to HMRC’s systems, which is permitted but considered a transitional approach.
What happens if I miss a Making Tax Digital deadline?
HMRC operates a points-based penalty system for MTD. Each missed quarterly submission earns one penalty point, and once you reach the threshold for your submission frequency, a £200 fine is issued. Additional £200 penalties apply for every further missed submission. Points expire after 24 months of full compliance. Separate late payment penalties also apply for unpaid tax, so staying on top of both submissions and payments is essential.
Can I still use spreadsheets under Making Tax Digital?
Yes, spreadsheets are permitted under MTD, but they cannot be used in isolation. You must connect your spreadsheet to HMRC’s systems using HMRC-approved bridging software, which acts as a digital link between your records and the MTD submission portal. HMRC has signalled that this bridging approach is acceptable for the foreseeable future, though dedicated accounting software generally offers a more streamlined and lower-risk long-term solution.
How do I sign up for Making Tax Digital for Income Tax?
You can voluntarily sign up for MTD for Income Tax Self Assessment now through your HMRC online account, even ahead of the mandated April 2026 deadline. You will need to choose compatible software, migrate your existing records into digital format, and authorise the software to communicate with HMRC. Signing up early gives you time to iron out any issues before compliance becomes compulsory and penalties apply.
This article was produced with input from a UK-qualified accountant with over a decade of experience advising sole traders and SMEs on HMRC compliance, digital record-keeping strategies, and tax efficiency under evolving Making Tax Digital legislation.
Final Thoughts
This Making Tax Digital UK guide has outlined everything you need to navigate HMRC’s digital tax transformation with confidence. Three actions stand out as priorities: first, confirm whether you fall within the current or upcoming MTD mandate based on your income or turnover; second, choose and implement HMRC-recognised accounting software well before your compliance deadline; and third, establish a consistent habit of updating your digital records at least monthly so that quarterly submissions become a routine task rather than a stressful scramble.
Your most important next step is straightforward — visit the HMRC Making Tax Digital service page today, check your specific obligations using the eligibility tool, and if you are within 12 months of a mandated deadline, book a 30-minute consultation with a qualified accountant to review your current record-keeping setup and confirm you are on track.
For official guidance and software compatibility lists, visit the HMRC Making Tax Digital for Income Tax official guidance page. For independent advice on choosing accounting software, the Institute of Chartered Accountants in England and Wales (ICAEW) MTD hub provides trusted, profession-led resources.
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