What is Making Tax Digital (MTD) & What Does it Mean?

Making Tax Digital (MTD) is one of the biggest changes to the UK tax system in recent years. Introduced by HMRC, it’s designed to modernise how businesses keep records and submit tax returns by moving everything onto digital platforms.

With MTD being rolled out in stages and more businesses being brought into the regime over the next few years, it’s important to understand what it is, how it works, and what it means for you.

What is Making Tax Digital?

Making Tax Digital is a government initiative created by HMRC to make tax administration more effective, efficient, and easier for taxpayers.

The overall aim is to reduce errors, improve accuracy, and give businesses a clearer, real-time view of their tax position throughout the year rather than relying on one annual submission. This also keeps the tax payments regular instead of one big payment at the end of the year.

Under Making Tax Digital, businesses are required to:

• Keep digital financial records instead of paper or manual spreadsheets
• Use HMRC-compatible software to manage their accounts
• Submit updates to HMRC quarterly (instead of one yearly return for relevant taxes)

The idea is to bring the UK tax system in line with modern technology, helping businesses stay on top of their finances while improving compliance.

How Does Making Tax Digital Work?

Making Tax Digital is being introduced in phases, starting with VAT and gradually expanding to Income Tax, with Corporation Tax expected to follow in the future.
Here’s a timeline for the rollout of MTD over the course of the next few years:

Making Tax Digital for VAT

Making Tax Digital for VAT was the first phase to be introduced. If your business is VAT registered today, you must comply with MTD rules.

This means you’re required to:

• Keep digital VAT records
• Use HMRC-compatible software revealed through an API connection
• Submit VAT returns through that software (not the old HMRC portal)
• Maintain digital links between your records and submissions

Most modern cloud accounting platforms already meet these requirements, making the transition relatively seamless with the right setup.

Key Rollout Dates for MTD for VAT:

• April 2019: MTD became mandatory for VAT-registered businesses with taxable turnover above the £85,000 VAT threshold.

• April 2022: MTD was extended to all VAT-registered businesses, regardless of turnover.

Making Tax Digital for Income Tax (MTD for ITSA)

The next major phase is Making Tax Digital for Income Tax Self Assessment (ITSA).

This will apply to:

• Sole traders
• Self-employed individuals
• Landlords with qualifying income

Under MTD for Income Tax, affected individuals will need to:

• Keep digital records of income and expenses
• Submit quarterly updates to HMRC
• File an End of Period Statement (EOPS) to finalise business profits
• Submit a Final Declaration confirming total taxable income

This replaces the traditional once-a-year Self Assessment return with a more regular reporting system.

Key Rollout Dates for MTD for Income Tax:

• April 2026: Mandatory for individuals with gross business or property income over £50,000 per year.
• April 2027: Extended to those earning over £30,000 per year.

HMRC has not yet confirmed the start date for those earning below £30,000, but further expansion is expected.

What Does Making Tax Digital Mean for My Business?

The transition to Making Tax Digital is a big change, and can cause uncertainty around what it means for your business.

We have outlined everything you need to know about how MTD applies to your business, including eligibility requirements, benefits, and potential disadvantages.

Eligibility

Eligibility for Making Tax Digital depends on the type of tax and your income or VAT registration status.

At present:

• All VAT-registered businesses must follow MTD rules (unless exempt)
• Sole traders and landlords will be brought in under MTD for Income Tax in phases based on income thresholds
• Some businesses may be exempt due to factors such as age, disability, location, or religious beliefs that prevent digital record-keeping.

Learn more about eligibility and exemptions for Making Tax Digital.

Benefits of MTD

While change can feel disruptive, Making Tax Digital does bring several advantages:

• Better accuracy: Digital record-keeping reduces manual errors and missed transactions.
• Real-time financial visibility: You’ll have a clearer view of your tax liabilities throughout the year.
• Streamlined processes: Automation reduces admin time spent on bookkeeping and returns.
• Easier collaboration with your accountant: Cloud software allows instant sharing of financial data.

Overall, businesses that embrace digital accounting often find they become more organised and financially informed.

Disadvantages of MTD

There are also some challenges to consider:

• Software costs: You may need to pay for compatible accounting software.
• Learning curve: Moving from spreadsheets or paper records takes adjustment.
• Tech reliance: You’ll need reliable internet access and digital systems.

This is where working with an accountant can make a big difference.

At SwiftBooks, we provide fully managed, MTD-compatible accounting services, meaning we handle the software, submissions, and compliance for you, saving you time and ensuring everything is done correctly.

When Does Making Tax Digital Come Into Effect?

Making Tax Digital is being rolled out in stages, depending on the tax type and income level.

VAT has already been fully implemented, while Income Tax and Corporation Tax are being introduced gradually over the coming years.

Because the rules and thresholds vary, it’s important to understand when your business will be affected so you can prepare in advance.

Learn more about when Making Tax Digital starts for sole traders and landlords.

MTD Timeline

Here are the key milestones in the Making Tax Digital journey:

Further phases (including Corporation Tax) are expected but not yet fully confirmed.

What Digital Records Do I Need to Keep?

Under Making Tax Digital, businesses must keep specific financial records digitally.

Examples include:

• Sales income
• Business expenses
• VAT charged on sales
• VAT paid on purchases
• Bank transactions
• Supplier invoices
• Customer invoices
• Asset purchases
• Payroll records (if applicable)

These records must be stored in compatible software and linked digitally to your tax submissions.

How Do I Register for MTD?

The registration process depends on the tax involved.

For VAT:

• Most VAT-registered businesses are now automatically signed up for MTD
• You must submit returns using compatible software rather than the HMRC portal

For Income Tax:

• Businesses will need to register through HMRC when their phase begins
• You’ll need compatible software in place before signing up

HMRC provides the registration service online, though many businesses choose to have their accountant handle this on their behalf.

Find out more about registering for MTD with our step-by-step guide.

Get Accounting Support for Making Tax Digital with SwiftBooks

Moving over to Making Tax Digital might feel like a big shift, especially if you’re used to spreadsheets, paper records, or only dealing with your accounts once a year. With new software requirements, quarterly submissions, and stricter compliance rules, it’s understandable that many business owners feel unsure about where to start.

That’s where working with an accountant can make the process far easier.

At SwiftBooks Accounting, we support businesses at every stage of their Making Tax Digital journey. 

Our MTD packages include access to award-winning, MTD-compliant accounting software. This ensures your records are kept fully digital while we handle all submissions to HMRC on your behalf. 

This means you won’t need to worry about deadlines, technical requirements, or whether you’re compliant – we take care of it all for you.

Beyond compliance, we also give you real-time insight into your finances, helping you understand your tax position, improve cash flow, and plan ahead with confidence.

If you’d like support getting ready for Making Tax Digital, or you simply want the peace of mind that everything is being handled properly, our team is here to help.

Get in touch with SwiftBooks today to find out how we can support your business.

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