What Is Making Tax Digital?

Key facts

MTD requires businesses and individuals to keep digital records and submit tax information to HMRC using compatible software.
MTD for VAT has been mandatory since April 2019 (above-threshold) and April 2022 (all VAT-registered).
MTD for Income Tax Self Assessment (ITSA) becomes mandatory from April 2026 for those with income over £50,000.
HMRC’s goal is to reduce errors, close the tax gap, and make it easier for taxpayers to get their tax right.
You must use HMRC-recognised software — you cannot file through the HMRC website under MTD.

How Making Tax Digital Changes the Way You File

Making Tax Digital (MTD) is the UK government’s flagship programme to modernise the tax system. Run by HM Revenue & Customs (HMRC), MTD requires businesses and individuals to keep digital records of their income and expenses and submit tax information to HMRC using MTD-compatible software.^[1]

The core idea is simple: by moving tax administration online and eliminating manual processes, HMRC aims to reduce errors, make it easier for taxpayers to get their tax right, and close the UK’s tax gap — the difference between tax owed and tax collected.

Key point: Under MTD, you cannot file your tax returns through the HMRC website as before. Instead, you must use third-party software (like GoFile) that connects to HMRC’s systems via secure APIs.

Why Did HMRC Introduce MTD?

HMRC identified several problems with the old paper-based and portal-based system:^[2]

Errors and inaccuracies — manual data entry and paper-based record-keeping led to avoidable mistakes on tax returns
The tax gap — HMRC estimates that errors and failure to take reasonable care account for billions of pounds in lost revenue each year
Outdated processes — annual tax returns meant taxpayers often waited 10+ months before knowing their true tax position
Poor visibility — businesses lacked a real-time view of their tax obligations throughout the year

MTD addresses these issues by requiring digital records that flow directly into tax submissions, reducing transcription errors and giving both taxpayers and HMRC a more up-to-date picture of tax affairs.

How MTD Works

Under Making Tax Digital, the process has three core elements:

Element	What It Means
Digital records	You must keep your business records (income, expenses, VAT transactions) in digital form — either in software or in a digitally-linked spreadsheet.
Compatible software	You must use HMRC-recognised software to maintain records and submit data to HMRC via APIs. The software handles the connection to HMRC.^[3]
Digital submissions	Your tax data (VAT returns, quarterly updates, or final declarations) is submitted directly from your software to HMRC — no manual re-keying.

Which Taxes Does MTD Cover?

MTD is being rolled out in phases across different taxes:^[1]

Tax	Status	Key Date
VAT	Mandatory for all VAT-registered businesses	April 2019 (above threshold); April 2022 (all)
Income Tax (ITSA)	Mandatory from April 2026/2027 (phased by income)	April 2026 (>£50k); April 2027 (>£30k)
Corporation Tax	Not yet mandated — pilot expected in future	No confirmed date

For details on each tax, see our dedicated guides: MTD for VAT and MTD for Income Tax.

Who Is Affected by MTD?

MTD affects a wide range of taxpayers:^[4]

VAT-registered businesses — all VAT-registered businesses, regardless of turnover, must already use MTD for VAT
Self-employed individuals — those with qualifying income over £50,000 from April 2026, and over £30,000 from April 2027
Landlords — those with property income over the same thresholds
Partnerships — general partnerships will be brought into MTD for ITSA (date to be confirmed)

For a detailed breakdown, see Who MTD Affects.

Tip: Even if MTD does not yet apply to you, adopting digital record-keeping and MTD-compatible software now can save time, reduce errors, and prepare you for when the rules do apply. Try GoFile free to see how simple MTD compliance can be.

MTD-Compatible Software

To comply with MTD, you need software that HMRC has recognised as compatible. This software must be able to:^[3]

Keep and maintain digital records in the format HMRC requires
Submit tax data to HMRC via the MTD Application Programming Interfaces (APIs)
Receive information back from HMRC (e.g. confirmation of submission, tax calculations)

HMRC publishes a list of compatible software on GOV.UK. GoFile is an HMRC-recognised MTD-compatible software provider for both VAT and Income Tax. For help choosing software, see Choosing MTD-Compatible Software.

Benefits of Making Tax Digital

While MTD introduces new obligations, it also offers real advantages:

Fewer errors — digital records and automated calculations reduce mistakes
Real-time visibility — quarterly updates give you a clearer picture of your tax position throughout the year
Simpler record-keeping — everything in one digital place, no shoeboxes of receipts
Faster processing — digital submissions are processed more quickly by HMRC
Better planning — knowing your tax position quarterly helps with cash-flow planning

Frequently Asked Questions

What is Making Tax Digital in simple terms?

Making Tax Digital is an HMRC initiative that requires businesses and self-employed people to keep digital tax records and file returns using compatible software, rather than submitting paper forms or using the HMRC online portal directly.

Does MTD apply to me?

If you are VAT-registered, MTD already applies to you. If you are self-employed or a landlord with qualifying income over £50,000, MTD for Income Tax will apply from April 2026. The threshold drops to £30,000 from April 2027.

Do I need special software for MTD?

Yes. You must use software that is recognised by HMRC as MTD-compatible. This software connects directly to HMRC’s systems via APIs to submit your tax data. GoFile is MTD-compatible for both VAT and Income Tax.

Is Making Tax Digital free?

The MTD system itself is free — HMRC does not charge for it. However, you will need MTD-compatible software, which may have a cost depending on the provider. GoFile offers a free trial so you can get started at no cost.

Sources

Making Tax Digital — GOV.UK
Overview of Making Tax Digital — GOV.UK
Find software that is compatible with Making Tax Digital for VAT — GOV.UK
Making Tax Digital for Income Tax Self Assessment — GOV.UK