Understanding UK Making Tax Digital Requirements

Making Tax Digital (MTD) is not one single rule — it is a programme of requirements that affects different types of taxpayer in different ways. Understanding precisely what applies to you, and what HMRC actually requires you to do, is the first step to confident compliance.

This guide sets out the MTD requirements clearly and practically, so you know exactly where you stand.

The Two Main MTD Programmes

MTD for VAT

MTD for VAT has been mandatory for all VAT-registered businesses since April 2022. If you are VAT-registered — regardless of your turnover — you must already be:

Maintaining digital VAT records
Submitting VAT returns via MTD-compatible software
Keeping a digital audit trail that links your source transactions to your VAT return

There is no option to submit VAT returns via the old HMRC portal any longer. If you are not already using MTD-compatible software for VAT, you are non-compliant.

MTD for Income Tax Self Assessment (ITSA)

This is the newer programme, affecting self-employed individuals and landlords. The rollout is:

April 2026: Qualifying income over £50,000
April 2027: Qualifying income over £30,000
April 2028: Qualifying income over £20,000 (proposed)

Core MTD Requirements Explained

1. Digital Record-Keeping

HMRC requires that every business transaction is recorded and maintained digitally. This means:

Recording each sale and purchase individually (not as a batch total)
Keeping records in a digital format, not on paper
Maintaining records for at least five years from the Self Assessment filing deadline

Acceptable digital formats include:

MTD-compatible software apps
Accounting software connected to HMRC’s API
Spreadsheets used with HMRC-recognised bridging software

Paper records, written ledgers, and memory alone are not acceptable.

2. Functional Compatible Software

You must use software that HMRC recognises as MTD-compatible. This software must be capable of:

Capturing and maintaining records in digital form
Sending and receiving information to and from HMRC using the API
Performing the necessary calculations and submissions

HMRC publishes a list of recognised software on their website. Always verify that your chosen software appears on this list.

3. Quarterly Updates (ITSA)

For MTD for ITSA, you must submit four updates per year, one for each reporting quarter. Each update must contain:

Total income for the period
Total expenses for the period, broken down into HMRC-specified categories

You are not required to calculate your tax liability at this stage — the update is an income and expense summary only.

4. End-of-Period Statement

At the end of each tax year, you submit an End-of-Period Statement (EOPS) for each source of business or property income. The EOPS confirms:

Your quarterly figures are accurate
Any adjustments or allowances you wish to claim
That the information provided is correct to the best of your knowledge

5. Final Declaration

The Final Declaration replaces the traditional Self Assessment tax return. It brings together:

Income from all sources (self-employment, property, employment, investments, etc.)
All allowances and reliefs
Your final tax liability calculation

This must be submitted by 31 January following the end of the tax year — the same deadline as the current SA return.

What MTD Does Not Change

It is worth clarifying what MTD does not alter:

The taxes you pay: MTD changes how you report, not what you owe
Allowable expenses: The rules on what you can claim remain the same
Your tax deadlines: The January 31 payment deadline is unchanged
The role of your accountant: You can still use an agent to manage your affairs

Common Compliance Mistakes

Using non-compatible software: Not all accounting apps are MTD-compatible. Check the HMRC list before assuming your current tool qualifies.

Submitting lump sums rather than individual transactions: HMRC requires each transaction to be recorded separately, not totalled up.

Missing quarterly deadlines: Each missed deadline earns a penalty point. Four points within 24 months triggers a financial penalty.

Failing to register for MTD: You must register with HMRC for MTD for ITSA before your start date. This is separate from your existing Self Assessment registration.

Not keeping records long enough: Digital records must be retained for at least five years after the 31 January filing deadline for the relevant tax year.

How to Get and Stay Compliant

Confirm your start date based on your qualifying income
Register for MTD for ITSA with HMRC before your start date
Choose HMRC-recognised software before the start date
Migrate your records to digital format
Set calendar reminders for quarterly submission deadlines
Review and submit each quarter within the deadline
Complete the EOPS and Final Declaration by 31 January

MTD requirements are clear once you break them down. The key is not to leave preparation to the last minute — the systems and habits you build now will serve you well for every tax year to come. InvoiceGuru handles the digital record-keeping, invoicing, and MTD compliance requirements automatically, so you can focus on running your business.