Making Tax Digital (MTD) 2025 is a UK government initiative aimed at modernising the tax system. It requires businesses and self-employed individuals to keep digital records and submit tax returns using Making Tax Digital–compliant accounting software. While Making Tax Digital for VAT is already in effect, MTD for Income Tax Self Assessment (ITSA) is coming soon. UK businesses need to prepare now to avoid disruptions, penalties, and last-minute compliance issues.
The focus of Making Tax Digital is improved accuracy, real-time reporting, and better tax compliance with HMRC.
Who Must Comply with MTD for ITSA?
MTD for ITSA affects:
- Self-employed individuals
- Landlords
Key thresholds:
| Year | Income Threshold | Who Must Comply |
|---|---|---|
| April 2026 | £50,000+ | Self-employed & landlords |
| April 2027 | £30,000+ | Self-employed & landlords |
| TBD | £20,000+ | Potential future threshold (not yet confirmed) |
This MTD timeline confirms that 2025 acts as a transition year before the main Making Tax Digital deadline in 2026.
Some individuals may be exempt if they are:
- Digitally excluded due to age, disability, or location
- Members of a religious society with restrictions on electronic communications
Key Requirements for MTD 2025/26
To meet Making Tax Digital compliance, UK businesses must:
- Keep Digital Records
- Maintain income, expenses, and all relevant data digitally.
- Use MTD-Compatible Software
- Software must be recognised by HMRC for direct submissions.
- Submit Quarterly Updates
- Report income and expenses every three months.
- End-of-Year Declaration
- Confirm accuracy and finalise tax obligations annually.
MTD 2025: Preparatory Year and Key Tax Changes
2025 is a preparatory year for the full rollout of Making Tax Digital for Income Tax, which officially begins on 6 April 2026.
Eligible taxpayers are encouraged to start early and may voluntarily sign up during 2025 to test systems before the Making Tax Digital deadline 2026.
Who Is Affected (from April 2026)
From 6 April 2026, self-employed individuals and landlords with combined income exceeding £50,000 must comply with Making Tax Digital accounting requirements.
This includes:
- Digital bookkeeping
- Quarterly submissions
- Annual final declaration replacing traditional Self Assessment
Other Notable Tax Changes in 2025
Alongside MTD, HMRC income tax changes for 2025–2026 include:
- High Income Child Benefit Charge (HICBC): From summer 2025, employees can manage payments digitally via PAYE.
- P11D and P11D(b): Online-only filing required by 6 July 2025.
- PAYE for Globally Mobile Employees: Digital reporting required from April 2025.
These HMRC Making Tax Digital changes highlight the wider move toward a fully digital tax system.
Steps for UK Businesses to Prepare
- Understand the Requirements
Review HMRC guidance on MTD for ITSA. - Assess Your Business Turnover
Check 2024–2025 income to understand MTD deadlines 2025 and beyond. - Choose the Right Software
Your accounting software for Making Tax Digital should offer:
| Consideration | Details |
|---|---|
| Compatibility | Must be HMRC-approved MTD software |
| Ease of Use | User-friendly and intuitive |
| Features | Bank reconciliation, invoicing, expense tracking, reporting |
| Cost | Compare plans, including add-ons |
| Customer Support | Responsive and helpful support |
| Integration | Works with bank accounts, payment processors, CRM systems |
| Security | Data encryption, multi-factor authentication |
| Scalability | Supports business growth |
Popular options include Xero, QuickBooks Online, and FreeAgent all widely used as best digital VAT software for small businesses.
- Digitise Your Records
- Convert paper receipts, spreadsheets, and manual records into digital format using Making VAT Digital software or cloud accounting tools.
- Seek Training and Support
- Use provider resources and consult accountants for guidance.
- Monitor HMRC Updates
- Subscribe to HMRC alerts and industry news.
Challenges and How to Overcome Them
| Challenge | Solution |
|---|---|
| Digital skills gap | Train staff or hire bookkeepers/accountants |
| Software and training costs | Explore free/low-cost software, check HMRC support options |
| Time investment | Automate bank feeds, invoices, and reports |
| Data security concerns | Use secure software, strong passwords, regular backups |
Practical Tips for UK Businesses
- Start early to meet Making Tax Digital deadlines
- Use Automation: Bank feeds, templates, and integrations save time.
- Keep Records Accurate: Avoid penalties from incorrect submissions.
- Regular Review: Conduct quarterly checks before updates.
Example:
A self-employed plumber earning £52,000 in 2025 should prepare during 2025 and start quarterly submissions from April 2026 using approved Making Tax Digital accounting software.
Conclusion
Making Tax Digital 2025 is a significant shift for UK businesses. Preparation involves:
- Understanding MTD requirements
- Choosing MTD-compatible software
- Digitising financial records
Early action ensures Making Tax Digital compliance, avoids penalties, and makes tax reporting smoother.
Need help with MTD 2025-26? Our UK accounting experts can guide you through software setup, record management, and quarterly submissions. Contact us today.
FAQs About MTD 2025
Q1. What are HMRC digital tax requirements for 2025?
A: Keep digital records and submit quarterly updates via MTD-compatible software for VAT and ITSA.
Q2. What is MTD-compatible software?
A: Software recognised by HMRC for submitting income, expenses, and tax reports directly.
Q3. What are the penalties for non-compliance?
A: Late or incorrect submissions may incur fines. Severity depends on frequency and type of errors.
Q4. How does MTD affect income tax and VAT?
A: Requires digital record-keeping and quarterly submissions using approved software.
Q5. How can UK companies prepare effectively?
A: Adopt MTD software early, train staff, digitise records, and monitor HMRC updates.
Parul is a dedicated writer and expert in the accounting industry, known for her insightful and well researched content. Her writing covers a wide range of topics, including tax regulations, financial reporting standards, and best practices for compliance. She is committed to producing content that not only informs but also empowers readers to make informed decisions.