Business Taxes

What steps do you need to take?

This next section will help you to work through the steps you need to take to set up for Making Tax Digital for VAT. They are:

Let’s look at each step in more detail.

Step 1 - Register for VAT

When you register for VAT, HMRC will automatically sign you up for Making Tax Digital. Wait for HMRC to confirm your registration before moving to Step 2.

Step 2 - Pick your software

Before you start to use Making Tax Digital for VAT, you need to store your accounts online using Cloud software. This software lets you store, transfer and access files over the internet instead of keeping them stored in files on your computer. This can make transferring files safer and easier.

So the next step is to select and choose a software system that works for your business. This software can be either compatible VAT record-keeping software, or ‘bridging’ software that can link non-compatible software (such as spreadsheets) to the HMRC systems. The government has a tool to help you find this software. Their list includes free options like QuickFile, MTDsorted and MyTaxDigital. 

Step 3 - Store or transfer your details

You’ll need to store the following information digitally:

• Any VAT accounting schemes you use. 
• The VAT on goods and services you supply or receive. 
• The 'time of supply' and 'value of supply' (value excluding VAT) for everything you buy and sell. 
• Any adjustments you make to a return. 
• Reverse charge transactions. 
• Your total daily gross takings (if you use a retail scheme). 
• Items you can reclaim VAT on (if you use the Flat Rate Scheme). 
• Your total sales, and the VAT on those sales (if you trade in gold and use the Gold Accounting Scheme).

You'll also need digital copies of documents covering multiple transactions made on behalf of your organisation by:

• Volunteers for charity fundraising.
• Third-party organisations.
• Employees’ expenses in petty cash.

What steps do you need to take?

The Income Tax scheme is voluntary until April 2026. You may want to sign up and help HMRC test out this part of the service.

Here are the steps to take: 

Step 1 – Work out your qualifying income

Your qualifying income can be from self-employment, rental or both. HMRC looks at your gross income (or ‘turnover’) from the year before. So, if you submitted a tax return for tax year 2024 to 2025, they’ll use this to work out your qualifying income for tax year 2026 to 2027.  

If you part-own a property that you rent out, HMRC will work out your share. 

What else counts towards your qualifying income?

• Disguised investment management fees or income based carried interest.
• Property or trading income that you get from a bare trust or interest in possession trust.

What doesn’t count towards it?

• Qualifying care relief receipts if you’re a carer. 
• Income from a partnership (unless you receive disguised investment management fees or income based carried interest). 

Step 3 – Pick your software 

Just like the VAT scheme, you’ll need to pick software that works with Making Tax Digital. This HMRC page has a list of free and paid software that is available now or soon. The list is likely to grow during the voluntary period.  

Step 4 – Sign up to MTD for Income Tax 

Before April 2026, signing up is voluntary.

You can sign up to the service if:

• Your HMRC personal details are up-to-date. 
• You’re a UK resident. 
• You have a National Insurance (NI) number. 
• You’ve submitted at least one Self Assessment tax return. 
• Your tax records are up-to-date (for example, you don’t have any outstanding tax liabilities). 
• Your accounting period runs from 6 April to 5 April (or 1 April to 31 March if the software you pick supports this).

There are some exceptions to who can sign up at this stage.  

You won’t be able to sign up voluntarily if: 

• You have a payment plan with HMRC. 
• You’re a partner in a partnership. 
• You claim Married Couple’s Allowance or Blind Person’s Allowance. 
• You’re (or about to be) bankrupt or insolvent. 
• You’re an MP, minister of religion or Lloyds underwriter. 
• You have income from being a foster carer or in a shared lives scheme. 
• You have income from a trust or a furnished holiday let. 
• You’re subject to a compliance enquiry.
• You use ‘averaging’ or other arrangements because your profits vary from year to year (for example if you’re a farmer, writer or artist). 
• You’re signing up on behalf of someone else (unless you’re an agent). 

Answering common questions

Is it normal to need support?

Of course, everyone wants to get their tax right first time. This is why Making Tax Digital is trying to help support businesses by making the process simpler from record keeping to data transfer.

HMRC asked business owners who use MTD for VAT about their experience so far.

Their research (PDF, 2.2Mb) found that:

Want to learn more?