If you’ve been considering signing-up to Making Tax Digital or are wondering how the new initiative might affect your business, you’re likely not alone.
As of the 6th April 2026 all businesses or landlords with an annual income of more than £50,000 will need to comply with a new requirement to pay tax bills, and keep tax records, in a digital format using software that works with MTD for corporation and income tax. As well as submit updates to HMRC every quarter.
With all businesses or landlords with an annual income of more than £30,000 being required to comply with the new regulations by April 2027.
These changes are part of the government’s 10-year Tax Administration Strategy which aims to realise their vision of a fully digital tax system and ‘ending the tax return’.
Before we talk about how to sign up, it’s worth briefly understanding why the government is doing this and how it’s intended to improve the tax system. As well as some of the benefits it can bring.
Reducing the ‘Tax Gap’
One of the main goals of MTD is to reduce the amount of unpaid tax liabilities - i.e. the difference between the amount of tax that is collected/paid to HMRC, and the amount that actually should be paid. This is known as the ‘tax gap’.
As of the latest government figures published on 23rd of June 2022, the current UK tax gap sits at a total of £32 billion, which is 5.1% of all tax liabilities.
The largest portion of the unpaid UK tax (£15.6 billion) is owed by small businesses, who make up 48% of the tax gap by tax-payer group. The second largest being criminals, who make up 16%.
So as you can imagine, much of HMRC’s efforts at increasing tax compliance are aimed at small-to-medium sized businesses such as sole-traders and Ltd companies. As part of their attempt to reclaim vital tax revenue.
All businesses that reached the VAT threshold and registered for VAT after the1st April 2019 are now signed-up to MTD automatically.
If you’re about to reach the threshold for charging VAT, see how our HMRC listed MTD for VAT compatible software, with VAT specific features can boost your business…And enjoy all the other exclusive benefits of joining Crunch.
What are the benefits of MTD?
As well as being an initiative to clamp down on and correct the issue of tax non-compliance, MTD is also designed to benefit tax-paying individuals and businesses. And overall these benefits actually have the potential to be quite transformational. They include:
- Improved productivity by reducing time spent on tax-returns and tax related tasks. You’ll no longer have to spend hours collating receipts, bills and invoices - these are automatically tracked by the software.
- Minimises the amount of errors and missed dates, and hence the potential fines - an in-built digital calendar will completely eradicate this.
- Better insights on your finances and real-time tax information. You instantly see important data on your books/accounts in a clearly presented format at any time. Which can help you make key decisions about future business actions.
- Some accounting software providers, like Crunch, offer add-ons and other powerful features and resources that can help you grow your business.
- The adoption of cloud-based technology can, by effect, lay-the-ground for greater digitalisation across a business. Leading to greater efficiency and cost savings.
- No self-assessment tax-returns! MTD will completely replace tax-returns for the self-employed.
One thing to keep in mind though, is that if you miss the 2026 deadline you will face fines. After its introduction, those who fail to register will get a point each time they miss a submission date. After a certain number of points you’ll receive a fine of £200.
Also a daily late payments penalty of 4% your total unpaid tax will be applied. But these fines are both lower than those under the current system.
So it’s clear that MTD can likely be a positive step forward for most small to medium sized enterprises and individual businesses owners. How do you sign up?
How to Sign-up for MTD (Income Tax)
- Firstly you need to confirm that you are eligible to sign-up.
To be clear the HMRC website states that you cannot sign-up if:
- You are a trustee (including a charitable trustee or a trustee of non-registered pension schemes); a personal representative of a person that has died; a Lloyd’s member, in relation to your underwriting business; a non-resident company
You do not need to sign up if your qualifying income is: £50,000 or less for April 2026 £30,000 or less for April 2027
- Then find out when you need to sign-up. As mentioned previously:
- You must be compliant with the requirements for Making Tax Digital for Income Tax from the 6th of April 2026 if all you are an individual; registered for Self Assessment; were self-employed or collecting property income before 6 April 2025; have a qualifying income of more than £50,000
- You must be compliant with the requirements for Making Tax Digital for Income Tax from 6 April 2027 if you are an individual; are registered for Self Assessment; were self-employed or collecting property income before 6 April 2026; have a qualifying income of more than £30,000
- Then See if you can sign up voluntarily. Which is highly recommendable, as you’ll begin enjoying all the great aforementioned benefits of digitalised tax right away.
You can check if you are eligible to make a voluntary application for MTD here.
Once you have confirmed your eligibility, date to sign-up and whether you will sign-up voluntarily now or wait, you need to choose compatible software from an HMRC recognised provider like Crunch. Which must enable you to:
- Create and store digital records of each of your business transactions
- Send updates of the totals of your business income and expenses every 3 months
- Confirm end of period statements
Crunch’s software can perform all of these functions and more : )
- Lastly, sign-up to MTD by contacting your software provider and asking them about signing up.
If you haven’t yet selected what online accountant you will use, try speaking to our friendly customer success team who can offer honest advice on how to sign-up for MTD and how our software works.
For more info using MTD for income tax such as making updates and necessary documents for authorisation, as well as using MTD if you have more than one business see this guide.
Signing-up to MTD should be a relatively straightforward and worthwhile process. And it’s evident that there are many cost and time-saving benefits to digitalising your tax-returns, as well as your other business finances.
Undoubtedly the government’s initiative will significantly address the long-standing and obvious problem of lost tax revenue. Hence this transition towards the new system is one area where implementation of digital technology will most likely be generally well received by the British public.
So then, it seems that smart business owners and self-employed individuals looking to leverage the benefits of using digital tax-payment software should sign up asap to MTD.