What is Making Tax Digital (MTD)? (2025/26 Guide for Businesses & Landlords)

What is Making Tax Digital?

Making Tax Digital (MTD) is a UK government initiative introduced by HMRC to modernise the tax system by moving from manual processes to fully digital record-keeping and reporting.

The aim is to:

• Reduce errors

• Improve accuracy

• Make tax administration more efficient

• Move towards a more real-time tax system

MTD does not completely replace Self Assessment (yet), but it is gradually changing how tax is reported.

Who is affected by Making Tax Digital?

MTD is being rolled out in stages and affects:

• Businesses

• Self-employed individuals

• Landlords

However, who is affected depends on the type of tax and income level.

MTD for VAT (currently in force)

MTD for VAT is already mandatory for:

• All VAT-registered businesses, regardless of turnover

Businesses must:

• Keep digital VAT records

• Submit VAT returns using MTD-compatible software

MTD for Income Tax (coming soon)

MTD for Income Tax (ITSA) is the next phase and will apply to:

From April 2026:

• Self-employed individuals and landlords with income over £50,000

From April 2027:

• Those with income over £30,000

This will require:

• Quarterly updates to HMRC

• A final annual declaration

Are there any exemptions?

You may be exempt from MTD if:

• You are digitally excluded (e.g. due to age, disability or location)

• You are already exempt from filing VAT returns online

You must apply to HMRC if you believe you qualify for an exemption.

What records need to be kept?

Under MTD, you must keep records digitally, including:

• Sales and income

• Expenses

• VAT records (if registered)

These records must be stored in:

• Accounting software, or

• Spreadsheets linked to compatible software

What software do you need?

You must use HMRC-recognised software to:

• Maintain digital records

• Submit returns to HMRC

If you use spreadsheets, you will still need:

• “Bridging software” to submit data

What are the benefits?

Making Tax Digital aims to:

• Reduce mistakes in tax reporting

• Give businesses better visibility of their finances

• Streamline submissions to HMRC

For many businesses, it also improves overall bookkeeping and financial control.

Common mistakes to avoid

• Assuming spreadsheets alone are sufficient (without submission software)

• Not keeping fully digital records

• Missing MTD deadlines

• Not preparing early for MTD for Income Tax

How can we help?

At Merranti Accounting, we help businesses become fully MTD compliant by:

• Setting up HMRC-recognised accounting software

• Migrating existing records into digital systems

• Providing training for you and your team

• Handling submissions on your behalf

Final thoughts

Making Tax Digital is a major shift in how the UK tax system operates.

While MTD for VAT is already in place, the upcoming rollout for Income Tax means many more individuals and landlords will soon need to comply.

Preparing early will ensure a smooth transition and help avoid penalties.

Action point:
Review your current bookkeeping system and ensure it is compatible with Making Tax Digital requirements