Making Tax Digital — what you need to know

What is Making Tax Digital?

Making Tax Digital (MTD) is HMRC's initiative to move the UK tax system online. Instead of completing a single annual tax return, businesses and individuals will need to keep digital records and submit quarterly updates to HMRC using compatible software. The goal is to reduce errors and make it easier for people to stay on top of their tax obligations throughout the year.

Who is affected by MTD for Income Tax?

MTD for Income Tax Self Assessment (MTD for ITSA) applies to self-employed individuals and landlords:

• From April 2026, if your turnover was over £50,000 in the 2024–25 tax year.
• From April 2027, if your turnover was over £30,000 in the 2025–26 tax year.
• From April 2028, if your turnover was over £20,000 in the 2026–27 tax year.

If you're a sole trader, a freelancer, or you receive rental income from property, you may well be included. Take our quiz to quickly find out if, when, and how you are affected.

What counts as qualifying income?

Qualifying income means gross income — before expenses — from self-employment or UK property rental. If your combined income from these sources exceeds the relevant threshold, you must use comply with the MTD regulations. Income from employment (PAYE) does not count toward the threshold.

What do I need to do?

To comply with the MTD regulations, you'll need to:

1. Keep digital records of all your income and expenses using MTD-compatible software.
2. Submit quarterly updates to HMRC — broadly aligned with the tax year quarters.
3. Submit an end-of-period statement at the end of the year.
4. Make a final declaration confirming your total income.

At Bookkeeping for Busy Bees, we provide end-to-end support to make sure you are completely MTD-compliant. Contact us to find out how we can help.

What software do I need?

You'll need software that is recognised by HMRC as MTD-compatible. Popular options include Xero, QuickBooks, FreeAgent, and Sage. Spreadsheets on their own are not sufficient, though some bridging software can connect a spreadsheet to HMRC. We can advise you on the best option for your circumstances and set it up for you.

What are the penalties for non-compliance?

HMRC has introduced a points-based penalty system. Each late submission earns a penalty point; reaching the threshold triggers a financial penalty. Repeated failures can result in significant fines. Getting set up correctly before the deadline is far cheaper than dealing with penalties later.