Making Tax Digital
What it actually means for your business
Making Tax Digital, or MTD, has been one of those phrases that gets mentioned a lot without much explanation of what it involves. If you run a small business, whether as a sole trader, a landlord or through a limited company, it's worth understanding properly, because it changes how you keep records and how often you report to HMRC.
What is Making Tax Digital?
At its simplest, MTD is HMRC's move away from paper records and once-a-year tax returns, towards digital record keeping and more regular reporting through compatible software. The idea is that if your figures are kept up to date throughout the year, there's less room for errors, less delays at deadline time, and a clearer picture of your tax position as you go.
MTD for Income Tax Self-Assessment
For sole traders and landlords Making Tax Digital for Income Tax Self-Assessment, usually just called MTD for ITSA, is being phased in gradually, based on how much qualifying income you have, and it's already underway.
If your qualifying income from self-employment and property was over £50,000 in the 2024 to 2025 tax year, you should already be using MTD for Income Tax, as this requirement started in April 2026. If your income was between £30,000 and £50,000, you'll need to join from April 2027. And if it was between £20,000 and £30,000, you'll be brought in from April 2028.
“Qualifying income” means your gross income from self-employment and property combined, before you take off any expenses. It's worth checking this figure carefully, because it's easy to assume you're under a threshold when you're not.
What changes in practice
Once you're within MTD for Income Tax, three things change from how Self-Assessment has traditionally worked.
First, you need to keep digital records of your business income and expenses, using software rather than a spreadsheet or a shoebox of receipts. Second, instead of one tax return a year, you'll send quarterly updates to HMRC summarising your income and expenses for that period. Third, you'll still complete an end-of-year process to finalise your figures and confirm your final tax position, similar in spirit to the old Self-Assessment return but done through your software.
What it doesn't mean
A few things worth clearing up. MTD is not a new tax, and it doesn't mean you'll pay more overall or pay earlier than you otherwise would, though seeing your figures more often can prompt you to put money aside more consistently, which is no bad thing. It also doesn't mean HMRC sees every transaction as you make it. You're still submitting summarised figures, just more frequently and through software rather than on paper.
What to do now
If you think you're close to any of these thresholds, the sensible thing is to check your qualifying income for the relevant tax year rather than wait for a letter from HMRC. If you're already required to comply and haven't signed up, you may get a letter from HMRC saying you have been auto enrolled, as the requirement is already in force.
Either way, moving to compatible cloud software well before you're required to is usually the easier path. It gives you time to build the habit of regular record keeping without the pressure of a deadline, and it means your books are already in good shape whenever your MTD date arrives.
The information contained herein is provided for information purposes only; the contents are not intended to amount to advice and you should not rely on any of the contents herein. We disclaim, to the full extent permissible by law, all liability and responsibility arising from any reliance placed on any of the contents herein.
Feeling unsure about Making Tax Digital? Book a free, no obligation chat and we'll help you work out what it means for you.