Making Tax Digital
Making Tax Digital (MTD) for Payroll Explained
MAKING TAX DIGITAL
Making Tax Digital compliance and requirements guide
Making Tax Digital (MTD) is an HMRC initiative designed to modernise the tax system. It requires businesses and individuals to keep digital records and submit returns using MTD-compatible software. If Making Tax Digital applies to you, you should understand the requirements and rules to make sure you’re compliant.
On this page, we’ll provide you with an overview of MTD rules, requirements and related topics, like exemptions, penalties, thresholds and more.
Making Tax Digital compliance – in summary
Making Tax Digital for VAT (MTD for VAT) is compulsory for VAT-registered businesses. Making Tax Digital for Income Tax (MTD for IT) is being phased in from April 2026 for sole traders and landlords with a qualifying income over £50,000 in the tax year 2024-25, reducing to income of £30,000 in the tax year 2025-26 from April 2027 and income of £20,000 in the tax year 2026-27 from April 2028.
Compliance with MTD rules involves digital record-keeping of income and expenses and sending required information — including quarterly updates and an annual final declaration for MTD for IT and returns either monthly, quarterly or annually for MTD for VAT — from HMRC-recognised MTD-compatible software.
Adhering to MTD rules is crucial to avoid penalties. HMRC doesn't provide MTD-compatible software, so you'll need to use an option from third-party vendors.
What are Making Tax Digital requirements?
Making Tax Digital was first introduced for VAT in 2019, but as of April 2026, it’s being phased in for Income Tax. If you’re a landlord or sole trader with over £50,000 of qualifying annual income in the tax year 2024-25, then you need to sign up for MTD.
Digital Record Keeping: Instead of storing your records on your computer or on paper, you’ll be required to keep records of your income and expenses digitally. For MTD for VAT this would be a breakdown of each VAT-applicable transaction; for Making Tax Digital for Income Tax, that includes income and expenses.
MTD-Compatible Software: You must use MTD-compatible software that’s also HMRC-recognised to keep records and send updates. You also have the option to use bridging software that converts information from documents or spreadsheets to an MTD-compatible format.
Quarterly Updates: If Making Tax Digital for Income Tax applies to you, you’ll be required to submit quarterly updates on your income and expenses using your MTD-compatible software.
Final Declaration: If Making Tax Digital for Income Tax applies to you, you’ll need to submit your Final Declaration annually. This acts as a confirmation of your tax position and includes how much you owe as part of your final tax bill for the year.
Is Making Tax Digital compulsory?
Making Tax Digital is compulsory for some businesses and individuals, though it’s based on their qualifying income.
Making Tax Digital for VAT: MTD is compulsory for all VAT-registered businesses, but businesses only have to register for VAT if they have a taxable turnover over £90,000.
Making Tax Digital for Income Tax: Since April 6th 2026, Making Tax Digital for Income Tax has been compulsory for sole traders and landlords with a qualifying income of over £50,000 in the tax year 2024-25. From April 2027, this threshold will drop to £30,000 for income in the tax year 2025-26.
Learn more about Making Tax Digitial for Income Tax
Compliance with Making Tax Digital rules
Compliance with MTD is essential to avoid penalties and fines. This means adhering to the rules set out by HMRC. Financial records must be kept digitally, and MTD submissions must be sent from MTD-compatible software.
It’s important to note HMRC doesn’t provide MTD-compatible software; instead, it must be sourced from third-party vendors such as QuickBooks.
If both Making Tax Digital for Income Tax and Making Tax Digital for VAT apply to you, then a solution like QuickBooks could allow you to do both from one place.
MTD thresholds: who needs to follow MTD rules?
Making Tax Digital for Income Tax applies to sole traders and landlords but is based on your qualifying income:
From April 2026, it applies to those with a qualifying income over £50,000 (based on the tax year 2024-25).
From April 2027, Making Tax Digital for Income Tax applies to those with a qualifying income over £30,000 (based on the tax year 2025-26).
From April 2028, this drops to £20,000 (based on the tax year 2026-27).
Qualifying income is your total gross turnover before you deduct any expenses, salaries, or interest. It includes income from self-employment and property. If you have both, combine your income from the two.
MTD FOR INCOME TAX
HMRC-compliant MTD Software
Keep digital records, submit quarterly updates to HMRC, and finalise your Income Tax at the end of your accounting period with Intuit QuickBooks.
Explore plans & pricing
MTD exemptions: when you might not need to follow MTD rules
While following MTD guidelines is important, you should always ensure they apply to you. Even if you fit the bill on paper, there may be exemptions that mean HMRC doesn’t require you to adhere to MTD. Exemptions are typically granted due to digital exclusion or, in other words, because you can’t reliably use Making Tax Digital-compatible software. This may be due to your:
Age
Disability or condition
Religious beliefs
Location
Even if you are exempt from using MTD-compatible software for HMRC purposes, you may still find that following MTD for IT processes can help save you time and manage your finances.
MTD penalties: consequences of non-compliance
Understanding the rules of MTD is important because failing to comply with them can have consequences. Most of these take the form of a penalty system, where late returns or payments incur a penalty point. Gain enough penalty points, and you’ll be fined until you’re able to correct your mistake.
For the first year ofMaking Tax Digitial for Income Tax (2026 to 2027), penalty points for late filing of quarterly tax updates will not apply. This acts as a grace period, allowing business owners time to adjust to the new rules.
In the following tax year, 2027-2028, users will be penalised every time they miss a deadline: two penalties in a 24-month period will result in a £200 fine.
Late payments of Income Tax will have an interest rate of 7.75% added to the total cost, plus separate late payment penalties.
While there are no plans to overhaul HMRC guidance, you should keep abreast of updates for the most up-to-date penalty information.
See the full list of MTD penalties.
MTD extensions: what to do in exceptional circumstances
Sometimes, situations might mean you’re unable to follow MTD requirements. On these rare occasions, HMRC may grant you an extension so you’re able to send reports after the deadline without facing penalties. Examples of exemptive circumstances include:
Mental health conditions
Conditions such as dyslexia or autism
Financial difficulties; if you’re made redundant, for example
If you’re hospitalised
If you’ve been a victim of domestic abuse, including economic abuse.
Extensions aren’t automatic. However, they do require a formal application to HMRC and their approval.
Learn whether MTD extensions apply to you
MTD opt out: when you can stop following the rules
If you no longer meet the threshold for qualifying income for three consecutive years, you can opt out of Making Tax Digital for Income Tax. You can also opt out if you meet the criteria for exemption, for example, if you move to a location without a reliable internet connection.
While you can opt out under these circumstances, following MTD for IT practices with software such as QuickBooks does come with benefits. These include, but aren’t limited to: improved accuracy, increased accessibility to records, and deeper insights into your business’s performance.
Making Tax Digital rules and regulations FAQs
What happens if I don't follow MTD rules?
If you don’t follow MTD rules, you run the risk of being fined. While there is a grace period following the introduction of MTD for IT, repeated failure to follow the rules will result in you being assigned penalty points. Two penalties in 24 months will result in a £200 fine, while late payments will have an interest rate of 7.75% added to the total cost.
Don't I just send my income tax/VAT records to HMRC?
With Making Tax Digital, you send the required information from your MTD-compatible software, not your full records. Making Tax Digital also requires you to store records digitally using your software and submit quarterly income and expense updates, alongside a final annual declaration.
Where can I find HMRC-recognised MTD-compatible software?
HMRC doesn’t provide MTD-compatible software; instead, it should be sourced from third-party vendors. QuickBooks offers HMRC-approved software for businesses and individuals to help them stay compliant with MTD. Explore our options to find the right option for you.
The information on this website is provided free of charge and is intended to be helpful to a wide range of businesses. Because of its general nature the information cannot be taken as comprehensive and they do not constitute and should never be used as a substitute for legal, accounting, tax or professional advice. We cannot guarantee that the information applies to the individual circumstances of your business. Despite our best efforts it is possible that some information may be out of date. Any reliance you place on information found on this site or linked to on other websites will be at your own risk.
This information is intended to outline our general product direction, but represents no obligation and should not be relied on in making a purchasing decision. Additional terms, conditions and fees may apply with certain features and functionality. Eligibility criteria may apply. Product offers, features, functionality are subject to change without notice.
Share:
