Making Tax Digital: Developments since 2020
The government will implement Making Tax Digital for income tax in April 2026 for the self-employed and landlords with qualifying income above £50,000.
The Conservative government launched Making Tax Digital (MTD) in 2015 to modernise how taxpayers keep records and submit tax information. Originally, MTD was planned to be rolled out for Value Added Tax (VAT), income tax, and corporation tax by 2020. The programme has undergone major timetable changes and revisions.
Making Tax Digital: OverviewThe government originally planned to introduce MTD for income tax in 2018, for VAT in 2019 and for corporation tax in 2020. Only the VAT element is now in full force. The government is planning to begin the roll-out of MTD for income tax from April 2026, eight years later than initially proposed. HM Revenue and Customs (HMRC) has confirmed it does not intend to introduce MTD for corporation tax.
MTD for income taxMTD for income tax will apply to self‑employed people and landlords with annual qualifying income from self‑employment or property. HMRC has said that from April 2026, those with income above £50,000 must follow the new Making Tax Digital rules unless they are specifically exempt. Those with income above £30,000 will be included from April 2027, and those with income above £20,000 from April 2028.
Taxpayers will have to keep digital records of income and expenses using compatible software, send quarterly updates to HMRC and complete a digital tax return by 31 January following the end of the tax year. Quarterly updates provide year‑to‑date figures and are not equivalent to filing four tax returns. After the final quarterly update, taxpayers make year‑end adjustments and claim reliefs in the software before filing the return. HMRC can grant exemptions to taxpayers (for example, if they are digitally excluded).
Penalties under MTD are points‑based. A penalty point is issued for a late quarterly update or return. A £200 financial penalty applies if a taxpayer reaches four points within two years. Separate rules apply for late payment, including penalties that increase according to how long a payment is overdue. The government has said that late submission penalty points will not apply to quarterly updates in the first year of mandation.
Provision for MTD for income tax is included in sections 60 to 62 and schedule 14 of the Finance (No. 2) Act 2017, and The Income Tax (Digital Requirements) Regulations 2021, as amended by The Income Tax (Digital Requirements) (Amendment) Regulations 2024.
MTD for VATMTD for VAT applies to all VAT‑registered businesses from April 2022. Businesses must keep specified records digitally and file VAT returns using MTD‑compatible software. Exemptions may be granted where businesses cannot comply due to factors such as age, disability, religious grounds or lack of internet access.
VAT penalties include fines for filing using non‑compatible software and for failing to keep digital records. A points‑based system applies for late returns.
Developments since 2020The government published an initial evaluation of MTD for VAT alongside the 2020 Budget. It said most businesses had met the requirements but some faced challenges, including higher than expected transition costs. Professional bodies reported that transition costs appeared higher than government estimates and raised concerns about the limited number of software products for income tax.
In September 2021, the government delayed the introduction of MTD for income tax to April 2024, citing pressures on businesses following the pandemic. Professional bodies welcomed the delay. In relation to MTD for VAT, HMRC said research showed MTD VAT was reducing errors and likely increasing tax revenue, although the National Audit Office (NAO) later said some uncertainty remained about the causes of the additional revenue.
In December 2022, the government delayed MTD for income tax again to April 2026 and confirmed phased introduction. The NAO reported in June 2023 that the original timetable for the whole MTD programme had been unrealistic, with increased costs and unresolved design issues. Following consultation, the government announced design changes in Autumn 2023, including removing the end‑of‑period statement and reducing reporting requirements for jointly owned property.
In an inquiry linked to the 2023 NAO report, the Public Accounts Committee criticised HMRC’s planning and design of MTD, noting rising costs and lack of clarity for taxpayers.
A pilot for MTD for income tax began in April 2024. Stakeholder commentary in 2024 and 2025 continued to highlight concerns about quarterly reporting, software availability, costs and preparedness among taxpayers and agents. HMRC’s final evaluation of MTD for VAT in 2025 reported that digital record‑keeping reduced errors and most businesses found software easy to use, though many reported costs as well as benefits.
Alongside these developments, HMRC has been migrating taxpayer records from legacy systems to a new digital platform. Delays in this work have contributed to revisions in the wider programme timetable.