Put merely, MTD is the federal government initiative to digitise the tax system and is being launched in a number of phases over the following few years. HMRC hopes the brand new system will probably be fairer and extra environment friendly and make it simpler for companies and people to get their taxes proper.
Since April 2022, MTD for VAT has utilized to all VAT-registered companies. And as of April 2026, MTD for Earnings Tax will probably be phased in, with these incomes over £50,000 from self-employment and/or property within the 24/25 tax 12 months the primary to be mandated. Initially on account of come into impact in 2024, it was delayed on account of the price of dwelling disaster to alleviate extra stress from small enterprise house owners.
In July 2025, HMRC introduced that it has scrapped plans for MTD for Company Tax. As a substitute, it would renew its inside programs for Company Tax forward of future enhancements.
On this article, we’re aiming to clear up any remaining confusion by busting 9 frequent MTD myths.
1. You’ll pay extra tax with MTD
Supplied you’ve been doing all your tax returns accurately, you shouldn’t be paying any roughly tax than you had been already. MTD is simply attempting to account for the billions of kilos in unpaid tax that’s misplaced to avoidable errors and fraud yearly.
HMRC nonetheless collects the identical outdated taxes, it’s simply attempting to enhance the best way they’re calculated and reported in order that the system is fairer and extra correct.
2. All of your accounting should be 100% digital
Whereas MTD does require companies to maintain digital information, it doesn’t essentially require you to digitise each facet of your accounting.
For instance, you could possibly proceed sending paper-based invoices to your shoppers and receiving paper receipts – you simply want to verify this information is transferred to a digital format in your accounting software program as quickly as potential.
That stated, a 100% digital accounting course of will make your life simpler by lowering admin and providing you with extra time to spend on the extra important elements of working your corporation. Should you use your accounting software program to subject invoices, that information is routinely digitised, without having to do guide uploads later.
>See additionally: Making Tax Digital for VAT: 6 easy tricks to get your corporation prepared
3. MTD means I don’t have to submit a tax return
Beneath MTD guidelines, you continue to have to submit common returns, you simply have to submit them in a digital format.
Should you’re a VAT-registered enterprise, it’s best to proceed to submit quarterly VAT returns via your accounting software program.
That is additionally the case with MTD for Earnings Tax, in addition to an annual Self-Evaluation tax return of all your corporation and non-business earnings by 31 January to calculate your tax and Nationwide Insurance coverage.
4. HMRC wants all of your accounting information
Whilst you could be involved that MTD would require you to make extra of your accounting information out there to HMRC, to date, companies haven’t had to supply any extra information than they did beneath the earlier system.
Nevertheless, for MTD for Earnings Tax, you’ll have to present information extra steadily. Beneath the brand new system, you’ll be required to submit at the least quarterly studies to HMRC detailing your earnings, allowable bills, and any changes or reliefs.
There’s no authorized requirement for these studies to be utterly correct. As a substitute, these give each HMRC and also you a greater concept of your tax place, which will help you to raised assess your money stream prematurely of getting to settle your eventual tax invoice.
5. I’ve an accountant, so I don’t have to do something for MTD
Sure, your accountant can proceed to arrange your books and file digital returns in your behalf, however that doesn’t imply you may overlook about MTD.
Your predominant ongoing accountability will probably be sustaining digital information in HMRC-approved accounting software program. Because of smartphones, this has by no means been simpler. You should utilize apps to ship digital invoices, assessment paperwork, and even digitise paper receipts. Your accounting app can even let you monitor your money stream and keep on high of taxes.
Ensure to debate record-keeping along with your accountant, as a way to agree on a constant and dependable course of and keep away from any trouble when deadlines are approaching.
6. MTD for VAT doesn’t have an effect on me as a result of I voluntarily registered my enterprise for VAT
When MTD for VAT was first launched in April 2019, voluntarily registered companies had been exempt.
Nevertheless, as of April 2022, MTD for VAT has been expanded to all VAT-registered companies no matter turnover, together with these which can be voluntarily registered for VAT.
>See additionally: Making Tax Digital for VAT post-April: What now?
7. MTD doesn’t have an effect on small companies
As mentioned above, MTD for VAT now contains all companies no matter turnover. Even the smallest companies now have to make use of software program to maintain accounting information and file digital returns.
And whereas MTD for Earnings Tax will solely apply to companies with qualifying turnover of greater than £50,000 (within the 24/25 tax 12 months) initially, then with greater than £30,000 (within the 25/26 tax 12 months) in April 2027 and people exceeding £20,000 (within the 26/27 tax 12 months) from April 2028.
Any sole merchants, partnerships, or landlords with an earnings of under £30,000 will probably be exempt till a assessment has taken place.
Nevertheless, though HMRC hasn’t made any announcement but, there’s all the time the likelihood that this might change sooner or later.
8. I don’t run a enterprise so I can overlook about MTD
You may not run a enterprise, but when, for instance, you’re a landlord with a couple of properties, and your rental earnings is above £50,000, MTD for Earnings Tax will apply to you from April 2026.
Likewise, in case you’re in full-time employment however have a aspect hustle as a freelancer that nets you a supplementary earnings of greater than £30,000, you guessed it, you’ll have to comply with the principles for MTD for Earnings Tax come 2027. And that goes for any VAT-registered particular person too.
I’ve checked and I’m undoubtedly not beneath the scope of MTD, so there’s nothing to do, proper?
You could be proper, however HMRC has launched different MTD-related initiatives that would have an effect on you in case you’re a sole dealer.
Foundation interval reform
For many sole merchants, your accounting date (the date at which you draw up your accounts) and foundation interval (the interval for which you’re chargeable for tax) match the tax 12 months, 6 April to five April.
Nevertheless, some sole merchants, particularly those who have seasonal buying and selling or that work with overseas companies, select accounting dates and a foundation interval that don’t match the tax 12 months. This implies they are often taxed twice on their income of their first years of buying and selling, which they presently can’t declare again till their enterprise closes.
As of April 2024, all sole merchants or unincorporated companies, no matter when their accounting dates are, have to make use of the tax 12 months for his or her foundation interval and 5 April for his or her taxable date.
Factors-based penalties
A brand new points-based penalty system was launched in January 2023.
As a substitute of receiving an instantaneous positive for late submission, you incur factors. When you attain a sure threshold for factors, you’re be fined.
This is applicable to MTD for VAT and MTD for Earnings Tax.
Which is the most effective software program for Making Tax Digital?
Which is the most effective software program for Making Tax Digital?
A number of big-name accounting software program suppliers aren’t solely MTD-compatible, however ship all the pieces it’s essential adjust to ease and extra.
Listed here are some platforms to contemplate:
Sage Accounting
makes MTD compliance straightforward with built-in AI help through Sage Copilot, which flags tax deadlines, checks information for errors, and even helps with submitting. Its instruments join your financial institution feeds, automate transaction categorisation, and allow you to submit VAT and Self Assessments instantly. Whether or not you’re self-employed or working a enterprise, Sage is a good choice for coping with MTD.
Plans & Pricing (excl. VAT):
- Begin – £18 monthly: Invoicing, financial institution reconciliation, VAT submissions
- Customary – £39 monthly: Consists of Begin + CIS, money stream, quotes, superior reporting
- Plus – £59 monthly: Consists of Customary + stock, multi-currency, and budgeting
Intro supply: 90% off for six months
Get began with Sage Accounting
Xero
Xero is absolutely geared up for MTD for VAT and Earnings Tax. It routinely categorises transactions and offers dwell tax estimates. You possibly can handle a number of earnings streams, file VAT returns, and preserve all the pieces HMRC-compliant from one dashboard. It’s a powerful all-rounder with scalable plans and highly effective analytics instruments.
Plans and pricing (excl. VAT)
- Easy – £7 monthly: Quotes, MTD for ITSA, financial institution reconciliation, Hubdoc receipt seize
- Ignite – £16 monthly: All Easy options + enter payments, VAT submitting to HMRC, elective invoice funds and CIS returns
- Develop – £37 monthly: All Ignite options + pay as much as 5 payments, bills & mileage for five customers (£2.50 per extra consumer), 5-person payroll, elective undertaking monitoring (£5 per consumer)
- Complete – £50 monthly: All Develop options + invoice funds for 10, multi-currency help, undertaking monitoring (for 10 customers)
- Final – £65 monthly: All Complete options + invoice funds for 15, superior analytics, as much as 10-person payroll, enhanced budgeting and insights
Intro supply: 90% off for 3 months.
Get began with Xero
QuickBooks
QuickBooks is HMRC-recognised and perfect for each sole merchants and VAT-registered companies. It helps MTD for VAT and Earnings Tax, Self Evaluation, and CIS submitting, all whereas providing AI-driven insights, automated expense monitoring, and straightforward return submissions.
Plans & Pricing (excl. VAT):
- Sole Dealer – £10 monthly: Invoicing, money stream, MTD for Earnings Tax, Self Evaluation instruments
- Easy Begin – £16 monthly: Provides VAT submissions, CIS returns, and accountant entry
- Necessities – £33 monthly: Multi-user, payments, time monitoring, multi-currency
- Plus – £47 monthly: Inventory monitoring, undertaking profitability, budgeting
- Superior – £115 monthly: As much as 25 customers, automation, batch invoicing, superior reporting
Intro supply: 90% off for 3 months.
Get began with QuickBooks
Zoho Books
Zoho Books presents inexpensive, MTD-ready accounting with direct VAT and Earnings Tax submitting to HMRC. It automates return technology and fee matching, saving time whereas making certain accuracy. Even the free plan contains invoicing, receipt seize, and expense monitoring, perfect for smaller companies on the lookout for an economical MTD compliance resolution.
Plans & Pricing (excl. VAT):
- Free – £0 monthly: VAT monitoring, shopper portal, on-line funds, mileage
- Customary – £10 monthly: Recurring invoices, financial institution feeds, EC Gross sales Record
- Skilled – £20 monthly: Multi-currency, CIS, stock, time billing
- Premium – £25 monthly: Budgeting, asset administration, vendor portals
- Elite – £85 monthly: Superior stock and warehouse instruments
- Final – £165 monthly: BI dashboards, forecasting, deep insights
Get began with Zoho Books
FreeAgent
FreeAgent permits you to auto-generate and file VAT returns, Self Assessments, and even Company Tax instantly from the platform. It connects to your financial institution feeds and contains sturdy expense, mileage, and reporting instruments. Even higher, it’s free for NatWest, RBS, Ulster Financial institution, or Mettle prospects.
Plans & Pricing (excl. VAT):
- Sole dealer – £9.50 monthly: Offers you entry to all of the options of the software program together with expense monitoring, automated financial institution feeds and company tax forecasting, plus self evaluation submitting.
- Partnership/LLP – £13.50 monthly: Entry to the entire options plus profit-sharing calculations.
- Restricted firm – £16.50 monthly: This bundle has all the pieces else plus dividend vouchers.
Each plan has a 30-day free trial.
Get began with FreeAgent
Subsequent steps for Making Tax Digital
Hopefully, you’re now clearer on how MTD applies to your corporation and what your obligations are.
In the end, MTD ought to make it simpler so that you can get your taxes proper and to make certain that you’re paying a good and right amount of tax to HMRC.
This text was written as a part of a paid-for content material marketing campaign with Sage.
Extra on Making Tax Digital
Making Tax Digital (MTD) – HRMC necessities and the most effective appropriate software program suppliers – After the rollout of Making Tax Digital (MTD) for VAT, MTD for Earnings Tax is being phased in from April 2026
