Making Tax Digital (MTD) for charities explained

HMRC is introducing Making Tax Digital (MTD), an effort to digitise and change how people and businesses submit tax returns. While Making Tax Digital for charities isn’t a specific scheme, some charities may be affected by existing MTD rules if they meet certain criteria for VAT or Income Tax (IT).

Learn more about Making Tax Digital for charities, what it applies to, and how charities may be impacted. 

MTD and charities – In summary

• There is no Making Tax Digital for Charities scheme, but MTD for IT or VAT may affect charities as with other businesses.

• Making Tax Digital for VAT impacts VAT-registered charities, and those charities must follow MTD rules unless they are exempt.

• Making Tax Digital for Income Tax can impact charities that earn over a threshold for qualifying, non-charitable income.

Does Making Tax Digital apply to charities?

There is no dedicated Making Tax Digital for Charities scheme; if MTD impacts your charity, it will be through the existing schemes. Charities may be impacted by MTD rules if:

• Your charity is registered for VAT, and you meet the VAT threshold via Making Tax Digital for VAT (MTD for VAT).

• You have a non-charitable trading income that would fall under Making Tax Digital for Income Tax (MTD for IT). Your primary charitable activities and associated reporting, such as to the Charity Commission, are not directly covered by MTD.

Even if you do not currently meet the MTD threshold, you may want to consider digitising your accounting processes and systems in line with MTD requirements.

What does Making Tax Digital mean?

Making Tax Digital is a scheme designed to make tax returns easier, by digitising the existing processes in line with HMRC guidance. This HMRC initiative mandates that users maintain digital records and submit tax updates via HMRC-recognised MTD-compatible software. This eliminates the need for paper returns, reduces time spent, and minimises errors.

How are charities affected by Making Tax Digital for VAT?

Charities aren’t exempt from MTD; Making Tax Digital for VAT currently applies to any charities that are VAT registered. If your charity’s taxable turnover exceeds the VAT threshold, then it must comply with the rules, regulations, and procedures of MTD for VAT.

Making Tax Digital for VAT requires that qualifying businesses and VAT-registered charities:

• Retain digital records of all VAT-related transactions.

• Submit VAT returns by using HMRC-recognised MTD-compatible software, such as QuickBooks.

• Adhere to all submission guidelines for MTD for VAT. 

The above requirements are the same as for any other VAT-registered organisation, rather than a specific “Making Tax Digital for Charity” initiative. 

There may be partial exemptions or relaxed rulings, but these may not be automatically applied. For any exemptions, you should contact HMRC or check official government sources for up-to-date guidance on MTD for VAT.

How charities are affected by Making Tax Digital for Income Tax

Starting April 2026, charities operating as a sole trade or landlord with more than £50,000 in qualifying income(in the tax year 2024-25), must comply with MTD for IT rules. Making Tax Digital for Income Tax only applies to charities if that charity has non-charitable trading income that would typically be subject to Income Tax. While not an exhaustive list, examples of taxable income could be:

• Monies earned from a trading subsidiary 

• Monetary activity not directly related to the charity’s primary charitable purpose

•  a failure of Gift Aid Matching, or unqualified rental/investment income.

For more information on taxable income, visit the HMRC website.

If your charity (or a subsidiary) is subject to MTD for IT, it should:

• Retain digital records of relevant income and expenditure, which generally benefit from tax exemptions.

• Send quarterly updates, including a final declaration in line with MTD for IT requirements.

• Use HMRC-compliant, MTD for IT-compatible software.

In some cases, your charity may not be able to go digital due to age, religion, or disability-based requirements. In this instance, you should contact HMRC, as exemptions are unlikely to be automatically applied.

Benefits of digital record keeping for charities

Even if you aren’t subject to Making Tax Digital, digital record-keeping can be beneficial for charities. Here are some of the reasons you might want to transition to a digital record-keeping system:

• Improved financial management accuracy and efficiency. Get consistent and accurate data that populates itself based on transactions and earnings. Remove error-prone, repetitive manual work.

• Easier annual account preparation and Charity Commission returns. Transform your charity administration through automation, real-time tracking, and report generation. 

• Better oversight of finances for trustees and management. Get better oversight of your finances with digital record-keeping services and tools and gain a stronger understanding of your finances.

• Reduced paper trails and space saving. Digital record-keeping can reduce the volume of physical records you need to retain and look after. 

• Increased data security and compliance. With the correct platforms, digital record-keeping is secure and helps you to remain compliant with GDPR.

• Better preparedness for the introduction of MTD. MTD is a work-in-progress and on a steady rollout. While you may not be subject to it now, you could be in the future.

• Superior data analysis. Digital systems can provide real-time insights and data analytics, allowing your charity to understand and report on key datapoints.

How to prepare for MTD if it applies to your charity

While MTD isn’t required for all charities, it may apply to yours. Making Tax Digital may sound like a lot to prepare for on paper, but it can be straightforward once you understand the steps.

• Review your charity's income and activities. Before anything, check if your charity’s operations are subject to MTD for IT or MTD for VAT. If not, you may not need to worry. However, switching to an MTD-compatible system can be beneficial, even if not mandated.

• Ensure digital record-keeping is in place. If your charity is subject to Making Tax Digital, you should retain digital records of income and expenses for MTD for IT. You should also keep a breakdown for each transaction, including VAT, for MTD for VAT.

• Choose HMRC-recognised MTD-compatible software. HMRC-recognised, MTD-compatible software is a requirement, and helps you to remain compliant with MTD rulings. While you could choose multiple MTD tools or software for both MTD for IT and VAT, having everything in one place might be easier. 

• Familiarise yourself with the process. To prepare for MTD, you should teach yourself the rules and understand the process; that way, you won’t be caught off guard. Look into the MTD process — MTD for IT is currently in a “soft launch”, with a grace period on penalties until 2027, meaning it could be an ideal time to learn the process.

MTD for charities FAQs

Is there a specific MTD scheme for charities?

No, there isn’t a specific Making Tax Digital (MTD) for Charities scheme, but charities may be subject to MTD for VAT or IT. Whether these apply to your charity or not depends on whether you are VAT-registered or earn a qualifying, non-charitable taxable income.

What records do charities need to keep for MTD?

Charities can be subject to MTD for VAT or Income Tax, and that influences the records you need to keep. Record-keeping for MTD for VAT requires that you retain a breakdown of each transaction that includes VAT. MTD for IT requires you to keep records of applicable non-charitable trading income and expenses.

Does MTD affect Gift Aid submissions?

Making Tax Digital has no direct impact on Gift Aid submissions for charities, but it may affect record-keeping. While you might need to retain digital records, Gift Aid is a separate scheme for claiming tax relief donations. As such, MTD should not change its reporting requirements.

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