HMRC’s Making Tax Digital (MTD) programme is changing how UK businesses keep tax records and report to HMRC. If you are still relying on paper ledgers, manual spreadsheets or a frantic January rush to complete your Self Assessment tax return, now is the time to prepare. MTD is already compulsory for VAT-registered businesses, and the next phase — Income Tax Self Assessment (ITSA) — begins in April 2026 for many self-employed people and landlords.

In this guide we explain what MTD is, which businesses are affected, the current deadlines, and the practical options for getting your business ready.

What is Making Tax Digital?

Making Tax Digital is the government’s plan to modernise the UK tax system. It is part of the wider Tax Administration Strategy and is designed to reduce the “tax gap” — the difference between tax owed and tax actually collected. HMRC’s most recent Measuring Tax Gaps report estimates this was 4.8% of total theoretical liabilities, or £39.8 billion, in the 2022/23 tax year.

MTD aims to make tax reporting more accurate and efficient by asking businesses to keep digital records and submit information using HMRC-recognised software. The goal is to cut down on avoidable errors, reduce paperwork and give businesses a clearer, more up-to-date picture of their tax position throughout the year.

Which businesses are affected and when?

The rules depend on the type of tax you pay. Here is the current position as of 2025:

• MTD for VAT — Already mandatory for all VAT-registered businesses, regardless of turnover. Since April 2022, VAT-registered traders must keep digital records and file VAT returns using MTD-compatible software.
• MTD for Income Tax Self Assessment (ITSA) — From April 2026, self-employed individuals and landlords with qualifying income over £50,000 a year must follow MTD rules. From April 2027, this extends to those with qualifying income over £30,000. If your income is below £30,000, you are not currently required to join, although the government has said it will review this threshold.
• MTD for Corporation Tax — This is not expected before April 2026 at the earliest. HMRC has said it will give businesses sufficient notice before any mandatory rollout.

For those caught by the ITSA rules, the traditional annual Self Assessment tax return will be replaced by quarterly digital updates, an end-of-period statement and a final declaration. If you are a sole trader or landlord near the £50,000 or £30,000 income thresholds, the 2025/26 tax year is the time to put compatible systems in place.

What are your options for going digital?

There is no single “right” way to comply with MTD. The best option depends on the size of your business, how confident you are with technology, and whether you already use accounting software. Here are the main routes to consider.

1. Use MTD-compatible accounting software

The most straightforward option is to move your bookkeeping onto cloud accounting software that is recognised by HMRC. Packages such as Xero, QuickBooks, Sage and FreeAgent all offer MTD-compatible products. These tools can link directly to your business bank account, categorise income and expenses, and submit VAT returns — and, in time, quarterly ITSA updates — to HMRC automatically.

Cloud software also makes it easier to collaborate with your accountant and access your records from anywhere. Most providers offer tiered pricing, so you can start small and upgrade as your business grows. Before signing up, check that the package supports the specific MTD service you need — VAT now, and ITSA when it launches.

2. Use bridging software with spreadsheets

If you prefer to keep using spreadsheets, you do not necessarily have to abandon them. Bridging software can take the figures from your spreadsheet and submit them to HMRC in the correct MTD format. This can be a cost-effective middle ground for businesses with simple records, though it still requires disciplined digital record-keeping and a clear filing routine.

3. Improve your digital record-keeping

Even the best software will not help if your underlying records are still on paper. Start by identifying every document your accountant needs for a tax return — invoices, receipts, bank statements, mileage logs and expense claims — and create digital copies. You can scan paperwork or use optical character recognition (OCR) apps to convert receipts into searchable data.

Store records securely, back them up regularly, and make sure they are organised in a way that matches your accounting periods. Good digital record-keeping not only keeps you compliant; it also makes it much faster to answer HMRC queries or prepare for an audit.

4. Work with an accountant or bookkeeper

If you are short on time or unsure where to start, an accountant or bookkeeper can manage the transition for you. Many practices now use MTD-compatible software as standard and can file returns on your behalf. They can also advise on the most suitable package, set up bank feeds, reconcile transactions and train you or your team to use the system day to day.

The business benefits of going digital

Complying with MTD is not just about avoiding penalties. There are genuine business benefits:

• Fewer errors — Digital records and automated bank feeds reduce the risk of transcription mistakes and missed entries.
• Less last-minute stress — Regular digital updates mean you are not scrambling to reconstruct a year’s worth of figures in January.
• Better cash-flow planning — Real-time profit and tax estimates help you set money aside for your tax bill.
• Secure record-keeping — Digital files are easier to back up, search and protect than paper records.
• Smoother audits — If HMRC asks questions, you can produce organised digital evidence quickly.

Start preparing now

Whether MTD affects you this year or in 2026, the businesses that adapt early will have the easiest transition. Use the time before your deadline to review your current record-keeping, check whether your software is HMRC-recognised, and speak to your accountant about the best route for your circumstances.

A simple action plan might include: checking your expected income against the ITSA thresholds; signing up for a trial of MTD-compatible software; digitising your current year’s records; and setting a quarterly calendar for updates once the new rules apply.

Have you already moved to MTD-compatible software? What tips would you share with other business owners? Let us know in the comments.