Who has to use Making Tax Digital?

All VAT-registered businesses must use MTD for VAT. From April 2026, MTD for Income Tax Self Assessment applies to sole traders and landlords with income above £50,000; from April 2027, the threshold drops to £30,000.

Do I need special software for MTD?

You need software that keeps digital records and submits to HMRC via a digital link. Spreadsheets are allowed if combined with bridging software. Most modern bookkeeping platforms — including AvroBooks via Xero — handle MTD natively.

What counts as a digital record under MTD?

Each transaction must be recorded digitally with the date, amount, VAT rate (where applicable), and supplier or customer. Photos of receipts alone aren't enough — the data has to be captured into accounting software.

Can I use Excel for MTD?

Yes, but you need bridging software to submit to HMRC, and any data transfer between Excel and the bridging tool must be a digital link — no manual retyping.

What happens if I miss MTD deadlines?

HMRC operates a points-based penalty system. You accumulate points for late submissions; when you hit the threshold, financial penalties begin. Continued non-compliance can lead to enforcement action.

Making Tax Digital: A UK Guide for 2026

What is Making Tax Digital?

Making Tax Digital (MTD) is HMRC's long-running programme to move UK tax record-keeping and submission online. The idea is straightforward: keep your records digitally, send them to HMRC through software, reduce errors, close the tax gap.

In practice it means three things for most businesses: digital records, digital links, and digital submission. You can't store transactions on paper alone. You can't retype numbers between tools. You can't submit by post.

The MTD timeline at a glance

April 2019 MTD for VAT begins for businesses over the £85,000 threshold.
April 2022 MTD for VAT extended to all VAT-registered businesses regardless of turnover.
April 2026 MTD for Income Tax Self Assessment (ITSA) starts for sole traders and landlords with income above £50,000.
April 2027 MTD for ITSA threshold drops to £30,000.
Future MTD for Corporation Tax — currently no firm date.

What records you need to keep

For each transaction your software must hold:

The date of the supply
The net value (VAT-exclusive amount)
The VAT rate
The VAT amount (where applicable)
For most businesses, the supplier or customer name

A photo of a receipt isn't a digital record on its own — the underlying data has to be captured into accounting software. This is exactly the bit AvroBooks automates: the transition from a paper or PDF document to a structured, MTD-compliant record.

Digital links: the rule that catches people out

Under MTD, data must move between systems without manual retyping. A digital link can be an API connection, an exported CSV imported into another tool, a direct write between accounting and bridging software — but it cannot be someone copying a number from a spreadsheet into a tax return form.

How AvroBooks helps with MTD

Captures source documents and converts them into structured digital records.
Records every transaction with date, net, VAT rate and amount per line.
Syncs to Xero via API — a digital link by HMRC's definition.
Maintains an audit trail so you can demonstrate continuous digital records.
Stores documents securely in UK/EU data centres for the required retention period.

Common questions

Can I still use Excel? Yes — alongside bridging software. But the link between your Excel sheet and the bridging tool has to be a digital link, not a manual retype.

Do I have to be VAT-registered? No. MTD for ITSA applies to all sole traders and landlords once thresholds bite, regardless of VAT status.

Will MTD penalties be expensive? Initially modest — HMRC uses a points-based system before financial penalties kick in. But repeated non-compliance escalates fast.

Making Tax Digital, explained