What is Making Tax Digital?

Making Tax Digital (MTD) is a key part of the government’s strategy to simplify tax, reduce errors, and modernise the UK’s entire tax administration system. It is a complete change in the way businesses and individuals report their tax affairs to HMRC. The aim is to make it easier for you to keep on top of your affairs and for HMRC to receive information on a regular basis.

MTD for VAT

MTD for VAT was introduced in 2019 and it was made compulsory in April 2022 for all businesses to be registered to operate their VAT submissions under the MTD system.

Making Tax Digital for Income Tax

Who will be affected?

If you are:

A self-employed business owner
A landlord with rental income

…and your total qualifying income exceeds the MTD thresholds below, you will be required to join MTD for Income Tax when your income level applies. For further information, visit HMRC’s website.

Making Tax Digital Deadlines

From April 2026: Applies to self-employed individuals and landlords with income over £50,000 for the 2024/25 tax year
From April 2027: Extends to those earning over £30,000
From April 2028: (announced in the 2025 Spring Statement): Will apply to those with income over £20,000

What Does This Mean for Your Business?

The way you record and report your finances will change as your business moves to digital accounting. You’ll need to:

Maintain digital records
Use MTD-approved software
Submit quarterly updates to HMRC
File a final end-of-year declaration

Key advantages of MTD:

Digital record keeping improves accuracy
Submitting tax digitally is quicker and more convenient
Easy access to past submissions and reports

Potential Challenges:

Understanding new software requirements
Adapting to quarterly reporting periods
Working digitally with international suppliers and partners
Ensuring the right digital skills and support are in place

Your Responsibilities

To comply with Making Tax Digital, businesses and landlords will be required to keep digital records and use HMRC-approved compatible software to submit their tax data. This means:

Your records must be maintained digitally (spreadsheets are allowed, but must be digitally linked to your filing software).
Tax returns will be submitted directly to HMRC through your chosen software using a digital link.

What is a Digital Link?

A digital link ensures that data is transferred between systems without any manual intervention (like copying and pasting). According to HMRC, a digital link must meet these two conditions:

Electronic transfer of data between software programs (e.g., between bookkeeping software and tax filing tools).
Automation — the process should not involve manual input or manipulation of figures between systems.

In simple terms: once your data is in the software, it should go straight to HMRC without re-keying or manual steps.

MTD Exemptions: Who Qualifies?

There are limited exemptions from MTD. You may be exempt if:

You are digitally excluded — for example, due to age, a disability, or lack of internet access in your location
Your religious beliefs prevent the use of electronic systems
You are a personal representative (e.g., dealing with the affairs of someone who has died)
You must apply directly to HMRC to be considered for exemption, and approval is not automatic.

In addition, the following entities are currently exempt from MTD:

Trusts
Estates
Trustees of registered pension schemes
Non-resident companies

Whilst MTD may prove challenging for those businesses with limited technical knowledge, for others it may only require a few adjustments to their existing systems. It is likely that the vast majority of businesses will fall between these two extremes.

Need Help Getting Started?

At G W Dick & Co, we’re here to make your transition to MTD as smooth as possible.

We have been preparing for MTD for over 10 years and already support many VAT-registered businesses with MTD for VAT. Our cost-effective solutions include:

MTD Digital Bookkeeping Services – We can take the work and stress away from you and deal with all your MTD requirements on your behalf.
MTD Compatible Software – We can advise you on the most appropriate software and version, so you can manage your own digital records and submit quarterly updates to HMRC, with us completing your year-end accounts and tax return.
MTD Bookkeeping Training – We can train you to maintain your own MTD-compliant digital records.

Whether you’re looking to register early, find the right software, or just understand what it all means — we’ll guide you through it, clearly and confidently.