MAKING TAX DIGITAL

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.

MAKING TAX DIGITAL TIMELINE

April 2019

MTD was introduced for all VAT-registered businesses with a taxable turnover of over £85k.

April 2021

Digital links became mandatory for MTD for VAT.

April 2022

All VAT-registered businesses, regardless of turnover, must now comply with MTD.

April 2026

MTD for Income Tax Self Assessment comes into effect for sole traders and landlords earning over £50k.

April 2027

MTD for Income Tax Self Assessment comes into effect for sole traders and landlords earning over £30k.

MAKING TAX DIGITAL FOR INCOME TAX

Making Tax Digital for Income Tax (formerly known as MTD for Income Tax Self Assessment) is set to change how millions of business owners and landlords report their earnings to HMRC. The 2025 Spring Budget confirmed that MTD for Income Tax will apply to all self-employed individuals and landlords with a turnover of over £20,000 from April 2028.

If you're self-employed or a landlord, you'll need to follow the Making Tax Digital (MTD) rules for Income Tax starting from:

6 April 2026 – if your annual business or property income (turnover) is over £50,000
April 2027 – if your annual business or property income (turnover) is over £30,000

April 2028 – if your annual business or property income (turnover) is over £20,000

When MTD starts in April 2026, the £50,000 turnover will be applied to the information in the 2024/25 tax returns due to be filed by 31 January 2026.

If you meet the above criteria from 6 April 2026 you will need to:

Keep records of your business income and expenses in a digital format.
For each type of revenue (self-employed business or property), send quarterly updates of your business income and expenses to HMRC.
Finalise your business income by submitting a final declaration.

MTD Checklist

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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!