MTD mythbuster: 8 myths about Making Tax Digital dispelled


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There’s quite a lot of misinformation about Making Tax Digital.

Essentially, it’s the government’s plan to digitalise taxes.

Making Tax Digital for VAT means VAT-registered businesses must use software for their VAT accounting and digitally keep their VAT accounting records.

In April 2026, Making Tax Digital for Income Tax will affect millions of sole traders and landlords with incomes above £50,000. Then from April 2027, the same rules will apply to those earning above £30,000.

The benefits for businesses of Making Tax Digital (MTD) are clear: your accounting is revolutionised and you have a much-clearer view of your cash flow and tax liabilities.

This empowers you to make better decisions and to target growth.

In this article, we list eight incorrect assumptions about MTD. Have a read and see how much you know—or not…

Here’s what we cover:

Going entirely digital with your accounting is best practice. It reduces admin for you, and frees you up to spend more time doing what you love.

But it’s not to say Making Tax Digital requires 100% digitalisation of your accounting.

The rules are sometimes complicated and should be consulted, but often it’s entirely possible to continue to use paper-based invoicing, for example.

You just need to ensure the details are transferred into your accounting as soon as possible (or ideally use your accounting software to issue the invoices in the first place, so the data is already there).

And for all those times when paper can’t be avoided—when you receive a receipt after purchasing something, for example—you should aim to get the data into your accounting as soon as possible.

In fact, using an app such as AutoEntry means you can automate this right there and then using your mobile phone camera, without having to worry about it later.

It’s not unnatural to see Making Tax Digital as an attempt by HMRC to see more of your accounting data.

But the reality is that, so far at least, HMRC hasn’t required businesses to hand over any more data than it has previously.

MTD for VAT means you still need to submit nothing more than the same nine boxes of information for your VAT return, for example. You just have to do it digitally, and keep digital records.

When it comes to submitting tax returns, what is changing with MTD for Income Tax vs Self Assessment is that you need to let HMRC see the data more frequently.

You must make periodic updates at least quarterly for each business you operate.

Although the periodic updates don’t need to be accurate, the goal is to let everybody have a better idea of the tax position—including you.

This means you have a more intimate understanding of your cash flow, so can plan better.

HMRC says a key driver behind Making Tax Digital is to close the tax gap—the avoidable errors and fraud that mean billions of pounds of tax isn’t paid every year.

If you’ve been completing your tax returns correctly then Making Tax Digital shouldn’t mean you pay any more (or less) tax than you would if it hadn’t been introduced.

Making Tax Digital is just a different (and better) way of calculating and reporting the same old taxes you’ve been doing for years.

You can continue to ask an accountant to prepare your books if you use Making Tax Digital. But this definitely doesn’t mean you can forget about its requirements.

You still need to switch to software for your relevant accounting, and keep your records digitally too.

It’s the need to keep your accounting records digitally that catches out those who don’t do their own accounting.

And it leads directly back to the first requirement—you’ll need to use some kind of software for your accounting record-keeping, even if you’ve decided that bookkeeping isn’t something you want to deal with.

The great news is that this can be as simple as using a handful of apps on your mobile phone.

You can digitalise the information from receipts, invoices, bills and other paperwork, and you can link an accounting app to your banking so you can always see your cash flow and issue invoices electronically.

Speak to your accountant, if you have one, about the best way forward.

This was certainly the case back in April 2019, when MTD for VAT was first introduced.

But it’s no longer the case now.

MTD for VAT has been extended to every business registered for VAT.

All VAT-registered businesses need to use software for their accounting and digitally keep their accounting records relating to VAT.

This is one of the trickier gotchas that catches out many people.

For example, somebody who rents out a single property might not consider themselves to be running a business. After all, it might demand very little of their time across the year.

Or somebody who has a side hustle doing freelance work, but otherwise works a full-time job through which tax is paid via PAYE, might not consider themselves to be running a business.

But they are indeed doing so as HMRC is concerned. Therefore, the rules of Making Tax Digital may apply to them.

Every landlord with a rental income above £50,000 will need to follow the MTD for Income Tax rules as of April 2026, for example.

If the freelancer mentioned earlier earns more than £50,000 outside of their day job, they too will need to follow the rules for MTD for Income Tax and stop using Self Assessment for declaring that income.

And if any individual is registered for VAT, they too must register for MTD for VAT.

For example, somebody with a hobby selling items online who has registered for VAT is considered to be running a business and therefore would be included in the scope of MTD for VAT (and perhaps MTD for Income Tax, too).

This is mostly false.

If you have to follow the MTD for VAT rules, for example, then you’ll still need to submit your VAT returns. It’s just that this must now be done digitally, via software.

It’s true that MTD for Income Tax means there will no longer be any need to submit a Self Assessment tax return (the SA100).

But this is effectively replaced with the yearly final declaration, in which you crystallise and sign off your income and expenditure to calculate your tax and National Insurance payment.

This is mostly false, but there is some truth to it when it comes to MTD for Income Tax.

First, it’s important to note that MTD for VAT applies to any business registered for VAT. Turnover doesn’t matter. So, it affects the smallest VAT registered business up to the largest corporation.

However, upon its first phase launch in April 2026, MTD for Income Tax will only affect those whose income is over £50,000. And then, in April 2027, it will also affect those earning above £30,000.

Those individuals that don’t fall within these two scopes will continue to use the Self Assessment system, just like they always have done.

In the 2024 Autumn Budget, the Government revealed that an extension to MTD for Income Tax for those earning over £20,000 will be introduced at some point in the future.

Making Tax Digital isn’t complicated but there is a requirement to know the rules if it affects you.

Hopefully, some of the answers above should’ve dispelled the pervasive myths that have arisen around it.

Getting your taxes right is made easier by Making Tax Digital, and as such getting a clear understanding of the rules is a good step towards running your business more smoothly, reducing admin and doing more of what you love.

Editor’s note: This article was first published in December 2021 and has been updated for relevance.



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