Making Tax Digital, or MTD, is HMRC's ongoing move toward digital record-keeping and reporting. It sounds like one thing, but it actually covers different requirements depending on your business — and it's easy to get the two main strands confused.
MTD for VAT
This is already a requirement for all VAT-registered businesses. It means keeping VAT records digitally and submitting VAT Returns through MTD-compatible software, rather than entering figures manually on HMRC's website. If you're VAT-registered, this already applies to you.
MTD for Income Tax
This is a separate requirement being phased in for self-employed individuals and landlords above certain income thresholds. Rather than filing one Self Assessment return a year, affected taxpayers will need to keep digital records and submit quarterly updates to HMRC throughout the year, followed by a final year-end submission.
These are not the same thing
It's a common misunderstanding to assume that being compliant with MTD for VAT automatically covers MTD for Income Tax, or that being below the VAT threshold means MTD doesn't apply to you at all. They're separate requirements, with separate thresholds and start dates — it's worth checking which ones actually apply to your situation rather than assuming.
What it means practically
In both cases, the shift is away from manual, once-a-year record-keeping toward ongoing digital records maintained throughout the year. For many businesses, this means adopting cloud accounting software if they haven't already, and building a habit of updating records regularly rather than in one annual push.
Why it's not just red tape
It's easy to view MTD as an added burden, and in some ways the compliance requirement is exactly that. But the underlying shift — accurate, up-to-date digital records — is something that benefits most businesses regardless of HMRC's requirements. It's much easier to understand how your business is performing when your numbers are current, not reconstructed from memory in March.