What is Making Tax Digital? Everything you need to know about MTD

Team Nomi

Jun 22, 2026
7 minutes read

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Making Tax Digital (MTD) is a UK government initiative aimed at transforming the way businesses manage their tax obligations. Whether you are self-employed, a landlord, or run a business, understanding the new rules is essential to avoid penalties and ensure compliance.

HMRC introduced Making Tax Digital to create a more modern tax system by encouraging digital record-keeping and reducing errors in tax reporting. While many businesses are already familiar with Making Tax Digital for VAT, the next phase focuses on Income Tax and will affect a growing number of self-employed individuals and landlords from April 2026 onwards.

This blog explains what Making Tax Digital is, who it applies to, when the changes take effect, what records you need to keep, and how to prepare for the new reporting requirements.

What is Making Tax Digital?

Making Tax Digital (MTD) will help reduce the tax gap by making it easier to keep accurate digital records and submit tax information electronically. 

It is a UK government initiative designed to modernise the tax system through digital record-keeping and online tax reporting, helping to reduce errors, improve compliance, and make tax management more efficient.

Under Making Tax Digital, eligible taxpayers must:

• • Keep digital records of income and expenses
  • Use compatible software to manage their records
  • Submit updates to HMRC electronically
  • Complete year-end reporting through approved software

The aim is to reduce mistakes caused by manual record-keeping and make tax administration more efficient for both taxpayers and HMRC.

Why has HMRC introduced Making Tax Digital?

HMRC estimates that mistakes made when preparing tax returns cost billions of pounds each year. Many of these errors occur because records are incomplete, inaccurate, or entered manually.

Making Tax Digital was introduced to:

• • Improve the accuracy of tax reporting
  • Reduce common record-keeping errors
  • Encourage businesses to adopt digital systems
  • Give taxpayers a clearer view of their tax position throughout the year
  • Create a more efficient and modern tax system

For many businesses, digital accounting software already plays an important role in managing finances. Making Tax Digital extends this approach to tax reporting.

Who does Making Tax Digital apply to?

Making Tax Digital for Income Tax will primarily affect:

Self-Employed Individuals

Sole traders whose qualifying income exceeds the relevant threshold will be required to comply with Making Tax Digital rules.

Landlords

Individuals earning income from property rentals above the threshold will also need to keep digital records and submit information through compatible software.

Business Owners

Businesses already registered for VAT may already be familiar with Making Tax Digital requirements for VAT reporting.

Limited Companies

At present, the Making Tax Digital for Income Tax rules focus on self-employed individuals and landlords. Limited companies are not currently required to follow the same Income Tax reporting process, although they may already be subject to Making Tax Digital for VAT where applicable.

Making Tax Digital Timeline and Deadlines

Making Tax Digital (MTD) for Income Tax is being introduced in stages based on your total qualifying income from self-employment and property. 

Once you are within MTD, you must submit quarterly updates and a final declaration each year. 

Missing deadlines could result in penalties and unnecessary compliance issues.

For a detailed breakdown of reporting dates and submission requirements, see our guide on Making Tax Digital Deadlines.

How does Making Tax Digital work?

Making Tax Digital introduces a more structured reporting process throughout the tax year.

1. Keep Digital Records

Keep a digital record of your income and expenses using accounting software or compatible digital tools.

2. Submit Quarterly Updates

Send a summary of your income and expenses to HMRC every three months through your software.

3. Make End of Period Adjustments

Check your records at the end of the tax year and make any corrections or add any missing information.

4. Submit a Final Declaration

Confirm your income for the year and submit your final tax information to HMRC.

This approach provides HMRC with more regular information and allows taxpayers to monitor their tax position throughout the year.

What records need to be kept?

Accurate record-keeping is a key requirement of Making Tax Digital.

Depending on your circumstances, records may include:

• • Sales income
  • Business expenses
  • Rental income
  • Property expenses
  • Bank transactions
  • Invoices and receipts

Keeping records digitally throughout the year can make reporting easier and reduce the risk of errors.

Do you need software for Making Tax Digital?

Yes. To comply with Making Tax Digital, taxpayers must use software that can communicate with HMRC.

Compatible software can help you:

• • Record income and expenses
  • Maintain digital records
  • Submit information directly to HMRC
  • Track tax liabilities
  • Reduce manual administration

For more information, read our guide on Making Tax Digital Compatible Software.

Benefits of Making Tax Digital

Although the transition requires preparation, there are several advantages to adopting digital record-keeping. HMRC has outlined a number of benefits of Making Tax Digital, including fewer errors, more up-to-date financial information, and easier tax administration.

Improved Accuracy

Automated calculations can reduce errors often associated with manual record-keeping.

Better Financial Visibility

Up-to-date records make it easier to understand business performance and tax obligations.

Faster Administration

Many routine accounting tasks can be automated, reducing administrative workload.

Easier Compliance

Digital records and software help businesses meet HMRC requirements more efficiently.

How to prepare for Making Tax Digital

Getting ready for Making Tax Digital early can help you avoid last-minute stress and stay compliant with HMRC requirements. Key steps include checking whether the rules apply to you, keeping digital records, choosing compatible software, and understanding your reporting responsibilities.

For a detailed guide on preparing for Making Tax Digital, read our article: How to Prepare for Making Tax Digital.

Frequently Asked Questions

1.  What is Making Tax Digital for Income Tax?
Ans. Making Tax Digital for Income Tax requires eligible self-employed individuals and landlords to keep digital records and submit updates to HMRC using compatible software.

2. Does Making Tax Digital apply to self-employed individuals?
Ans. Yes. Self-employed individuals whose qualifying income exceeds the applicable threshold must comply with Making Tax Digital requirements.

3. Does Making Tax Digital apply to landlords?
Ans. Yes. Landlords with qualifying property income above the threshold will be required to maintain digital records and submit information through compatible software.

4. Does Making Tax Digital apply to limited companies?
Ans. The current Making Tax Digital for Income Tax rules apply mainly to self-employed individuals and landlords. Limited companies are not currently included within these Income Tax requirements.

5. What is Making Tax Digital for Income Tax Self Assessment?
Ans. Making Tax Digital changes how eligible taxpayers report information to HMRC by introducing digital record-keeping and quarterly updates alongside annual reporting requirements.

6. When does Making Tax Digital start?
Ans. The first phase begins on 6 April 2026 for individuals with qualifying income above £50,000. Additional phases will follow in 2027 and 2028.

7. Are any businesses exempt from MTD?
Ans. Yes. Some taxpayers may be exempt from MTD if it is not reasonably practical for them to use digital tools due to factors such as age, disability, location, or other exceptional circumstances approved by HMRC.

8. What digital records do I need to keep?
Ans. You must keep digital records of your business income and expenses, including sales, purchases, and relevant tax information, using MTD-compatible software.