Making Tax Digital and contractor compliance

Most limited company contractors do not need to change anything about their accountant for Making Tax Digital, because a PSC director on salary and dividends is generally outside the regime. The question is live for sole-trader and side-income contractors, where the honest answer depends on transaction volume and how much penalty exposure you are willing to carry personally. This guide gives a decision framework rather than a sales pitch.

Signing up for Making Tax Digital for Income Tax takes about ten minutes online, but only a contractor with sole trade or property income can sign up at all. Company income drawn as salary and dividends is outside the regime entirely, so a limited company contractor is only ever signed up for the side income. This guide covers the qualifying income test, what you need to hand, the sign-up steps, the agent route, and the quarterly cadence that follows.

There is one authoritative list of software that works with Making Tax Digital for Income Tax, and it is HMRC's own software finder on GOV.UK. Every product on it has passed HMRC's recognition process, and HMRC does not recommend any of them. This guide explains how a contractor running a limited company alongside sole trade or rental income should use that finder, which capabilities actually matter for a mixed income profile, and how MTD software sits next to an existing PSC accounting stack.

Making Tax Digital for Income Tax was first meant to start in 2018 and actually started on 6 April 2026, which is why contractors still search for the next extension. There has not been one since December 2022. The £50,000 phase is live, £30,000 is fixed for 6 April 2027 and £20,000 for 6 April 2028, and the only open-ended deferral left is partnerships. This guide separates the deferrals that happened from the ones contractors assume are still coming, and sets out what a PSC director with side income should do about the two-years-back test.

Almost every PSC director must file a Self Assessment tax return, even when PAYE has already been deducted from their salary. This guide covers exactly who must file, what income belongs on the return, the key deadlines and the payments-on-account system, and the most common mistakes limited-company contractors make.

VAT registration is compulsory once your taxable turnover exceeds £90,000 in any rolling 12 months, but many contractors register voluntarily well below that threshold. This guide covers the compulsory and voluntary tests, what the frozen thresholds mean in practice, and the Making Tax Digital for VAT obligations that apply once you are registered.

The VAT Flat Rate Scheme sounds appealing, pay a single percentage of your VAT-inclusive turnover and keep the difference. For most labour-only contractors, the 16.5% limited-cost trader rate closes that gap almost entirely. This guide explains the registration thresholds, how the limited-cost test works each period, and when the FRS is genuinely worth using.

Making Tax Digital for Income Tax mandates digital records and quarterly updates for sole traders and landlords, phased in from 6 April 2026. The single fact most contractors get wrong is that a limited company director on salary and dividends is generally outside it, while a sole-trader freelancer over the income threshold is in. This guide sets out exactly who is caught, when, and what to do.

The VAT flat rate scheme (FRS) promises simpler bookkeeping and the chance to pocket the spread between the rate you charge and the rate you pay. For most limited-company contractors, however, the 2017 limited-cost-trader rule closed that gap almost entirely. This guide works through the decision: who the FRS can still benefit, who it will cost money, and how voluntary registration fits into the picture.