Making Tax Digital (MTD) is transforming the way businesses and individuals interact with HMRC. Whether you’re a sole trader, landlord, or a VAT-registered business, understanding the timeline and key milestones of MTD is critical for staying compliant and avoiding penalties.
Here’s what you need to know, with the most important dates clearly laid out.
What is Making Tax Digital?
Making Tax Digital is an HMRC initiative aimed at digitising tax administration. It requires businesses and individuals to keep digital records and use approved software to submit tax returns directly to HMRC.
The goal: reduce errors, improve efficiency, and eventually phase out paper-based filing altogether.
Key Dates and Deadlines
April 2019 – MTD for VAT Begins
Businesses with VAT-taxable turnover above £85,000 must keep digital records and submit VAT returns using MTD-compatible software.
April 2021 – Digital Links Become Mandatory
No more copy-pasting. Businesses must now use digital links between software programs and spreadsheets for VAT submissions.
April 2022 – All VAT-Registered Businesses Included
MTD for VAT is extended to all VAT-registered businesses, regardless of turnover. If you’re VAT registered, you’re now required to comply.
January 2023 – New Penalty System Introduced
A points-based penalty system is introduced for late VAT filings and payments. Accumulate too many points, and financial penalties will apply.
Looking Ahead: MTD for Income Tax (ITSA)
April 2026 – MTD for ITSA Starts (Over £50,000)
Sole traders and landlords with gross income over £50,000 must submit digital quarterly updates and end-of-year statements using MTD software.
April 2027 – Threshold Drops to £30,000
MTD for ITSA expands to include those earning between £30,000 and £50,000 annually.
April 2028 (TBC) – Potential Further Rollout
The government may introduce MTD obligations for income below £30,000. Watch for updates on whether this change becomes law.
What About Corporation Tax?
MTD for Corporation Tax is still in development. The earliest possible start date is 2026, but no firm deadline has been set. Businesses should monitor HMRC updates.
Penalties for Late Submissions
HMRC has introduced a points-based penalty regime that now applies to VAT and will extend to ITSA. Here’s how it works:
- Each missed deadline earns a point.
- Points lead to financial penalties once thresholds are reached.
- The more often you file late, the higher the risk of accumulating costly fines.
- Recent changes also mean penalty amounts have increased, with some fines now reaching up to 10% of tax owed.
What Your Business Needs to Do
Whether you’re a sole trader, landlord, or small business, here’s how to stay on the right side of HMRC:
- Confirm your MTD obligations – especially if you’re VAT registered.
- Start keeping digital records using compatible accounting software (e.g. Xero, FreeAgent, Sage).
- Submit quarterly updates (for ITSA from 2026 onwards).
- Sync your accounting year with the tax year to make reporting easier.
- Stay punctual – avoid unnecessary penalties by meeting deadlines.
Final Thoughts
Making Tax Digital is not just about compliance – it’s about future-proofing your business. By adopting digital tools now, you’ll not only meet HMRC’s requirements but also streamline your financial admin and reduce costly mistakes.
Need help getting ready?
If you’re unsure what MTD means for you, or you’d like support choosing compliant software, get in touch with Garner & Daughters today. We specialise in helping small to medium businesses across South Yorkshire adapt to the new rules – without the stress.
