Making Tax Digital: What Businesses Must Know for 2026
Since April 2026, Making Tax Digital has been mandatory for businesses with income over £50,000. Understand the requirements, timelines, and how to keep your business compliant.
Key Takeaway
MTD for Income Tax has been mandatory since 6 April 2026 for self-employed individuals and landlords with gross income over £50,000. If you have not yet switched, act now to avoid penalties.
1What is Making Tax Digital?
Making Tax Digital (MTD) is HMRC's initiative to digitize the UK tax system. It requires businesses to keep digital records and submit tax returns using MTD-compatible software. After successful implementation for VAT, MTD expanded to Income Tax from April 2026.
2Who Does MTD Affect?
Since 6 April 2026, MTD for Income Tax Self Assessment (ITSA) has been mandatory for:
- Self-employed individuals and landlords with gross income over £50,000
- Partnerships where the partnership itself has gross income over £50,000
- Those currently submitting Self Assessment tax returns
3Key Requirements
Digital Record Keeping
All business records must be maintained digitally using MTD-compatible software. This includes:
Income & Expenses
Complete records of all business transactions
Business Mileage
Digital logs of all business travel
Asset Records
Inventory and asset management
VAT Records
If VAT registered
Quarterly Updates
Instead of annual tax returns, you'll need to submit quarterly updates to HMRC showing your income and expenses.
4How to Prepare Your Business
1. Choose MTD-Compatible Software
Select accounting software that is recognized by HMRC for MTD. Popular options include Xero, QuickBooks, Sage, and FreeAgent. Consider your business needs, budget, and required features.
2. Digitize Your Records
Start transitioning from paper-based or spreadsheet systems to digital record keeping. Ensure all historical data is properly migrated and organized.
3. Train Your Team
Ensure everyone involved in bookkeeping understands the new requirements and how to use the chosen software effectively.
4. Review Your Processes
Adapt your accounting processes to accommodate quarterly reporting. This may mean more frequent reconciliations and reviews.
5Benefits of MTD Compliance
- Real-time tax position: Know your tax liability throughout the year
- Fewer errors: Digital systems reduce manual calculation mistakes
- Better cash flow management: Spread tax payments across the year
- Improved record keeping: Digital records are easier to manage and access