A Simple Guide to Making Tax Digital (MTD)

In 2019, HM Revenue and Customs (HMRC) introduced Making Tax Digital (MTD), an initiative designed to digitise the tax system and help businesses stay on top of their tax affairs.

It started with VAT and has since been extended to all VAT-registered businesses. Since April 2026, Making Tax Digital for Income Tax (MTD ITSA) has been introduced for some sole traders and landlords.

Let’s take a look at what this means for you.

What is Making Tax Digital (MTD)?

Put simply, MTD requires businesses and individuals who fall within the rules to keep their tax records digitally and use compatible software to send information to HMRC.

Compatible software is a program (or programs) you’ll use to keep digital records, with information and returns or updates sent electronically to HMRC.

The idea is to make it easier for businesses to get their tax correct. Keeping up-to-date digital records should also reduce errors in your accounts and give you a clearer picture of your finances throughout the year.

Accounting software can generate summaries that give you a much better idea of your tax position and help you budget for upcoming tax bills. Having accurate figures so you know exactly what you’re dealing with is invaluable when running a business.

There are now different parts to Making Tax Digital. MTD for VAT has been running for many years now, while MTD ITSA (income tax) is being phased in from 2026 onwards. MTD for Corporation Tax may follow, although HMRC has not officially confirmed this.

Who is impacted by MTD and when?

2019

MTD was introduced for VAT-registered businesses with taxable turnover above the VAT registration threshold. Businesses below the threshold could sign up voluntarily.

2022

From 1st April 2022, MTD for VAT was extended to all VAT-registered businesses, regardless of turnover. VAT-registered businesses are therefore now generally required to keep digital records and submit VAT returns using MTD-compatible software.

2026

From 6th April 2026, MTD for Income Tax applies to individuals with qualifying self-employment and/or property income of more than £50,000, based on their 2024/25 Self Assessment return.

2027

From 6th April 2027, the MTD for Income Tax threshold falls to more than £30,000 of qualifying income, based on the individual’s 2025/26 Self Assessment return.

2028

From 6th April 2028, MTD for Income Tax is due to extend to individuals with qualifying income of more than £20,000, based on their 2026/27 Self Assessment return.

Importantly, qualifying income means gross income from self-employment and property before expenses. It is not your business profit.

MTD for Income Tax applies to individuals who receive qualifying income from self-employment, property, or both. It does not mean that a limited company itself becomes subject to MTD for Income Tax.

If you operate through a limited company, you may already encounter MTD through the company’s VAT obligations. Your personal MTD for Income Tax position depends on whether you separately receive qualifying self-employment or property income.

You can find much more detail in our complete guide to Making Tax Digital for Income Tax for sole traders and landlords.

What does MTD for Income Tax involve?

For those brought within MTD for Income Tax, the change is about more than simply filing a tax return online.

You will need to keep digital records of your qualifying self-employment and property income and expenses using compatible software.

During the tax year, you will also submit quarterly updates to HMRC, summarising the income and expenses data captured in your software.

The quarterly updates are not separate tax returns; they summarise your records for HMRC. You don’t pay tax four times a year.

At the end of the tax year, you will still need to complete your tax affairs using MTD-compatible software, including making any necessary adjustments and submitting your tax return. The standard 31st January deadline for submitting the return and paying the tax due still applies.

What software is best suited for a contractor or freelancer?

Whether you are required to use MTD, or choose to use the system voluntarily where available, you will need to ensure that your records and software are compatible with HMRC.

Information is exchanged with HMRC through an Application Programming Interface (API). So even if you currently use an Excel spreadsheet for your records, you may need API-enabled bridging software to transfer the relevant information to HMRC.

An easier method for many businesses is to utilise compatible accounting software.

All leading accounting software is now compatible with MTD, but we recommend FreeAgent for our clients. It’s our software of choice because, in our experience, it’s one of the best contractor accountancy software packages available and supports HMRC’s Making Tax Digital requirements.

The beauty of FreeAgent is that you have 24/7 visibility of your accounts and it connects with your bank account automatically. What’s more, it’s fully mobile-compatible and incredibly straightforward to use, making the move to MTD very simple.

Compatible software takes the data from your business activity and produces a real-time, accurate picture of your finances and tax position. As part of the process, you can identify missing information and possible mistakes before submitting the relevant information electronically to HMRC.

For those using MTD for Income Tax, compatible software can also maintain the required digital records, prepare quarterly updates, and complete the end-of-year tax return.

How do you register for MTD?

The registration process depends on which part of Making Tax Digital applies to you.

For MTD for VAT, VAT-registered businesses generally use compatible accounting software to maintain their digital records and submit VAT returns.

For MTD for Income Tax, HMRC uses information from your Self Assessment returns to determine whether you fall within the mandatory regime.

For example, if your 2024/25 Self Assessment return showed qualifying self-employment and property income of more than £50,000, you are within the first mandatory group from 6th April 2026.

HMRC has been contacting affected taxpayers and, from September 2026, is also starting to sign up people who need to use MTD for Income Tax for 2026/27 where its records show that the £50,000 threshold has been exceeded.

You will need suitable MTD-compatible software in place, and it must be authorised to communicate with HMRC.

If you do your own accounts, you can deal with the MTD requirements yourself. However, if you use an accountant, they can manage much of the process for you.

At Integro Accounting, we manage MTD requirements for our clients, including ensuring the correct software and HMRC authorisations are in place and handling the relevant submissions.

For clients using FreeAgent, we can manage the appropriate MTD functionality alongside the wider accounting and tax work we already carry out for you. In other words, we can give you complete peace of mind when it comes to keeping on top of your accounts.

If you want to understand more about MTD and how you can start investigating the best compatible software for you, our fully qualified accountants are on hand to help. They can guide you on what will work best for you and your business. Simply call 0207 096 2659 or email christian@integroaccounting.com.

Here at Integro Accounting we are one of FreeAgent’s platinum partners and include their award-winning software as part of our fixed-fee service. For more information on FreeAgent, click here.