Making Tax Digital (MTD) has been in the news for several years now. But the next phase of the programme is the most significant yet, and it affects a much wider range of organisations than previous phases. If you’re not already using MTD-compatible software for your income tax or corporation tax reporting, you’re likely to need to be within the next two to three years.
This guide covers the key changes, the timeline, and what you actually need to do. It’s written for finance managers at small businesses and charities, not accountants or IT professionals.
Important: Tax rules change, and HMRC guidance updates frequently. This article reflects the position as at January 2026. Always verify the current requirements at gov.uk or with your accountant before making changes to your reporting arrangements.
What is Making Tax Digital?
Making Tax Digital is HMRC’s programme to move UK tax reporting onto digital platforms. In practice, MTD requires businesses and individuals above certain income thresholds to:
- Keep digital records of their income and expenditure
- Submit tax information to HMRC using MTD-compatible software rather than manually entering figures on a tax return
- Submit quarterly updates during the year, rather than a single annual return
MTD for VAT launched in 2019 and is now mandatory for all VAT-registered businesses. The expansion into income tax (MTD for ITSA) and corporation tax is the next wave.
The timeline: what’s changing and when
MTD for VAT — all VAT-registered businesses
All VAT-registered businesses must keep digital VAT records and submit VAT returns via MTD-compatible software. If you’re VAT registered, you should already be doing this.
MTD for ITSA — self-employed and landlords with income over £50,000
Self-employed individuals and landlords with qualifying income above £50,000 must use MTD-compatible software to keep records and submit quarterly updates to HMRC.
MTD for ITSA extended to income over £30,000
The threshold drops to £30,000 qualifying income, bringing a much larger group of self-employed individuals and landlords into scope.
MTD for ITSA extended to income over £20,000
HMRC has indicated a further extension to the £20,000 threshold, though this is subject to confirmation and may change following review of the programme.
MTD for Corporation Tax
MTD for Corporation Tax is in development but HMRC has not set a mandatory start date. The earliest realistic date for mandation is likely 2027 at the earliest, with pilots expected to run from 2026.
Who needs to do what — a quick reference
| Organisation type | Key requirement | When |
|---|---|---|
| VAT-registered business (any size) | Digital VAT records + MTD-compatible VAT submissions | Now |
| Self-employed / landlord income >£50k | Quarterly ITSA updates + digital records | Apr 2026 |
| Self-employed / landlord income >£30k | Quarterly ITSA updates + digital records | Apr 2027 |
| Self-employed / landlord income >£20k | Quarterly ITSA updates + digital records | Apr 2028* |
| Limited companies (Corporation Tax) | Details still being consulted on; no mandatory date set | TBC |
| Registered charities | Generally exempt from MTD for ITSA; VAT-registered charities already in MTD for VAT | — |
* Subject to confirmation by HMRC.
What does “MTD-compatible software” actually mean?
HMRC maintains a list of approved software on its website. The main accounting platforms — Xero, QuickBooks, Sage, FreeAgent — are all MTD-compatible. If you’re already using one of these platforms, you likely already have the tools you need; the main additional step is ensuring you’re using the MTD submission features.
Spreadsheet users will need to either switch to compatible accounting software or use a bridging tool — software that connects your spreadsheet to HMRC’s systems for submission purposes.
The quarterly update requirement
This is the most significant operational change for businesses currently submitting a single annual tax return. Under MTD for ITSA, you’ll submit four quarterly updates to HMRC during the year, plus a final declaration at year end. The quarterly updates are essentially profit and loss summaries — income and expenses for the quarter — rather than full returns, submitted directly from your accounting software.
What charities need to know
Registered charities are generally exempt from MTD for Income Tax Self Assessment, as their income is typically exempt from income tax. However:
- VAT-registered charities must already comply with MTD for VAT — if you haven’t checked whether your VAT submissions are going through MTD-compatible software, do so now.
- Charities with trading subsidiaries (separate limited companies) may need to consider the MTD for Corporation Tax timeline when it’s confirmed.
- Charity finance managers who are personally self-employed (for any activities outside their employed role) may be personally in scope for MTD for ITSA.
What to do now
- If you’re VAT-registered and not yet on MTD-compatible software — address this urgently; it’s already mandatory.
- If you’re self-employed with income over £50,000 — review your record-keeping and accounting software to ensure you’re ready for April 2026.
- If you manage finance for a charity — check your VAT position, consider whether your trading subsidiary is affected, and monitor HMRC’s Corporation Tax announcements.
- If you currently use spreadsheets for your accounts — now is a good time to evaluate whether moving to accounting software makes sense, even if you’re not yet in scope for MTD.
Not sure if you’re in scope? The HMRC website has a tool to check your MTD obligations at gov.uk/making-tax-digital-for-income-tax. Your accountant or bookkeeper should also be able to confirm your position in a short conversation.
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