Making Tax Digital: what contractors actually need to know
Making Tax Digital (MTD) is HMRC's programme to move tax reporting online — digital records and regular updates through compatible software, instead of one annual return. Here is where it stands for the 2026/27 tax year, who it affects, and why most limited company contractors are affected less than the headlines suggest.
MTD has been rolled out in stages. VAT came first and is already fully live; Income Tax is arriving in phases from April 2026; and Corporation Tax is still some way off. The key to understanding your own position is knowing which taxes MTD currently applies to, and which of your income sources fall inside each one.
If you take money from your own limited company as salary and dividends, that income is not brought into MTD for Income Tax. MTD for Income Tax applies to self-employment (sole trader) and property income — so you're only pulled in if you also have sole-trade or rental income above the thresholds below.
MTD for VAT — already here
Since April 2022, all VAT-registered businesses must follow MTD for VAT, regardless of turnover. In practice this means:
- Keeping digital VAT records (no more manual paper or standalone spreadsheets without bridging software).
- Filing each VAT return through MTD-compatible software that connects directly to HMRC.
If you're VAT registered and using FreeAgent, you're already MTD-compliant — your quarterly return is submitted straight to HMRC once your bookkeeping is up to date. See our VAT for contractors guide for the registration and scheme decision.
MTD for Income Tax (MTD for ITSA) — live since April 2026
This is the big change, and it is already in force for the highest band: MTD for Income Tax became mandatory on 6 April 2026 for qualifying income over £50,000, and the first quarterly update was due by 7 August 2026. It is being phased in by income level. You are brought into MTD for Income Tax from the date your qualifying income (gross self-employment turnover plus gross property income, added together) first exceeds the relevant threshold:
| From | Applies if qualifying income is over |
|---|---|
| 6 April 2026 | £50,000 |
| 6 April 2027 | £30,000 |
| 6 April 2028 | £20,000 |
Your threshold is tested against the previous tax year's return — so entry into MTD from April 2026 is based on your 2024/25 self-employment and property income. Once in, you must:
- Keep digital records of business income and expenses in compatible software.
- Send quarterly updates to HMRC (four a year) summarising income and expenses.
- Submit a final declaration (replacing the Self Assessment return) by 31 January after the tax year ends, confirming the year's figures and any other income.
The threshold looks at gross turnover and rents, before expenses — so a landlord with £51,000 of rent but modest profit is still in. Crucially, employment income and company dividends are excluded from the qualifying-income test. A contractor paid only via their own limited company (salary + dividends) has no qualifying income for MTD ITSA from that company.
Who this actually affects — contractor scenarios
| Your situation | In MTD for Income Tax? |
|---|---|
| Limited company contractor — salary + dividends only | No — that income isn't in scope |
| Company contractor who also has a rental property (rents over threshold) | Yes, for the property income |
| Company contractor with a side sole-trade business over the threshold | Yes, for the sole-trade income |
| Sole trader / freelancer (not incorporated) over the threshold | Yes |
| VAT-registered (any structure) | Already in MTD for VAT |
MTD for Corporation Tax — not yet
MTD for Corporation Tax has not been mandated and has no confirmed start date — the government has said it will not be introduced for several years yet. For now, your company's CT600 continues to be filed the usual way. We'll update this page when a timetable is confirmed.
If you're a company-only contractor with no property or sole-trade income, there's nothing you need to do for MTD ITSA right now — but keep it in mind if you buy a rental property or start a side business. If you do have qualifying income near £50,000, start keeping digital records in compatible software (FreeAgent handles this) well before your start date, so the quarterly rhythm is routine rather than a scramble. Either way, the direction of travel is clear: digital records and more frequent reporting, phased down to £20,000 by April 2028.
Not sure whether MTD affects you?
If you have property or sole-trade income alongside your company, we'll tell you exactly when you're brought in and set up compatible software so quarterly updates are handled for you. See the key tax dates or the 2026/27 tax rates for the wider picture.
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