Introduction

Making Tax Digital (MTD) isn’t just a buzzword, it’s a shift in how tax reporting works in the UK. If you're a sole trader, landlord, or small business, it’s going to matter.

This guide walks you through what MTD means now, what’s changing, who’s affected, and practical steps you can take today.

1. What Is MTD (and Why It Matters)

• MTD stands for Making Tax Digital - a government initiative to move tax record-keeping and reporting into digital form.
• It began with VAT (mandatory since April 2019 for VAT-registered businesses).
• The next big stage is MTD for Income Tax (ITSA) - coming from April 2026 for many sole traders and landlords.

The aim is:

• Better accuracy, fewer errors
• Quicker, more up-to-date tax info
• Less last-minute panic
• More visibility over how your tax is building through the year

2. Who MTD Effects - And When

You’ll be required to follow Making Tax Digital for Income Tax if your self-employed income and/or rental income turnover exceeds certain criteria.

Here’s a quick breakdown:

• April 2026: If you earn over £50,000, you must follow MTD rules.
• April 2027: If you earn over £30,000, you must follow MTD rules.
• If your income is below £30,000, you’re not currently required to join (but this could change in future).

You can be earning from self-employment, property, or both. The threshold is based on the combined total.

3. What Changes: Reporting, Records & Deadlines

Digital Records Only

All income and expense records must be kept digitally using MTD-compliant software. Spreadsheets may be used in some cases, but with strict rules.

Quarterly Updates

You’ll send updates to HMRC every quarter summarising income and expenses. This helps build a clearer picture of your yearly tax position as you go.

Final Digital Declaration

At year-end, you’ll submit a final declaration confirming your total tax liability - similar to the Self Assessment return, but all digital.

4. Common Questions

Can I still use spreadsheets?
Possibly, but only if they connect digitally to HMRC via bridging software.

What about penalties?
MTD comes with a points-based penalty system. Miss deadlines repeatedly and you’ll start incurring charges.

Does it replace Self Assessment?
For those within MTD for ITSA, yes - the final declaration takes its place.

Is this going to cost me?
Some software is free, but others come with a cost. Plan ahead to avoid being caught out.

5. What You Should Do Now

1. Check if you’re within the threshold — does your business or rental income exceed £50,000?
2. Choose MTD-compliant software — and try it out in advance
3. Keep your records digital — invoices, expenses, income streams
4. Start trial submissions — familiarise yourself with the process
5. Stay updated — HMRC may make changes to rules and thresholds

Final Thoughts

MTD is a major change in how tax is handled - but it’s designed to make things smoother in the long run. It means clearer records, fewer surprises, and more proactive tax planning.

The best thing you can do is get started early. Learn the system now, trial it while the pressure’s off, and make sure you’re ready for when it becomes mandatory.