What Is Making Tax Digital? HMRC Rules Explained
HMRC Making Tax Digital (MTD) is the HMRC initiative to get everyone reporting digitally. The four foundations are:
Better use of information
HMRC will use information from third parties, such as employers, banks and other government departments so that individuals will not have to supply information themselves.
Tax in real time
HMRC will obtain and process information affecting tax as close to real time as possible, so that individuals and businesses no longer have to wait until after the end of the tax year to know how much tax they have to pay.
A single financial account
Taxpayers can now see a comprehensive picture in their digital account with all their tax information in one place.
Interacting digitally with customers
Customers (and agents) will be able to interact with HMRC digitally at a time to suit them.
Find out all you need to know about HMRC Making Tax Digital for VAT and Income Tax
Making Tax Digital for VAT
Making Tax Digital for VAT-registered businesses with a turnover above the VAT threshold of £85,000 has been compulsory since 2019.
However, as of November 2022, all VAT-registered businesses are required to comply with Making Tax Digital (MTD) and submit returns using MTD-compatible software. Therefore, if you have registered voluntarily for VAT as you are under the £85,000 threshold, you will need to comply with the new rules.
MTD VAT aims to streamline the tax process, reduce errors, and improve system efficiency. Non-compliance with MTD regulations could result in penalties, so it’s essential to ensure your business is fully aligned with these requirements.
Making Tax Digital for Income Tax
Making Tax Digital for Income Tax Self Assessment (MTD ITSA) will apply from April 2026 to those who receive income from self-employment and/or property, where the combined gross income from these sources exceeds the £50,000 threshold.
Those with a gross income from these sources combined above the £30,000 threshold will be required to join MTD ITSA from April 2027. In the 2025 spring statement the government announced that an even lower threshold of £20,000 will be the threshold from 2028.
The current regulations do not cover partnerships; MTD ITSA is expected to be extended to partnerships in the future, but no date has been announced as yet.*
* Note: The information on this page reflects the latest HMRC guidance as of the time of publishing. For the most up-to-date information, please refer to the official HMRC website.
Watch the video below by ICAEW on what is HMRC Making Tax Digital for Income Tax
HMRC MTD Services and Support
How Maynard Johns Can Help
If your current bookkeeping method doesn’t support direct submissions to HMRC via MTD compatible software, it’s time to start preparing for the transition. We offer a range of solutions to make the process easier for you:
- Expert Advice and Setup: We can help you choose the best MTD software, set it up, and provide training to ensure you’re confident using it.
- Fully Managed Service: If you’d rather focus on running your business, we can handle everything for you with our fixed-fee accounting packages.
- Self-Paced Learning: We offer an Online Xero Bookkeeping Course that guides you through setting up and using the software at your own pace.
Let us make your transition to Making Tax Digital as smooth and stress-free as possible.