Making Tax Digital for contractors: 2026/27 rules and start dates

Making Tax Digital (MTD) has moved from policy to practice. Parts are already live, others are scheduled, and one major strand has been dropped. Here is what contractors need to know in 2026/27.

What is Making Tax Digital?

MTD is HMRC’s long-term plan to modernise tax administration using digital record keeping and software-based submissions.

The aim is to achieve simpler, more accurate reporting in near real-time, with fewer errors and clearer visibility of liabilities. See this professional overview from ICAEW: MTD explained.

MTD for VAT is already mandatory

MTD for VAT is fully live. VAT-registered businesses must follow the rules unless HMRC has granted an exemption:

• Keep VAT records digitally.
• Submit VAT returns using MTD compatible software via the API.
• Maintain digital links between records and the VAT return totals.

Most limited company contractors, or their accountants, have been submitting VAT returns since 2022, either through accounting software like FreeAgent or a spreadsheet combined with a bridging tool.

MTD for Income Tax Self Assessment (ITSA) does not apply to limited companies

MTD for Income Tax is being phased in for sole traders and landlords.

Importantly, it does not apply to limited companies or to directors filing a personal Self Assessment return that falls outside its scope.

The start date depends on gross qualifying income from self-employment and property in the relevant earlier tax year:

• From 6 April 2026, where qualifying income for 2024/25 exceeded £50,000.
• From 6 April 2027, where qualifying income for 2025/26 exceeded £30,000.
• From 6 April 2028, where qualifying income for 2026/27 exceeds £20,000.

The first phase is already live. Those in scope must keep digital records and send quarterly updates using compatible software, unless an exemption applies.

HMRC’s eligibility page is here: Check if you are eligible for MTD for Income Tax.

If you operate through a limited company, your company is outside the scope of ITSA. However, your position may be affected if you also have in-scope sole trader or property income that exceeds the registration thresholds.

MTD for Corporation Tax has been withdrawn

In July 2025, the government confirmed that it will not proceed with MTD for Corporation Tax.

Sector coverage in 2025 reported the decision as part of the department’s wider transformation priorities, with no active timetable to reintroduce MTD for CT.

See this handy guide: AccountingWEB: HMRC scraps MTD for Corporation Tax.

For contractor limited companies, this means the Corporation Tax process remains unchanged.

You will continue to file company accounts with Companies House and a CT600 Company Tax Return with HMRC, using your chosen software or agent route.

What contractors should do now

• Stay compliant for VAT. If you are VAT registered, make sure you are using MTD-compatible software (such as FreeAgent or Xero) or a compliant spreadsheet, along with a bridging tool, and maintain proper digital links.
• Check if ITSA affects you personally. If you also have sole trader or property income, review the HMRC thresholds and timelines and speak to your accountant about software and quarterly updates.
• Keep records digitally. Bank feeds, digital receipts, and clean audit trails reduce errors and speed up submissions.
• Avoid last minute changes. Test your submission process well before deadlines. If you rely on spreadsheets, ensure they are connected to HMRC via bridging software and maintain digital links.

Quick summary

• MTD for VAT: live and mandatory for VAT-registered businesses unless exempt. Use compatible software. GOV.UK guidance.
• MTD for Income Tax (ITSA): live from April 2026 for qualifying sole traders and landlords, with further phases in April 2027 and April 2028. Limited companies are not in scope. Check eligibility.
• MTD for Corporation Tax: withdrawn. Corporation Tax filing for contractor companies is unchanged. Read more. For background, see the ICAEW overview of MTD: ICAEW.