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HMRC just quietly killed Making Tax Digital for Corporation Tax and most limited company directors still don't know it. After years of warnings, mandatory software deadlines, and compliance anxiety, MTD for CT has been withdrawn with no replacement date announced. If you've been dreading quarterly digital reporting obligations that never came, you're not imagining it.
But here's what you can't afford to ignore: your company may still have live MTD obligations right now depending on your circumstances and the rules governing what applies are poorly communicated and frequently misunderstood.
This guide tells you exactly where you stand, what changed, and the specific steps to stay compliant in 2026 without wasting time preparing for requirements that no longer exist.
KEY TAKEAWAYS
MTD for Corporation Tax has been cancelled — no quarterly reporting is required for limited companies
HMRC's free CT600 filing service closed on 31 March 2026 — all limited companies now need commercial software to file their Corporation Tax return
MTD for VAT remains mandatory for all VAT-registered companies
MTD for Income Tax may affect you personally as a director if you have income from property or self-employment outside your company
Salary and dividends from your limited company do not count as qualifying income for MTD purposes
HMRC will not apply penalty points for missed quarterly updates during the first year of MTD Income Tax (2026 to 2027)
Does Making Tax Digital Apply to My Limited Company?
The short answer is: partly and the details matter.
Making Tax Digital for Corporation Tax has been cancelled. HMRC confirmed this in its July 2025 Transformation Roadmap, and no future timetable has been announced. Your limited company continues to file a CT600 annually through the standard process, with no quarterly reporting requirement.
However, three MTD-related changes do affect limited companies and their directors in 2026:
MTD for VAT remains mandatory for all VAT-registered companies
HMRC's free CT600 filing service closed on 31 March 2026, meaning all limited companies must now use commercial software to file their Corporation Tax return
MTD for Income Tax may apply to you personally as a director, depending on whether you have income from property or self-employment outside your company
MTD for Corporation Tax: Cancelled — But CT600 Filing Has Changed
HMRC's decision to abandon MTD for Corporation Tax is a genuine win for limited companies. There is no requirement to keep digital records or submit quarterly updates for corporation tax purposes. Your CT600 continues to be filed annually, with tax due nine months and one day after your accounting period ends.
However, there is a separate change you need to act on right now.
Act now: HMRC's free Company Accounts and Tax Online (CATO) service permanently closed on 31 March 2026. From 1 April 2026, all limited companies must use commercial software to file their CT600 and company accounts.
In practice this means that if you used HMRC's free online portal to self-file your CT600, you can no longer do this. You need to choose HMRC-approved commercial software before your next filing deadline. Free options are available for micro-entities, and several tools are designed specifically for small companies. Paper filing remains available only in very limited circumstances, such as for digitally excluded companies with prior HMRC approval.
This change affects an estimated 200,000 to 400,000 small limited companies. If your accountant files on your behalf, they will already be using commercial software. But if you have been self-filing for free, you need to switch now.
MTD for VAT: What VAT-Registered Companies Must Do
MTD for VAT has been mandatory for all VAT-registered businesses since April 2022. If your limited company is VAT-registered, you are already required to:
Keep digital records of all VAT transactions
Submit VAT returns through MTD-compatible software that connects directly to HMRC's API
Maintain digital links between your accounting records and your VAT submission. Manual re-keying between systems is not permitted
There are no major new VAT MTD changes for 2026, but you should ensure your software remains up to date, particularly if you use flat rate schemes, partial exemption methods, or have complex VAT arrangements.
VAT returns remain due one month and seven days after the end of your VAT period. Late submissions trigger a points-based penalty system: four penalty points earn a £200 fine, with a further £200 for each subsequent missed deadline. |
MTD for Income Tax: Does It Affect You as a Director?
MTD for Income Tax applies to individuals, not to limited companies as entities. Your company does not file quarterly income tax updates and will not be required to under current legislation.
But as a director, you may be personally affected if you have income from self-employment or property outside your limited company.
What Counts as Qualifying Income?
Qualifying income means your gross income from self-employment (turnover before expenses, not profit), UK property rental income (rent received before expenses), foreign property income, or a combination of any of these sources.
What does not count towards your qualifying income includes your director's salary from the company, dividends from your limited company, PAYE income from any employment, and savings interest, pension income, or capital gains.
This distinction matters enormously. Many directors assume their salary or dividends push them over the threshold. They do not. Only income from a personal sole trade or personally owned rental properties count.
The MTD Income Tax Thresholds
HMRC assesses your qualifying income using your most recent Self Assessment tax return. It is the gross figure before any expenses are deducted that determines whether and when MTD applies to you.
Phase | Mandatory from | Qualifying income | Based on tax year |
|---|---|---|---|
1 | 6 April 2026 | Over £50,000 | 2024–25 |
2 | 6 April 2027 | Over £30,000 | 2025–26 |
3 | 6 April 2028 | Over £20,000 | 2026–27 |
Director Scenarios: Am I Affected?
Scenario 1 — Director with salary and dividends only
James is the sole director of a web design agency. He pays himself a £12,570 salary and £40,000 in dividends. His qualifying income is zero because neither salary nor dividends count. James is not required to use MTD for Income Tax.
Scenario 2 — Director with rental income
Sarah runs a consultancy through a limited company. She also owns two buy-to-let properties generating £58,000 in gross rental income. Her qualifying income is £58,000. She must register for and use MTD for Income Tax from 6 April 2026.
Scenario 3 — Director with mixed income near the threshold
Tom is a director who also does some freelance work personally, earning £22,000 gross, and receives £12,000 from a rental property. His qualifying income is £34,000 combined. He is not required from April 2026 but will be from April 2027 when the threshold drops to £30,000.
What MTD for Income Tax Requires Directors to Do
If you are required to use MTD for Income Tax, you will need to keep digital records of all qualifying income and expenses throughout the tax year, submit four quarterly updates to HMRC through MTD-compatible software summarising your income and expenses, and submit an annual final declaration in place of a traditional Self Assessment tax return.
Quarterly Update and Final Declaration Deadlines for 2026 to 2027
Quarter | Period | Submission deadline |
|---|---|---|
Q1 | 6 April – 5 July 2026 | 7 August 2026 |
Q2 | 6 July – 5 October 2026 | 7 November 2026 |
Q3 | 6 October 2026 – 5 January 2027 | 7 February 2027 |
Q4 | 6 January – 5 April 2027 | 7 May 2027 |
Final declaration | — | 31 January 2028 |
The Soft Landing Period: No Penalty Points in Year One
Grace Period: 2026 to 2027 Tax Year
HMRC has confirmed that no penalty points will be applied for missing quarterly update deadlines during the 2026 to 2027 tax year. This grace period gives directors time to adjust to the new system without being penalised for late quarterly submissions. The soft landing does not remove the obligation. You must still keep digital records and send your quarterly updates. It simply means you will not receive penalty points if you miss a quarterly deadline during that first year. Penalties still apply for late tax returns and late payment of tax throughout.
From the 2027 to 2028 tax year onwards, the full points-based penalty system applies across all five annual obligations — four quarterly updates and the final declaration. Accumulating four missed deadlines triggers a £200 fine, with a further £200 for each additional missed deadline after that.
Choosing MTD-Compatible Software
Whether you need software for MTD VAT or MTD for Income Tax, you can explore our RentalBux MTD software finder toolwhere you can filter by your specific situation and income type.
Key features to look for include a direct API connection to HMRC, bank feed integration to automate transaction capture, support for your specific income type such as property, self-employment, or VAT, and scalability as the income tax thresholds drop over the coming years.
It is worth noting that a software tool being compliant for MTD VAT does not automatically mean it meets the requirements for MTD Income Tax. Always verify compliance for your specific situation before committing to a subscription.
Exemptions: Who Does Not Have to Comply?
Exemptions exist but are limited. You may be eligible if:
You cannot use digital tools due to age or disability that makes digital record-keeping unreasonably impractical |
You have religious objections to digital filing |
Your geographic location means there is no viable internet access |
These exemptions apply to both MTD for VAT and MTD for Income Tax. You must apply through your HMRC online account or by calling the MTD helpline. Exemptions are not granted automatically.
Conclusion
If your company is VAT-registered, confirm you are using MTD-compatible software with proper digital links in place and that your software is still approved and up to date.
If you self-file your CT600, you must switch to commercial software immediately. HMRC's free filing service closed on 31 March 2026 and any CT600 due after that date requires commercial software.
If you are a director with rental or self-employment income, check your qualifying gross income from the 2024 to 2025 tax year. If it exceeded £50,000, you are required to use MTD from 6 April 2026. If it was between £30,000 and £50,000, your obligation begins in April 2027.
Frequently Asked Questions
