What is Making Tax Digital?

Making Tax Digital (MTD) is a government initiative designed to modernise the tax system, improve efficiency, reduce errors, and help taxpayers manage their obligations more effectively.

MTD for VAT has already been implemented, and the next phase—MTD for Income Tax Self-Assessment (ITSA)—will become mandatory from April 2026. This marks a significant shift in how self-employed individuals and landlords report their income to HM Revenue & Customs (HMRC).

While this transition may seem daunting, preparing early can help businesses and individuals adapt smoothly to digital tax reporting, avoiding last-minute complications and potential penalties.

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Who is affected by MTD for ITSA?

From April 2026, if you have an income of over £50,000 annually, from self-employment or property rental, you’ll need to use MTD compatible software to keep digital records, submit quarterly income and expense data and finalise your business income at the end of the tax year.

From 6 April 2027, the threshold will lower to £30,000, bringing more self-employed individuals and landlords into the scope of MTD.

Individuals earning below these thresholds are currently not required to comply, but HMRC may expand the scheme in the future. Partnerships are also not yet required to join, though this is expected to change in later phases of the MTD rollout.

Is anyone exempt from MTD? 

Some taxpayers may be eligible for an exemption from MTD. Exemptions may be granted if:

  • You have digital exclusion due to age, disability, or lack of access to the internet
  • You have religious objections to using electronic record-keeping

If you believe you qualify for an exemption, you will need to apply to HMRC directly.

What are the main changes under MTD for Income Tax?

  1. Quarterly Digital Submissions – Instead of filing a single tax return at the end of the year, businesses will need to submit income and expense summaries every three months via compatible software
  2. End-of-Period Statement (EOPS) – After the quarterly updates, businesses must submit an EOPS to finalise their tax position
  3. Final Declaration – This replaces the traditional Self-Assessment tax return and confirms the total income and tax due for the year
  4. Mandatory Use of Software – Businesses must use MTD-compliant software to keep digital records and file updates

Will there be more changes? 

Given the history of MTD delays, it wouldn’t be surprising if further adjustments or deferrals were announced. However, businesses should plan based on the current timeline rather than waiting for another postponement. As always with tax policy, stability remains elusive, but proactive planning can help mitigate the risks.

For business owners already grappling with rising costs, an increasing National Living Wage, and higher Employer’s NI, MTD for ITSA is another hurdle to overcome. The key is to start preparing now, rather than waiting until the last minute. That way, businesses can avoid the chaos that past rushed tax changes have created and stay ahead of compliance requirements.

women using cloud accounting package Xero on phone

How will MTD impact businesses?

For many, MTD means an unavoidable increase in administrative work. The need to submit quarterly updates, rather than a single annual return, places an extra compliance burden on business owners who are already stretched.

It also means additional software costs, potential training needs, and the risk of fines for late submissions.

But there are also a number of benefits.

Our forward-thinking clients are taking advantage of the call for quarterly submissions by receiving management accounts from us on a quarterly basis.

Having regular understanding and analysis of your financial data in real time will allow you make key decisions and unlock the potential for growth in your business:

Take advantage of Making Tax Digital by:

  • Being better informed all year round, putting you in the driving seat of your business
  • Seeing the early warning signs of cash-flow problems
  • Making long term strategic decisions based on real time performance
  • Putting yourself in a more appealing position to potential lenders
  • Automating and streamlining repetitive tasks and offers insights into business performance
  • Accessing enhanced data security with two-factor authentication
  • Improving collaboration between you and your accountant

Does MTD mean I have to pay more tax? 

One of the most common concerns about MTD is whether it will result in higher tax bills. The answer is no – MTD does not change how much tax you owe. Instead, it simply changes how tax is reported and when information is submitted. In fact, being on top of your tax payments can actually help you manage your cash flow more effectively.

What do you need to do to prepare for MTD for Income Tax?

Businesses and landlords should start preparing now to avoid any last-minute stress. Here are some practical steps you can take:

1. If you haven’t already, move to digital record keeping

MTD requires all affected taxpayers to maintain digital records of their income and expenses. You need to be using HMRC-approved accounting software such as QuickBooks, Xero, FreeAgent, or Sage.

2. Maintain digital records

As is currently the case for Self Assessment, you might need to keep records relating to savings, investments and pensions too, as well as details of certain kinds of grants. You will need to keep all these records digitally for at least 5 years after the 31 January final declaration date for each tax year.

3. Understand quarterly reporting

Rather than filing a single tax return at the end of the year, you will need to submit quarterly updates to HMRC. These quarterly updates will summarise income and expenses and must be filed using compatible software (as mentioned above)

The MTD tax year quarters are:

  • Q1: 6 April – 5 July
  • Q2: 6 July – 5 October
  • Q3: 6 October – 5 January
  • Q4: 6 January – 5 April

4. Get Professional Advice

We can help you transition smoothly and ensure compliance with the new requirements.

Book your free 1-2-1 MTD Discovery Session

With careful planning and the right support, MTD for Income Tax doesn’t have to be a burden. The sooner you start preparing, the easier the transition will be. Contact us today to discuss how we can help you get ready for the digital future of tax reporting.

We offer a free 1-2-1 Making Tax Digital discovery session for new clients. Use the form below to enquire about this now.

If you’re a current client, get in touch with your Principal Adviser to start planning.

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