Accounting glossary

MTD (Making Tax Digital)

What MTD covers, the 2026 phased rollout for VAT and Income Tax Self Assessment, the digital-link rule, and what bookkeepers do at each stage to stay compliant.

By ExpenseFlow team
· 18 May 2026

Definition

Making Tax Digital (MTD) is HMRC’s digital-tax programme. It requires UK businesses to keep their accounting records in digital form, to submit tax returns from functional compatible software, and to maintain digital links between every step in the return preparation chain. Manual rekeying or copy-paste between systems does not satisfy the digital-link rule.

What MTD means in practice

The headline rule is simple: every step in the return preparation chain has to be digital. The bank feed flows into the accounting platform digitally. The accounting platform produces the VAT return digitally. The VAT return submits to HMRC digitally. If a bookkeeper exports a CSV from Xero into a spreadsheet, manually adjusts a few cells, and retypes the totals into the bridging software, the chain is broken at the manual retyping step.

In practice, MTD-compatible accounting platforms (Xero, QuickBooks, FreeAgent, Sage, and any platform on HMRC’s recognised list) handle the whole chain natively. They keep the digital records, calculate the return, and file it directly. The complexity arises for businesses that still use spreadsheets for any part of the workflow, particularly the consolidation across multiple entities or the application of partial-exemption methods. For those, bridging software is the standard pattern: the spreadsheet remains the digital record, the bridging tool imports the figures (digital link) and files the return.

A practical example: a UK property-letting business has 12 buy-to-let properties. The owner records rent and expenses in a spreadsheet by property, applies a partial-exemption calculation, and produces a consolidated quarterly figure. Under MTD for VAT, the spreadsheet is the digital record. A bridging tool imports the consolidated quarterly figure via CSV (digital link) and submits the VAT return to HMRC. No manual retyping is allowed at any step.

How MTD works by country

United Kingdom

MTD is structured in three phases. MTD for VAT has been mandatory for every VAT-registered business since 1 April 2022, regardless of turnover. The earlier turnover threshold (above 85,000) was dropped at that date. MTD for Income Tax Self Assessment starts on 6 April 2026 for sole traders and landlords with combined gross income above 50,000, and on 6 April 2027 for those above 30,000. Below 30,000 there is no current start date and partnerships are deferred. MTD for Corporation Tax has been consulted on but is not expected before April 2027.

Under MTD for VAT, the digital records must include the time of supply, the value of supply, and the amount of input and output VAT for each transaction. The records must be retained for six years. HMRC’s compliance officers inspect digital-link compliance specifically; the most common failure they find is bookkeepers copying VAT totals from a spreadsheet into bridging software by hand.

Under MTD for ITSA, sole traders and landlords submit quarterly updates by the 5th of the month following each quarter (so the Q1 update for 6 April to 5 July is due 5 August). A separate end-of-period statement and final declaration are due by 31 January following the end of the tax year, which matches the existing Self Assessment deadline.

Australia

Australia does not have MTD. The closest equivalents are Single Touch Payroll (mandatory since 1 July 2019), eInvoicing on the A-NZ Peppol network, and the ATO’s Standard Business Reporting (SBR) framework that lets accounting software integrate directly with ATO services. None of these enforce the records-and-digital-link regime that MTD does in the UK.

New Zealand

New Zealand does not have MTD. Inland Revenue runs its own digital initiatives: eInvoicing on the A-NZ Peppol network (same network as Australia) and payday filing for payroll. There is no equivalent mandate on accounting records.

Canada

Canada does not have MTD. The CRA accepts digital records and operates GST/HST netfile for return submission, but no rule mandates digital links between systems. Bookkeepers can still legitimately retype figures from a spreadsheet into the CRA portal.

Singapore

Singapore does not have MTD as a records-and-returns regime. IRAS runs GST InvoiceNow on the Peppol network, which becomes mandatory for newly-registered businesses from November 2025 and for all GST-registered businesses from April 2026. The scope is electronic invoicing only; record-keeping and return submission rules remain unchanged.

MTD is the regulatory umbrella over most UK indirect-tax compliance:

  • VAT is the tax currently within MTD scope; ITSA expansion starts April 2026.
  • A tax invoice is the underlying document supporting VAT entries on the MTD record.
  • Input VAT and output VAT are the two record categories MTD requires for each VAT transaction.

See also

For the full UK VAT and MTD lifecycle, see the UK VAT and MTD guide.

FAQ

See the answered questions above for the digital-link rule, the MTD for ITSA timeline, and whether spreadsheets are still permitted.

Questions, answered

Common questions

What is the MTD digital-link rule?

Data must move between any two software products in the return preparation chain via a digital connection: API, CSV import, or another structured transfer. Manual rekeying or copy-paste between spreadsheets does not satisfy the rule. HMRC's compliance officers check for digital links on every MTD inspection.

When does MTD for ITSA start?

6 April 2026 for sole traders and landlords with combined business and property gross income over 50,000. 6 April 2027 for those over 30,000. Below 30,000 there is no current start date. Partnerships are out of scope until further notice. Quarterly updates are submitted by the 5th of the month following each quarter.

Can I still use spreadsheets under MTD?

Yes, but with caveats. The spreadsheet itself can be your digital record. To submit returns you need bridging software (an MTD-compatible product that takes the spreadsheet data and files it to HMRC). The spreadsheet-to-bridging step must be a digital link, typically a file import; manual retyping of figures from the spreadsheet into the bridging tool does not qualify.

Keep exploring

VAT (Value Added Tax)

A consumption tax charged on most goods and services in the United Kingdom and the European Union, collected at every stage of the supply ch

Tax invoice

A formal invoice issued by a GST or VAT registered supplier that contains the specific information the tax authority requires to support an

Input VAT

The VAT a UK business pays on its purchases of goods and services, which is reclaimed on the VAT return as a reduction of the net VAT payabl

Output VAT

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