Making Tax Digital Explained: Essential Compliance Steps for UK Businesses in 2026

Making Tax Digital (MTD) is the biggest change to UK tax administration since Self Assessment was introduced in 1996. For the businesses it affects, it changes not just what you submit to HMRC but how, when, and with what tools.

If MTD feels overwhelming, this guide will make it manageable. We break down exactly what compliance looks like, step by step, for UK businesses in 2026.

What MTD Compliance Actually Means

At its core, MTD compliance means two things:

Keeping your business records in a digital format, using HMRC-recognised software
Submitting information to HMRC digitally and on schedule, via that software’s API connection

For VAT-registered businesses, this has already been required since April 2022. For self-employed individuals and landlords meeting the income threshold, it becomes mandatory from April 2026 onwards under MTD for ITSA.

Who Must Comply and When

MTD for VAT: All VAT-registered businesses — already mandatory.

MTD for Income Tax Self Assessment:

Self-employed with qualifying income over £50,000 — April 2026
Self-employed with qualifying income over £30,000 — April 2027
Self-employed with qualifying income over £20,000 — April 2028 (proposed)

Qualifying income means your gross (pre-expense) income from self-employment and UK property rental combined.

The Complete MTD Compliance Checklist

Before Your Start Date

Check 1: Confirm your qualifying income

Review your most recent Self Assessment return. Add your gross self-employment income plus any UK property rental income. If this exceeds the relevant threshold, you are in scope.

Check 2: Understand your business structure

MTD for ITSA applies to sole traders and individuals receiving rental income. Partnerships have a later implementation timeline. Limited companies are not affected by MTD for ITSA (they have separate corporation tax obligations).

Check 3: Register for MTD for ITSA

You must sign up with HMRC for MTD for ITSA before your mandatory start date. This is separate from your existing Self Assessment registration. Signing up through your software or HMRC online account authorises the digital connection.

Check 4: Choose MTD-compatible software

Select software from HMRC’s published list of recognised products. Ensure it supports:

Digital record-keeping
Quarterly update submissions for ITSA
End-of-Period Statements
Final Declarations
VAT if applicable

Check 5: Begin digital record-keeping from day one of your MTD period

Your MTD period begins with the first day of the tax year in which you are required to comply (6 April 2026 for the first wave). All transactions from this date must be recorded digitally.

During the Tax Year

Compliance Step 1: Record all income digitally

Every payment received from clients or customers must be individually recorded with the date, amount, and source. This includes cash payments, bank transfers, and card payments.

Compliance Step 2: Record all allowable expenses digitally

Every deductible business expense must be recorded with the date, amount, supplier, and category. HMRC’s expense categories for self-employment include:

Goods bought for resale / materials used
Wages, salaries, and subcontractor costs
Motor expenses
Travel and subsistence
Premises costs (rent, rates, utilities)
Repairs and maintenance
General administrative costs
Advertising and marketing costs
Legal and professional fees
Accountancy fees
Interest on bank and business loans
Other allowable expenses

Compliance Step 3: Submit quarterly updates on time

Four times a year, submit a summary of your income and expenses for the period. The deadlines are:

Quarter	Deadline
Q1 (6 Apr – 5 Jul)	5 August
Q2 (6 Jul – 5 Oct)	5 November
Q3 (6 Oct – 5 Jan)	5 February
Q4 (6 Jan – 5 Apr)	5 May

Compliance Step 4: Review your figures before each submission

Before submitting each quarterly update, review your records to ensure:

All income for the period is recorded
All expense receipts are captured and categorised
No transactions are missing or duplicated
Figures match your bank statements

At the End of the Tax Year

Compliance Step 5: Submit the End-of-Period Statement (EOPS)

After the final quarter, submit an EOPS for each income source. This confirms your quarterly figures are accurate and allows you to add any adjustments, capital allowances, or other claims.

Compliance Step 6: Submit the Final Declaration

By 31 January following the end of the tax year, submit your Final Declaration. This:

Confirms total income from all sources
Includes employment income, investment income, and other taxable receipts
Finalises your tax liability for the year
Replaces the traditional Self Assessment tax return

Penalties for Non-Compliance

HMRC’s points-based system for MTD late submissions works as follows:

Each missed submission deadline: 1 penalty point
4 points accumulated within a 2-year period: £200 fixed penalty
Each subsequent missed deadline: additional £200 penalty
Points are reset after a period of full compliance

Financial penalties for inaccurate records are separate and can be significant.

Common Compliance Pitfalls

Not signing up in advance: MTD for ITSA registration must be completed before your start date. Do not assume it is automatic.

Using unrecognised software: Only HMRC-listed products can make valid submissions. Verify before committing to any tool.

Forgetting to include all income sources: If you have both self-employment income and rental income, both must be reported under MTD (as separate sources).

Submitting totals rather than individual transactions: Each transaction must be recorded individually, not summarised.

Missing the January Final Declaration: The tax payment deadline and the declaration deadline are both 31 January. Do not confuse one for the other.

A Simple Monthly Routine for MTD Compliance

The most reliable path to compliance is building a regular habit:

Weekly: Photograph and record any receipts from the week
Monthly: Review income recorded against bank statements; ensure all invoices raised are recorded
Quarterly: Review the full period summary and submit the quarterly update
Annually: Complete EOPS and Final Declaration by 31 January

With the right software, this routine should take no more than an hour per month for most sole traders — less once the habit is established. InvoiceGuru is built around this exact workflow — combining invoicing, expense capture, and MTD-compliant submissions in one simple mobile app for UK businesses.