Making Tax Digital (MTD)

Making Tax Digital (MTD) is a fundamental change to the administration of the UK tax system. It affects how businesses, individuals and other organisations maintain their accounting and tax records and how they transact and communicate with HMRC. MTD transformation projects are being run by HMRC but should be seen as just one element of the digitalisation of business.

HMRC’s vision is to become one of the most digitally advanced tax administrations in the world. Making Tax Digital is making fundamental changes to the way the tax system works.

HMRC’s ambition to digitalise the UK tax system is well underway. The transformation started in April 2019 with Making Tax Digital (MTD) for VAT for businesses with taxable turnover above the VAT threshold.

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MTD for business – Overview

MTD for VAT started in April 2019 and has been extended to all VAT-registered businesses in April 2022. MTD for income tax (for the self-employed and those with income from property) is to be mandated in two phases from April 2026.

The essential elements of MTD are:

  • Businesses and organisations (which includes those with income from property) are required to maintain digital accounting records. Maintaining paper records ceases to meet the requirements of the tax legislation.
  • Businesses and organisations are required to use a functional compatible software product to submit updates and returns to HMRC. The software uses HMRC’s API (Application Program Interfaces) platform to submit information to HMRC. The current HMRC online tax return services for the relevant tax are withdrawn when a business signs up to MTD.

HMRC is also running an MTD for individuals transformation project. MTD for individuals is centred around the Personal Tax Account (PTA) which already has many of the services needed by PAYE taxpayers. HMRC continues to improve and develop the PTA and in due course it will offer the full range of HMRC services to personal taxpayers, including some of those who are currently required to complete self assessment tax returns.

Timeline for MTD

From April 2019: MTD for VAT is mandatory for VAT-registered businesses and organisations (including sole traders, partnerships, limited companies, non-UK businesses registered for UK VAT, trusts and charities) with taxable turnover above the VAT threshold. There was a six-month deferral of the start date, to 1 October 2019, for some more complex businesses.

From April 2022: MTD for VAT is mandatory for all VAT-registered businesses and organisations.

From April 2024: Whilst there is no definite timeline for MTD for Corporation Tax being rolled out; the proposed date to commence a voluntary pilot for Making Tax Digital for corporation tax is April 2024, with mandation to follow from 2026.

From April 2026: MTD for income tax will be mandatory for self-employed and landlords earning over £50,000 from April 2026, followed by those earning over £30,000 from April 2027. Following this phased approach, the government will not extend MTD for ITSA to general partnerships in 2025, but says it’s committed to introducing this at a later date.


Information and support on Making Tax Digital (MTD) for VAT which imposes new reporting and record keeping requirements from April 2019 and has been extended to all VAT registered traders in April 2022.


From April 2022 all VAT registered businesses and organisations (including those that have registered voluntarily) are required to:

  • Maintain their accounting records digitally in a software product or spreadsheet. Maintaining paper records no longer meets the requirements of the tax legislation.
  • Submit their VAT returns to HMRC using a functional compatible software product that can access HMRC’s API (Application Program Interface) platform.

Businesses within scope need to acquire a suitable commercial software product.

HMRC’s online VAT return remains available, but only for use by businesses that are not within the scope of MTD for VAT (eg, businesses that complete a VAT return but have taxable turnover below the VAT threshold).

Who’s in?

From April 2022, the MTD for VAT requirements has been extended to all VAT registered businesses and organisations irrespective of the size of their taxable turnover. This includes unincorporated businesses, partnerships, companies, limited liability partnerships, trusts, non-UK businesses registered for UK VAT and charities.

When to start and signing up

Businesses and organisations must keep digital records and submit VAT returns using functional compatible software from the start of their first VAT return period beginning:

  • on or after 1 April 2022

Each business needs to be individually signed-up to MTD for VAT – HMRC does not automatically transfer businesses to MTD. The HMRC guidance on signing-up for businesses is available on Making Tax Digital for VAT.

Software and Digital Links

Information on MTD for VAT compatible software and how to choose a suitable product is in the section below ‘Software for MTD’.

Digital records can be maintained in more than one program or software product. The use of spreadsheets, either to record individual transactions or as part of a suite of software and spreadsheets is permitted. An existing spreadsheet alone is not a free way to comply with the MTD for VAT requirements as it will not have the functionality to file the return.

Spreadsheets need to be either API enabled or, more likely, used in combination with a commercial MTD compatible software product or spreadsheet so that data can be sent to and received from HMRC systems.

Where records are maintained in more than one program or product there must be digital links between each of the software products/spreadsheets. Information cannot be transferred manually between products. Section 8 of the HMRC’s MTD for VAT notice includes a number of examples that illustrate the extent to which digital links are required.

From 1 April 2021, HMRC is enforcing the requirement to have digital links in place.

MTD for VAT functional compatible software must be able to:

  • Keep records in a digital form.
  • Preserve records in a digital form.
  • Create a VAT return from the digital records.
  • Provide HMRC with VAT returns and voluntary information by using the API (application program interface) platform.
  • Receive information from HMRC using the API platform. This includes messages about a requirement to file and confirmation of successful filing and will allow HMRC to send ‘nudge’ messages to the business when that functionality is developed.

Digital record keeping requirements

The requirement to keep digital records means that each individual transaction (not summaries), e.g. invoices and receipts, needs to be recorded and stored digitally.

HMRC would like to encourage records to be kept in as near to real time as possible, but it is still possible to create the digital records at periodic intervals, provided the information is entered into a digital record keeping system before the return is filed.

The regulations require the following records to be kept digitally:

Designatory data:

  • The name of the business or organisation.
  • The address of the principle place of business.
  • The VAT registration number.
  • Details of any VAT accounting schemes used.

For supplies made:

  • The time of supply.
  • The value of the supply.
  • The rate of VAT charged.

For supplies received:

  • The time of supply.
  • The value of the supply including any VAT that is not claimable by the business.
  • The amount of input tax to be claimed.

If an invoice has supplies at different rates of VAT (eg, adult’s and children’s shoes) there must be a separate digital record for each rate of VAT charged. You must split the total value of supplies on the invoice and make a separate entry in the digital records for each rate of VAT charged.

VAT account:

The VAT account is the link – the audit trail – between the business records and the VAT return. The information required to be held in the VAT account must be kept digitally (the regulations refer to this as the “electronic account”), and the information in that electronic account is used by functional compatible software to calculate and fill in the VAT return.

To show the link between the output tax in the records and the output tax on the return, the business must have a digital record of:

  • The output tax it owes on sales.
  • The tax it is required to pay on behalf of its suppliers under the reverse charge procedure.
  • The tax that needs to be paid following a correction or error adjustment.
  • Any other adjustment required by VAT rules.

To show the link between the input tax in the accounting records and the input tax on the VAT return the business must have a record of:

  • The input tax it is entitled to claim from business purchases.
  • The tax that it is entitled to reclaim following a correction or error adjustment.
  • Any other necessary adjustment.

Some software records reverse charge transactions and it is not necessary to have separate entries for the self-supply and purchase. If the software does not record reverse charge transactions it is necessary to record reverse charge transactions twice, once as a supply made and a second time as a supply received.

Records must be kept for six years (or 10 years if the business uses VATMOSS). Digital records need to be maintained for six years following deregistration but may be kept in alternative formats rather than in functional compatible software.

Software for MTD

This section covers the latest information about the Making Tax Digital (MTD) software that businesses will need to keep digital records and to submit information to HMRC.


From April 2022, all VAT registered businesses need to use a commercial software product to submit VAT returns to HMRC. MTD software uses HMRC’s API (Application Program Interface) to send and receive data from HMRC.

For businesses within the scope of MTD it is a requirement to keep digital records. Where the records are maintained in more than one program or product there must be digital links between each of the pieces of software (the requirement for digital links applies from April 2021).

MTD for income tax

From April 2026 similar digital record keeping and filing from software requirements will apply to income tax for those with income from self-employment and property above a threshold of £50,000 turnover/gross income. This will followed by those earning over £30,000 from April 2027.

Choosing software

How an organisation approaches the selection of MTD compatible software depends on their existing level of technology maturity and their business model. It is also worth considering the long-term future of an organisation. It is fair to say that the rate of change in technology and business has never been faster. That rate of change will only ever increase. As a result, all organisations will need to consider how they will remain competitive in the future. A case could, therefore, be made to invest in a more comprehensive application that could fulfil the needs of an organisation in the future.

Organisations that are already making extensive use of information technology will need to ensure that their software supplier is going to provide MTD compatible versions of the applications that they may use. In these cases the existing and future requirements of an organisation will need to be considered. In recent years we have seen a number of major changes to UK legislation; for example GDPR, auto-enrolment, open banking and MTD. In many cases it may be easier and more cost effective for an organisation to choose an application that resides in, or is at least connected, to the “cloud”. Applications that are hosted on the internet (in the cloud) are able to make connections with other digital services and as a result provide increased functionality and flexibility.

Some products do not use the APIs that can make liabilities and payment information available in software. This should be considered when choosing a software product.

To help an organisation choose software the Business Application Software Developers Association (BASDA) has created a free guide to help you select business software.

MTD software providers

HMRC is working with a large number of software suppliers. More than 500 different products are available for MTD for VAT but, so far, only a handful of products are available for MTD for income tax.

It is essential that you check with your current software provider to understand if they are going to be providing MTD compatible software and whether the necessary upgrade will be provided for free or it will be necessary to upgrade to a newer product.

Lists of available software products are available on and can be filtered according to a number of different criteria.


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