Making Tax Digital (MTD) is HMRC’s programme to modernise the UK tax system by requiring businesses and individuals to keep digital records and submit tax information using compatible software rather than paper forms. MTD for VAT is already mandatory for most VAT-registered businesses, and MTD for Income Tax Self Assessment (MTD for ITSA) has applied since 6 April 2026 and is being phased in by income level, with further waves from April 2027 and April 2028.
MTD for VAT — Already in Effect
Since April 2022, all VAT-registered businesses must:
- Keep their VAT records digitally using MTD-compatible software
- Submit VAT returns directly from that software to HMRC (not by typing figures into the HMRC portal)
- Ensure digital links between all parts of their record-keeping system (no manual re-keying between spreadsheets)
This applies regardless of turnover. Even voluntarily VAT-registered businesses below the £90,000 threshold must comply. For the actual filing dates and the points-based penalties for filing late, see our guide to VAT return deadlines and payment dates for 2026.
MTD for Income Tax Self Assessment (ITSA)
MTD for ITSA requires self-employed individuals and landlords to submit quarterly updates to HMRC instead of relying on a single annual tax return. The rollout timeline is:
| Phase | Who Is Affected | Start Date |
|---|---|---|
| Phase 1 | Self-employed / landlords with income over £50,000 | 6 April 2026 (already started) |
| Phase 2 | Self-employed / landlords with income over £30,000 | 6 April 2027 |
| Phase 3 | Self-employed / landlords with income over £20,000 | 6 April 2028 |
Under MTD for ITSA, affected taxpayers have to:
- Use MTD-compatible software to keep digital records of income and expenses
- Send quarterly summary updates to HMRC (by the 7th of the month following each quarter end)
- Submit a final declaration after the tax year end (replacing the Self Assessment return)
What Software Do You Need?
HMRC maintains a list of MTD-compatible software on GOV.UK. Options range from free basic tools to full accounting packages. Popular choices include Xero, QuickBooks, FreeAgent, and Sage. Bridging software is also available if you prefer to keep records in spreadsheets but need to submit digitally.
Exemptions
Certain groups are exempt from MTD requirements:
- Those who are digitally excluded (e.g., due to age, disability, or remote location with no internet)
- Religious objections to using electronic communications
- Insolvency situations
- Taxpayers for whom HMRC agrees it is not reasonably practicable to use digital tools
Exemptions must be applied for and approved by HMRC.
Penalties Under the New System
MTD for ITSA uses a points-based penalty system:
- There are no penalties for missing a quarterly update deadline in the 2026-27 tax year (you must still send the updates)
- From 2027-28 you receive one point for each missed quarterly update or tax return deadline
- Once you reach the penalty threshold (4 points), you receive a £200 penalty, and another for each further missed deadline
- Points below the threshold fall away after 24 months; at the threshold you must submit on time for 12 months and clear anything outstanding
Late payment penalties work separately and are not points based. For the 2026-27 tax year, a payment up to 15 days late has no penalty; 16 to 30 days late is 3% of the tax owed at day 15 (none in your first year); 31 days or more adds a further 3% at day 30 plus 10% a year charged daily on the outstanding amount. Late payment interest is charged from the first day, and payments on account are not covered.
Key Takeaway
MTD for Income Tax is live. If your qualifying income was over £50,000 in the 2024-25 tax year, you should have started using it from 6 April 2026, and HMRC says you can still sign up if you have not already done so. Choose MTD-compatible software, sign up, and begin keeping digital records and sending quarterly updates. If your qualifying income is lower, the £30,000 and £20,000 waves follow in April 2027 and April 2028, so you have time to prepare. Use our Making Tax Digital checker to see which wave applies to you.