MTD Software for Limited Companies: When to Switch

If you run a limited company, the single most useful thing to know about Making Tax Digital is this: MTD for Income Tax does not apply to your company. It applies to individuals with self-employment or property income. Your company pays Corporation Tax, which sits outside those rules.

What your company may already be inside is MTD for VAT. And you personally may be inside MTD for Income Tax if you have income outside the company. Those are three different questions, and a lot of software is sold to directors by blurring them together. Here is how to work out what you actually need, and when switching is worth the disruption.

Key takeaways

• MTD for Income Tax does not apply to limited company profits.
• MTD for VAT does apply to your company if it is VAT registered, and that is a real software requirement today.
• You as a director can be caught by MTD for Income Tax personally, through rental or sole trader income.
• The right time to switch software is a VAT quarter start or a financial year start, not mid-period.
• Do not buy software today for an MTD for Corporation Tax regime that is not in force.

Three separate questions, one confusing name

"Making Tax Digital" is an umbrella term covering more than one regime. For a director, it breaks into three questions that have nothing to do with each other.

Is my company VAT registered? If yes, MTD for VAT applies to the company now. You must keep specified records digitally and file VAT returns through compatible software. The requirements are in HMRC's VAT Notice 700/22, and HMRC publishes a list of compatible software.

Do I have income outside the company? If you also let a property or do work as a sole trader, MTD for Income Tax may apply to you as an individual. This is the part directors miss, because they think of themselves as "a company person".

What about company profits? Nothing has changed. Corporation Tax is not part of MTD. An extension to Corporation Tax has been discussed but is not in force, and there is no date to plan around.

The MTD for Income Tax timetable, and how it can reach you

MTD for Income Tax is being phased in by level of qualifying income from self-employment and property. It applies from 6 April 2026 if your qualifying income for the 2024/25 tax year was over £50,000; from 6 April 2027 if your 2025/26 qualifying income was over £30,000; and from 6 April 2028 if your 2026/27 qualifying income was over £20,000.

Qualifying income here means gross self-employment and property income before expenses. Salary and dividends from your own company do not count towards it. So a director with a £90,000 salary and no other income is not affected, while a director on a modest salary who also lets two flats may well be. HMRC's overview is on GOV.UK's using MTD for Income Tax guidance. Our own explainer, are you in and from when, walks through the thresholds in more detail.

Your three realistic software options

When switching is actually worth it

1. You are approaching VAT registration. Switch before you register, not after. Check the current registration threshold on GOV.UK and watch your rolling turnover.
2. You have taken on employees. Payroll bolted onto a spreadsheet system is where errors start.
3. You personally fall into MTD for Income Tax. Quarterly updates on rental or sole trader income need their own compatible software, separate from the company's.
4. Your bookkeeping takes more than a few hours a month. At that point the software cost is usually less than the time cost.
5. You are changing accountant anyway. Doing both at once saves duplicating the migration work.

Worked example (illustrative example)

"Kestrel Fitout Ltd", an invented illustrative example, is a small contracting company with one director and two employees. The company is VAT registered, so it already has to meet MTD for VAT. Its director also lets a single flat, with gross rent of around £14,000 a year.

The director assumed that because the company was "already on MTD", everything was covered. It was not, but the reason is the opposite of what they feared. The company's obligation is VAT only. The rental income is below the £20,000 level that brings the final announced cohort into MTD for Income Tax from 6 April 2028, so on those figures the director is not currently brought in personally either.

What the review did surface was a real problem: VAT figures were being transferred by hand from a spreadsheet into the filing tool, which breaks the digital link requirement. The fix was a software change for VAT, not a personal MTD signup. These figures are invented to illustrate the reasoning, and your own position should be checked against your actual income.

How to switch without creating a mess

1. Pick a clean start date: the first day of a VAT quarter or a financial year.
2. Agree the opening balances with your accountant before you migrate anything.
3. Run the old and new systems together for one period and compare the VAT return figures.
4. Check your bank feeds connect properly before you rely on them.
5. Confirm the new software is on HMRC's compatible list for the taxes you file.
6. Keep read access to the old system until the following year end is signed off.

Common mistakes

• Believing MTD for Income Tax applies to company profits. It does not, and buying software on that basis wastes money.
• Ignoring income outside the company. That is the route by which MTD for Income Tax actually reaches most directors.
• Switching mid-quarter. It doubles the reconciliation work and makes the first return hard to check.
• Counting salary and dividends as qualifying income. They are not part of the MTD for Income Tax threshold test.
• Buying now for MTD for Corporation Tax. There is no live regime and no date to prepare for.

Where we fit

We are a London-based specialist gig-economy and MTD accounting practice working on fixed monthly fees. Our MTD compliance service starts from £49 per month, and our limited company packages start from £75 per month. If you want to sense-check the cost of getting help before you commit, see our guide to what an MTD accountant costs or book a consultation.