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’.

According to the latest HMRC figures published in the “Measuring tax gaps 2025” report, the UK tax gap for the 2023/24 tax year is estimated at £46.8 billion, or 5.3% of total tax liabilities.

The largest share of this gap continues to come from small businesses, which account for around 60% of the total tax gap. This reflects the combined impact of reporting errors, underpayments, and non-compliance across a large volume of sole traders and SMEs. By comparison, criminal activity (including organised tax evasion and fraud) accounts for around 9% of the total tax gap.

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.

*(VAT)‍

All businesses that have crossed the VAT threshold and registered for VAT after 1 April 2019 are automatically signed up to Making Tax Digital for VAT.

If you’re getting close to the threshold, it’s worth getting ahead of it now. Our HMRC-recognised MTD for VAT software helps you stay compliant without the spreadsheet chaos, with VAT-specific tools built in to make returns quicker, clearer, and far less painful.

Take a look at how it can support your business, and enjoy the extra perks that come with being part of Crunch.

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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.

• MTD will completely replace tax-returns for those who fall under the criteria.

One thing to keep in mind is that if you miss the Making Tax Digital (MTD for Income Tax) deadlines, you could face penalties.

MTD uses a points-based system. Each missed submission adds a point, and once you reach your threshold (based on how often you submit), you’ll be charged a £200 fine. Late payment interest may also apply if your tax isn’t paid on time.

During the first stages of rollout, HMRC is expected to take a more supportive approach as businesses get used to the new system, but the rules and deadlines still apply from day one.

So while there are penalties, MTD is designed to make tax reporting more regular, more accurate, and less of a year-end scramble.So, how do you sign up?

How to Sign-up for MTD (Income Tax)

1. 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

2. 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
  

3. 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.

4.Find MTD compatible software

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 : ) 

5. 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.