Making Tax Digital has been on the horizon for so long that many founders have filed it under "I'll deal with this later." That instinct made sense when the rollout kept getting pushed back. It makes less sense now. As of April 2026, MTD for Income Tax is live — and if you're a self-employed founder or in a partnership earning above £50,000 a year, you're already in scope.

So why do the latest Making Tax Digital MTD updates matter to your startup specifically? Because the picture has changed in ways that aren't obvious. A major element — MTD for Corporation Tax — was scrapped entirely in July 2025. That's significant news for limited companies. But the quarterly reporting requirement for income tax is real, the penalty regime is live, and the software obligation is not optional. Getting the wrong version of this picture is a liability.

This is our read of where things stand, who it affects, and what a startup should actually be doing about it right now.

From April 2026, Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) became mandatory for sole traders and partners whose annual gross income from self-employment or property exceeds £50,000. A second wave will bring in those earning above £30,000 from April 2027.

In practice, this means four things have changed for affected founders:

• Quarterly digital submissions. Instead of one annual self-assessment return, you now submit income and expense summaries four times a year — due 7 August, 7 November, 7 February, and 7 May.
• An end-of-period statement. A fifth submission confirming your full-year figures, replacing the old SA return.
• HMRC-approved software. You must use compatible software to make submissions — there is no manual workaround.
• Registration via GOV.UK. You need to actively sign up for MTD for Income Tax through your Government Gateway account. It doesn't happen automatically.

For a startup founder who's been doing a once-a-year tax return, this is a meaningful operational shift. The record-keeping discipline has to be continuous, not an annual scramble. If you're already running cloud accounting software properly, the additional burden is modest. If you're not, it's a signal that now is the time to sort that out.

If your startup is structured as a limited company, the most important recent MTD update is probably the one you haven't heard about: HMRC scrapped MTD for Corporation Tax in July 2025.

This had been planned as the next phase of the MTD rollout — requiring limited companies to keep digital records and file quarterly corporation tax updates in a similar way to the income tax mandate. It's now off the table. Limited company startups are not required to comply with any MTD obligation for corporation tax, and there's no indication that's going to change in the near term.

That's not a reason to be complacent about record-keeping — the statutory accounts, Companies House filings, and corporation tax returns still need to be filed accurately and on time. But it does mean that limited company founders can focus their MTD attention on the one area that genuinely applies to them: VAT.

MTD for VAT has been mandatory for all VAT-registered businesses since April 2022. If your startup is VAT-registered — and many are, whether by choice or by crossing the £90,000 threshold — you should already be filing digitally through compatible software. If you're not, that's an urgent compliance gap. If you are, the VAT piece is handled and you can focus on what's coming.

MTD penalties are worth understanding properly, because the structure is less intuitive than a flat fine.

Late submission penalties

For MTD for Income Tax, late submission penalties operate on a points-based system. Miss a quarterly deadline, receive a point. Accumulate four points and you're hit with a £200 penalty. The points don't reset immediately — they expire gradually, so persistent late filing compounds. The first full penalty year is designed to catch habitual non-filers, not occasional slip-ups.

Importantly, HMRC has confirmed there are no penalties for missing quarterly update deadlines in the 2026–27 tax year. This is a soft landing for the first year of mandation — a genuine concession to the practical reality of businesses adapting to a new system. That grace period will not extend indefinitely.

Late payment penalties

Separate from the submission points system, late payment penalties depend on how long the tax remains unpaid. In the first year, you have 30 days from the due date to pay in full or set up a payment plan before penalties apply; after year one, that window reduces to 15 days.

Software non-compliance

Failure to use HMRC-approved software — rather than just missing a deadline — carries its own exposure. Penalties for non-compliant software use can reach £3,000 per quarter. This is the area most startups underestimate: it's not just about submitting on time, it's about submitting through the right channel.

The practical answer depends on your structure and your current setup.

If you're a sole trader or in a partnership earning above £50,000: You're in scope from April 2026 and need to be registered and filing quarterly. If you haven't registered via GOV.UK yet, do that first. Then check that your accounting software is on HMRC's list of compatible products — not all cloud accounting tools are approved for MTD submissions, and being on the cloud isn't the same as being MTD-compliant.

If you're below the £50,000 threshold but growing: The April 2027 threshold drops to £30,000. If you're between those two numbers, you have roughly ten months. Use them to get the right software in place and build the habit of continuous record-keeping, rather than treating this as next year's problem.

If you're a VAT-registered limited company: The income tax quarterly reporting mandate doesn't apply to you as a company, but your VAT filing must already be going through MTD-compatible software. If it isn't, fix that before anything else.

In our experience, the startups that handle MTD transitions well are the ones that treat it as an accounting infrastructure question, not a tax compliance checkbox. Getting your software stack right pays dividends well beyond the regulatory requirement — better data, better visibility, faster reporting. The finance tech stack question and the MTD question are more connected than most founders realise.