Who Does Making Tax Digital Apply To?
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Making Tax Digital (MTD) has already changed the way many businesses manage their tax, and more people will be brought into the system over the next few years.
However, many people still aren’t sure if it applies to them.
With different rules for VAT, Income Tax, and limited companies, working out where you fit can feel unclear at first. Knowing your position early makes the transition much easier and gives you time to get everything in place calmly.
This guide explains who falls within the current MTD rules, what the income thresholds are, and how to check whether your business or personal income is included.
Who must follow Making Tax Digital right now?
VAT-registered businesses
If your business is registered for VAT, Making Tax Digital already forms part of your reporting. This includes:
- Companies with taxable turnover above the £85,000 VAT threshold
- Smaller businesses that choose to register for VAT voluntarily
HMRC expects registered businesses to:
- Keep VAT records in a digital format
- Use MTD-compatible software such as Xero, QuickBooks, or FreeAgent
- Submit VAT returns directly through that software instead of the older HMRC portal
Once everything is set up properly, MTD for VAT becomes easier to manage because figures flow straight from your bookkeeping system to HMRC. Accuracy improves and filing takes less time.
If you still need to register, you can follow our step-by-step guide to registering for MTD.
Who will MTD apply to next?
Self-employed people and landlords
The next phase is MTD for Income Tax, which begins in phases from April 2026.
It will apply to:
- Sole traders earning more than £50,000
- Landlords earning more than £50,000 from property
From April 2027, the threshold extends to those earning £30,000 or more.
If your income changes during the year or you manage several properties, it helps to review your figures early. Many people find that preparing ahead of time makes the switch feel more manageable when the rules eventually apply.
Why it helps to prepare ahead of time
Businesses that move to digital tools early often find that:
- Keeping on top of income and expenses becomes part of their weekly routine
- Year-end and tax returns bring fewer unexpected questions
- Conversations with their accountant feel clearer because everyone works from the same information
- Planning for both personal and company taxes feels more joined up
Preparing early gives you more control over the change and removes the pressure of rushing once the rules come into force.
What about limited company directors?
Directors often wonder how MTD affects them personally as well as their company.
The position is currently straightforward:
- Limited companies must follow MTD for VAT if they are VAT registered
- MTD for Corporation Tax is planned, though HMRC has not confirmed a start date
Even without a fixed date, many directors already use systems such as Xero because it keeps salary, dividends, expenses, and company records organised. It also makes personal tax planning easier to manage.
If your company already uses MTD software, you are better prepared for any future expansion of MTD.
What counts as MTD-compatible software?
If MTD applies to you, HMRC expects your software to meet certain criteria.
In practical terms, this means:
- It appears on HMRC’s recognised list
- It stores records digitally without relying solely on spreadsheets
- VAT returns and, in time, Income Tax updates are submitted directly from the system
Xero, QuickBooks, and FreeAgent are well-known options. The right choice depends on how your business operates, how many people need access, and whether you prefer features such as automated bank feeds or built-in project tracking.
For practical advice, read our guide to choosing the right MTD software for your business.
How Mollan & Co can support you
Working with Mollan & Co means you have a named accountant who understands your goals and your day-to-day pressures. We can help you:
- Review your current setup and confirm whether MTD applies now or soon
- Recommend suitable software for the size and style of your business
- Set up the technical elements including your chart of accounts, data migration, and bank feeds
- Train you or your team so everything is comfortable to use from the start
- Provide ongoing support with VAT submissions and, when the rules expand, digital Income Tax reporting
With more than 40 years’ experience supporting businesses in and around York, we understand that every company is different. Our aim is to make MTD fit your workflow rather than disrupt it.
Still don’t know whether MTD applies to you?
Get in touch with Mollan & Co and we will help you work out exactly how Making Tax Digital affects your business and how to prepare at a pace that suits you.
Author ProfileI'm the owner and Managing Director of Mollan & Co Accountants. I'm a skilled and efficient accountant with more than 20 years of experience in the industry.
I developed valuable skills in business and commercialisation through my work in the science and technology departments within the Scottish University sector. Then, in 2001, I formed my own internet-based marketing company, producing and distributing 360° virtual reality tours for the Scottish tourism sector.
I now use my commercial skills, expert tax knowledge and first-hand experience to help other businesses grow and flourish through strong accounting practice.
Our success at Mollan & Co is directly related to the success of our clients.
