MTD in 2025 for contractors: VAT live, ITSA from 2026, CT scrapped

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 2025.

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. All VAT-registered businesses must:

• 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.

Government phasing is planned as follows, based on gross qualifying income from self-employment and property:

• From April 2026, for income above £50,000.
• From April 202,7 for income above £30,000.

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MTD for Corporation Tax has been withdrawn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 all VAT-registered businesses. Use compatible software. GOV.UK guidance.
• MTD for Income Tax (ITSA): phased start from April 2026 for sole traders and landlords above set income thresholds. 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.