Definition
Making Tax Digital (MTD) is a UK government program that requires businesses to keep digital tax records and submit returns to HMRC using compatible software. It has applied to all VAT-registered businesses since April 2022 and is being extended to Income Tax Self Assessment for sole traders and landlords, starting in April 2026.
Also called: MTD, MTD for VAT, MTD for Income Tax, MTD for ITSA
Making Tax Digital in practice
Under MTD for VAT, businesses keep their VAT records digitally and file VAT returns through MTD-compatible software instead of the HMRC website. Spreadsheets are allowed only when they are linked to bridging software that submits the return.
MTD for Income Tax is being phased in by income level. Sole traders and landlords with qualifying income over 50,000 GBP joined first, and lower thresholds follow in later years. They send quarterly updates of income and expenses and a final declaration after the tax year ends.
MTD does not change what a valid VAT invoice must show. It does require digital links between the programs you use, so invoice totals should reach your VAT return without being copied by hand.
Example
A London web designer registered for VAT sends invoices from her invoicing app. Her MTD-compatible accounting software pulls in the quarter's sales and purchases and submits her VAT return directly to HMRC.
Frequently Asked Questions
Do I need MTD if I am not VAT registered?
Not for VAT. For Income Tax, sole traders and landlords join once their qualifying income passes the threshold that applies for that tax year. Check GOV.UK each year, since the thresholds are stepping down.
Can I still use spreadsheets under MTD?
Yes, if you link them to bridging software that submits returns to HMRC. Retyping figures from one program into another does not meet the digital links rule.
Related terms
- VAT VAT (value added tax) is a consumption tax charged at each stage of the supply chain on the value added, used in the EU, UK, and more than 160 other countries.
- VAT registration number A VAT registration number is the unique number HMRC gives a business when it registers for VAT in the UK, made up of nine digits with a GB prefix.
- VAT Flat Rate Scheme The VAT Flat Rate Scheme is an optional UK HMRC scheme that lets small businesses pay VAT as a fixed percentage of their VAT-inclusive turnover instead of tracking VAT on every sale and purchase.
- Audit trail An audit trail is a chronological record showing who created, changed, sent, or deleted each financial document or transaction, and when.
- E-invoicing E-invoicing is the exchange of invoices in a structured electronic format that the recipient's system can process automatically, as opposed to a PDF or paper invoice that must be read and keyed in.
This page is for general information only and is not legal, tax, or financial advice. Rules change and vary by location, so consult a qualified lawyer or accountant about your situation.