Making Tax Digital
Explained without the jargon
Making Tax Digital" gets thrown around a lot right now, and most of what you'll read about it is written for accountants, not for you. Here's what it actually means if you're selling on Etsy, reselling on Vinted, or running a small business on the side.
WHAT IS MAKING TAX DIGITAL?
Making Tax Digital (MTD) is a government initiative designed to modernise the UK tax system by requiring businesses and individuals to keep digital records and submit tax information online. The goal is to make tax reporting more efficient, accurate, and easier to manage.
MTD applies to VAT-registered businesses and, from April 2026, will extend to self-employed individuals and landlords turning over £50,000, followed by those turning over £30,000 from April 2027 and those turning over £20,000 from April 2028. Instead of filing an annual Self Assessment tax return, businesses will need to send regular updates to HMRC using MTD-compatible software, helping to reduce errors and simplify the tax process.
WHEN DOES IT AFFECT ME?
From
6 April 2026
6 April 2027
6 April 2028
You're affected if your gross self-employment/property income is above
£50,000
£30,000
£20,000
Important detail most people miss: this is gross income before expenses, not profit. If you turned over £52,000 on Etsy this year but only kept £28,000 after materials and fees, you're still counted on the £52,000 figure.
HMRC works out your start date from the tax return filed just before the relevant tax year - so your 2024/25 return is what determined whether you're in scope from April 2026.
WHAT IF I'M UNDER THE THRESHOLD?
You don't need to do quarterly updates yet, but you'll still file Self Assessment as normal. I'd still recommend getting used to digital bookkeeping now rather than in a panic later - the £20,000 threshold in 2028 catches a lot more Etsy and Vinted sellers than people realise.
MTD VS SIDE HUSTLE TAX
This trips people up constantly, so let's clear it up:
-
The £1,000 trading allowance is about whether you need to register as self-employed and file a return at all. Sell more than £1,000 a year? You need to register, even if you don't owe any tax once your personal allowance is factored in.
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Platform reporting rules mean Etsy, Vinted and similar platforms share seller data with HMRC. This isn't a new tax — it's HMRC cross-checking that what you've declared matches what the platform reports.
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Making Tax Digital is about how you report once you're above the relevant income threshold, not whether you owe tax.
You can be affected by one of these and not the others. Most Etsy and Vinted sellers reading this are affected by the trading allowance and platform reporting rules right now, and won't hit MTD thresholds for a while yet — but it's coming, and it's easier to prepare early than scramble later.
WHAT SHOULD I DO NOW?
Know your numbers - are you tracking sales and expenses anywhere at all right now?
1. Register as self-employed if you're over £1,000 in sales and haven't already
2. Get comfortable with software (Xero or FreeAgent) before you're forced to, not after
3. Come to one of my webinars — see the latest events here
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WHAT WILL I HAVE TO DO UNDER THE NEW MAKING TAX DIGITAL RULES?
Keep digital records
With Making Tax Digital for Income Tax, you'll need to keep digital records of all your business income and expenses, including any earnings from self-employment or property. Getting started early is a great way to ensure you're prepared when the rules come into effect.
You can use accounting software (e.g. Xero, FreeAgent) to keep your records digital. By setting up a bank feed, you can automatically pull in your transactions, making it easier to manage invoices, expenses, projects, and more - all in one place.
Send quarterly updates
Once you're signed up for Making Tax Digital for Income Tax, you'll need to submit a summary of your business income and expenses to HMRC every three months using MTD-compatible software. FreeAgent is one of the approved providers, so you can use it to stay compliant and submit your tax updates with ease.
Quarterly submission deadlines are the same for everyone following MTD for Income Tax.
Keeping on top of your records with digital software will make meeting these deadlines much simpler!
Finalise your business income
At the end of the tax year, you'll need to wrap things up by completing a final declaration, which takes the place of the current Self-Assessment tax return.
This is your chance to double-check that everything you've reported is correct, add any personal income or tax reliefs, and make any last-minute adjustments. Just like with Self Assessment, you'll need to submit your final declaration and pay any tax owed by 31st January of the following tax year.
By keeping your records digital throughout the year, this process should be much smoother and stress-free!
THE BENEFITS OF MAKING TAX DIGITAL
Save Time
Say goodbye to manual data entry and hello to automated processes that free up your schedule.
Reduce Errors
Digital records mean fewer mistakes and more accurate tax submissions.
Stay Compliant
Ensure you meet HMRC’s requirements effortlessly with up-to-date digital records.
Better Insights
Access real-time financial data to make smarter business decisions.