Tax & deadlines

What is Making Tax Digital and does it affect me?

Updated 2 June 20265 min readLedgers Team

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What Making Tax Digital actually is
Does it affect me? (the honest yes/no)
What "digital records" actually means
What "compatible software" means
What it doesn't change
Why this is actually good news for you
The short version

Tax & deadlines6 of 6

1.How much tax will I actually pay? (founder's rough guide)
2.Self Assessment for the terrified: a step-by-step
3.The UK small business tax calendar (every deadline, plain English)
4.What can I claim as a business expense? (the honest list)
5.What is Corporation Tax and when do I pay it?
6.What is Making Tax Digital and does it affect me?

Quick answer

Making Tax Digital is HMRC's move to digital tax records and software-based filing. Here's a plain-English yes/no on who it affects — VAT-registered businesses now, Income Tax Self Assessment next — and what 'digital records' really means. Confirm current dates with HMRC.

Note: Making Tax Digital is rolling out in phases and the thresholds and start dates change. The dates and figures here are general — confirm what currently applies to you, and when, with HMRC.

What Making Tax Digital actually is

Making Tax Digital — usually shortened to MTD — is HMRC's long-running project to move tax record-keeping and filing from paper and manual entry into software.

Strip away the official language and it comes down to two simple requirements:

Keep your records digitally — in software, not in a shoebox of receipts or a hand-written ledger.
File through compatible software that connects directly to HMRC — not by typing figures into a web form or posting a paper return.

That's the whole concept. HMRC wants your tax information to flow from properly kept digital records, through approved software, straight to them — with fewer manual steps where errors creep in.

The reassuring part: if you already use cloud accounting software, you're most of the way there without realising it. MTD isn't a new tax. It's a new way of filing the taxes you already have.

Does it affect me? (the honest yes/no)

This is the question you actually came for, so here's the plain version.

If you're VAT-registered: yes, it almost certainly affects you now. MTD for VAT is already in force. Essentially all VAT-registered businesses must keep digital VAT records and file their VAT returns through MTD-compatible software. The old habit of typing nine boxes into the HMRC website by hand is gone.

If you're a sole trader or landlord with income over a certain level: yes, it's coming. MTD for Income Tax Self Assessment (often called "MTD for ITSA") is being rolled out in phases, starting with those whose income from self-employment or property is above a set threshold, and bringing in lower thresholds over time. The exact start dates and income levels keep shifting, so this is the single most important thing to confirm with HMRC for your own situation.

If you're a small sole trader below the threshold, or not VAT-registered: not yet, but probably eventually. The clear direction of travel is digital. Even if nothing applies to you today, getting your records into software now means you'll never have to scramble later.

Corporation Tax: MTD for Corporation Tax has been discussed but is the furthest off. Watch this space, but don't lose sleep over it.

So the short answer for most readers: if you charge VAT, it affects you already; if you're self-employed above the threshold, it's on its way; everyone else should keep an eye out.

What "digital records" actually means

People panic at "digital records," picturing some complex system. It's much simpler than that.

A digital record just means your business transactions are stored in software, with the key details captured electronically — the date, the amount, the VAT, what it was for. A photo of a receipt that flows into your bookkeeping counts. A bank feed that pulls your transactions in automatically counts. A spreadsheet can count, but only if it links to HMRC through "bridging" software, which is fiddly.

What doesn't count: a drawer of paper receipts you tot up by hand once a quarter, or re-typing figures from your bank statement into the HMRC website. The point of MTD is to remove exactly that manual re-keying, because that's where mistakes happen.

The honest upside: keeping digital records isn't just compliance. It means at any moment you can see what you've earned, spent and owe — instead of finding out at year-end. The thing HMRC is forcing was already the smart way to run a business.

What "compatible software" means

"MTD-compatible software" simply means a tool that HMRC has approved to talk to its systems directly — so when you file, the figures go from your software to HMRC without you copying anything across.

You don't need to understand the plumbing. You need software that:

keeps your records digitally as you go,
works out the return (your VAT figures, for example) from those records, and
submits it to HMRC through the official connection at the click of a button.

Most modern cloud accounting tools — Ledgers included — are built for this. You connect once, and filing becomes a review-and-confirm step rather than a data-entry chore.

What it doesn't change

It's worth being clear about what MTD doesn't do, because the name makes it sound bigger than it is.

It doesn't change how much tax you pay — the rates and rules are the same. It doesn't change your deadlines for the most part — VAT is still due roughly a month and seven days after each quarter. (See: The UK small business tax calendar.) And it doesn't mean HMRC is watching your every transaction in real time. It's a change to how you keep records and file — not a new tax, and not surveillance.

For MTD for Income Tax, there is one genuine change worth knowing: instead of one annual Self Assessment, you'll send HMRC quarterly updates from your software through the year, then a final declaration. More frequent, but each one is lighter — and if your records are already digital and current, your software does the heavy lifting. (See: Self Assessment for the terrified.)

Why this is actually good news for you

MTD lands on a lot of founders as one more bit of admin. But flip it around.

The reason year-end feels horrible isn't the tax — it's the catch-up: months of receipts and statements wrestled into shape in one panicked weekend. MTD nudges you toward keeping records current all year, which is exactly the habit that kills that dread. Once your transactions flow in automatically and your return is built as you go, filing stops being an event and becomes a five-minute check.

There's also a quieter benefit. A business with clean, current digital records is one you can actually read — you know your profit, your cash and your tax position whenever you look. That's the same thing investors and lenders want to see. The compliance requirement and the smart way to run your money turn out to be the same thing.

The short version

Making Tax Digital is HMRC moving tax record-keeping and filing into software. It means two things: keep your records digitally, and file through compatible software that connects to HMRC. It affects VAT-registered businesses now, is rolling out to self-employed people and landlords above a threshold for Income Tax, and is heading everyone's way eventually. It doesn't change what you owe — just how you record and file it. Confirm what applies to you, and when, with HMRC. And honestly: keeping digital records was always the better way to run a business anyway.

Ready to stop dreading the filing? Ledgers is Making Tax Digital compatible — your records are digital automatically from the bank feed, and your VAT return is built and submitted to HMRC from one screen, with anomaly checks before you sign off. See your numbers without learning accounting → start free.

Wondering when everything's due? The UK small business tax calendar →

Filing for the first time? Self Assessment for the terrified — a step-by-step →

Frequently asked questions

Does Making Tax Digital apply to me?

If you're VAT-registered, yes — MTD for VAT is already mandatory. If you're a sole trader or landlord with income above the set threshold, MTD for Income Tax is rolling out to you in phases. Smaller businesses below the thresholds aren't required yet but likely will be. Confirm your exact position with HMRC.

What does "digital records" mean for MTD?

Storing your transactions in software with their key details captured electronically — through a bank feed, receipt photos or direct entry — rather than on paper or by re-typing figures into HMRC's website.

Do I need special software for Making Tax Digital?

You need MTD-compatible software that HMRC has approved to file directly. Most modern cloud accounting tools, including Ledgers, are built to do this, so filing becomes a review-and-confirm step.

Does MTD change how much tax I pay?

No. The rates and rules are unchanged. MTD only changes how you keep records and file — and, for Income Tax, adds lighter quarterly updates instead of one big annual return.

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