Making Tax Digital Cost Calculator
Calculate your MTD compliance costs — software, accountant fees and time saved vs manual bookkeeping.
Calculate MTD Compliance Costs
Making Tax Digital — What It Costs
Making Tax Digital for Income Tax Self Assessment (MTD ITSA) mandates digital record-keeping and quarterly updates from April 2026 for self-employed people and landlords with income over £50,000. The threshold drops to £30,000 in April 2027. Costs include compatible software, accountant fees and time.
MTD-compatible software costs £15–£50/month (Xero, QuickBooks, FreeAgent, Sage). Some free HMRC-compatible options exist for simple businesses. Accountant costs for quarterly review and final declaration add £500–£2,000/year depending on complexity. HMRC estimates average compliance cost of £290/year for small businesses.
Frequently Asked Questions
What is Making Tax Digital (MTD)?
MTD is HMRC's programme to digitise tax administration. MTD for VAT is already mandatory for all VAT-registered businesses. MTD for Income Tax (MTD ITSA) starts April 2026 for incomes over £50,000.
Who does MTD ITSA apply to from April 2026?
Self-employed people and landlords with qualifying income over £50,000 from April 2026. The threshold drops to £30,000 from April 2027. Partnerships and companies follow later.
What software do I need for MTD?
HMRC-compatible software that can link digitally to HMRC. Popular options: Xero, QuickBooks, FreeAgent, Sage, Coconut, TaxCalc. Some free options exist for simple cases.
How often do I submit under MTD ITSA?
Quarterly — within one month of each quarter end (31 Jul, 31 Oct, 31 Jan, 30 Apr). Plus a final declaration replacing the annual Self Assessment by 31 January following the tax year.
What are the MTD ITSA penalties for non-compliance?
Late submission: points-based penalty system. Each late quarterly update = 1 point. At 4 points in a rolling 12-month period: £200 penalty. Late payment penalties also apply (2.5% after 30 days, up to 10% after 12 months).
Is MTD VAT different from MTD ITSA?
Yes — MTD for VAT has been mandatory since April 2019 (£85,000+ turnover) and April 2022 (all VAT-registered). MTD ITSA is for income tax on self-employment and property income.
Can I use a spreadsheet for MTD?
Yes, but only with bridging software that can create a digital link to HMRC. A standalone spreadsheet is not MTD-compliant without bridging software.
What is a digital link under MTD?
A digital link means data flows between software without manual re-keying. Copy-paste does not count as a digital link. API connections, CSV imports and automated feeds are digital links.
Does MTD ITSA replace Self Assessment?
MTD ITSA supplements rather than replaces Self Assessment during transition. You will make quarterly updates plus a final declaration. The annual SA form is eventually replaced by the final declaration.
What records must I keep digitally under MTD?
Category of income, date, amount and description of each transaction. Plus information about assets used in the business and capital expenditure.
How do I sign up for MTD ITSA?
Sign up via your HMRC online account or through your accountant. You must sign up before your MTD start date. HMRC will notify eligible businesses.
What if my income drops below the MTD threshold?
If your income drops below £50,000 (or £30,000 from 2027) for two consecutive years, you may be able to opt out of MTD ITSA.