Making Tax Digital (MTD) is HMRC’s flagship initiative to modernise the UK tax system, requiring businesses to maintain digital records and submit tax data electronically. If you run a limited company, understanding exactly where you stand under MTD is critical to staying compliant and avoiding costly penalties.
What Is Making Tax Digital?
Making Tax Digital is a government programme designed to transform how businesses and individuals interact with HMRC. Its core objectives are to reduce the £8.7 billion annual tax gap caused by avoidable errors, improve record-keeping accuracy, and give taxpayers a clearer real-time view of their tax position throughout the year.
The scheme is being rolled out in phases across different taxes — VAT, Income Tax, and Corporation Tax — each with different rules for who must comply and when.
Does MTD Apply to Limited Companies?
The short answer is: partly. Making Tax Digital for limited companies is more limited than many business owners expect.
MTD for VAT is the primary obligation affecting limited companies right now. Since April 2022, all VAT-registered businesses — including limited companies — must keep digital records of VAT transactions and submit VAT returns through HMRC-recognised software. Any company with taxable turnover above the £90,000 VAT threshold must comply. Submitting returns manually through the HMRC VAT online account is no longer permitted.
MTD for Corporation Tax is, at present, off the table. The government has confirmed it has scrapped plans to extend MTD to Corporation Tax, meaning limited companies can continue filing CT returns through existing methods — for now. However, from 1 April 2026, the current online filing service for annual accounts and Company Tax Returns will close, requiring businesses to use commercial software for submissions.
MTD for Income Tax Self Assessment (ITSA) does not apply directly to limited companies, as it targets sole traders and landlords. However, company directors who also earn property or self-employment income above qualifying thresholds may need to comply personally.
MTD for VAT: What Limited Companies Must Do
For VAT-registered limited companies, MTD for VAT compliance involves three core requirements:
- Maintaining digital records of all sales, purchases, and VAT transactions using HMRC-compatible software
- Submitting VAT returns directly through that software — not entered manually
- Ensuring records are kept digitally even if an external accountant handles the returns
Non-compliance carries real consequences. HMRC operates a points-based penalty system for late filing and late payment, with interest charges currently set at 7.75% (Bank of England base rate of 3.75% plus 4%). Persistent failure to keep digital records or use compatible software can also trigger increased HMRC scrutiny and compliance checks.
What About Company Directors?
Directors whose sole income is salary and dividends from their limited company are not required to use MTD for Income Tax. They continue to report through Self Assessment as normal.
However, directors who also receive qualifying sole trader or property income may fall within the MTD for Income Tax obligations, which are being introduced in stages: from April 2026 for those earning above £50,000, April 2027 for above £30,000, and April 2028 for above £20,000.
Preparing Your Limited Company for MTD
Even where MTD is not yet mandatory, adopting digital-first practices now puts your business ahead of future regulatory changes. Key steps include switching to HMRC-recognised accounting software for invoicing and VAT, maintaining real-time digital records of all financial transactions, and working with your accountant to ensure your software is fully MTD-compatible — being compliant for MTD VAT does not automatically mean it meets MTD Income Tax requirements.
The Bottom Line
MTD for VAT is a live, enforceable obligation for all VAT-registered limited companies. MTD for Corporation Tax has been paused, but digital filing requirements are tightening regardless. Investing in compliant digital accounting systems now will reduce errors, strengthen your financial oversight, and ensure your company is fully prepared as HMRC’s digital transformation continues.
Always verify software compatibility via the official GOV.UK list of MTD-recognised providers before making long-term commitments.
