Making Tax Digital (MTD) is the UK government’s initiative to modernise the tax system, making it more efficient, effective, and easier for individuals and businesses to stay on top of their tax affairs.
Initially launched in 2019, MTD aims to phase out traditional paper tax returns in favour of digital submissions using compatible software. But with multiple delays, shifting timelines, and various thresholds, it’s understandable that many small business owners and landlords still feel unsure about what’s required—and when.
If you run an SME, work for yourself, or manage rental properties, now is the time to get up to speed.
A quick recap
Here’s a summary of where we are:
- April 2019 – MTD for VAT became mandatory for VAT-registered businesses earning over £85,000.
- April 2022 – MTD for VAT was extended to all VAT-registered businesses, regardless of turnover.
If you’re VAT registered, you should already be keeping digital records and filing VAT returns using MTD-compliant software.
What’s coming next: MTD for income tax
The next phase of MTD will affect many more individuals, particularly sole traders, landlords, and directors of small companies. Here’s what’s on the horizon:
- From April 2026 – MTD for Income Tax becomes mandatory for sole traders and landlords with annual income over £50,000.
- From April 2027 – The threshold lowers to £30,000, bringing many more into scope.
This means that by 2027, most self-employed professionals and small landlords will be required to switch to digital reporting for income tax.
What you need to do
MTD for Income Tax replaces the traditional Self-Assessment with a new system of ongoing digital reporting. Here’s what you’ll need to do:
- Keep digital records of all business or property income and expenses.
- Submit quarterly updates to HMRC.
- File a final end-of-year declaration to confirm your overall tax position.
You’ll still pay tax annually, but you’ll be reporting earnings more regularly – making it easier to monitor liabilities and plan ahead. These are the key reporting windows under MTD for Income Tax:
| Quarter | Accounting Period | Submission Deadline |
| Q1 | 6 Apr – 5 Jul | 7 Aug |
| Q2 | 6 Jul – 5 Oct | 7 Nov |
| Q3 | 6 Oct – 5 Jan | 7 Feb |
| Q4 | 6 Jan – 5 Apr | 7 May |
How to prepare for MTD
Whether you’re running an online shop, consulting from home, or managing a rental portfolio, preparing early can make the transition much smoother.
1. Check when MTD will apply to you
Review your total annual self-employment and/or rental income. If it’s over £50,000, you’ll be affected from April 2026; over £30,000 means April 2027.
2. Choose the right software
To comply with MTD, you’ll need either:
- MTD-compatible accounting software, or
- Bridging software to connect existing spreadsheets to HMRC.
There are hundreds of approved tools listed on Gov.uk, including some free options. Many cloud-based accounting platforms (like Xero, QuickBooks, or FreeAgent) already include MTD functionality.
3. Start keeping digital records
Whether you’re using a full accounting package or spreadsheets, all income and expenses will need to be recorded digitally and stored securely.
4. Link your software to HMRC
This involves entering your Government Gateway ID into your software, which connects it to HMRC’s systems so you can file returns directly.
Still using spreadsheets?
If you prefer to manage your records in Excel or Google Sheets, you can continue to do so—as long as you use bridging software to send the data to HMRC. This tool creates the necessary ‘digital links’ between your records and the tax system.
However, bridging software only helps with submissions—it won’t help you manage or analyse your finances. For better visibility and long-term efficiency, dedicated accounting software is often the better choice.
Digital record-keeping: what you’ll need to track
MTD requires digital records of:
- Business or rental income
- Expenses and outgoings
- Dates and values of each transaction
- VAT details (if applicable)
- Any relevant adjustments
If you use special VAT schemes (e.g. Flat Rate or Retail Scheme), there may be additional data requirements too.
Switching to MTD might feel like another admin task, but embracing digital tools now can help you stay organised, plan better, and avoid last-minute panic. You can update your records at a pace that suits you—daily, weekly, or whenever there’s a quiet moment between clients or meetings.
If you’re unsure about where to begin, talk to your accountant or visit the HMRC website for guidance and software options.
While you’re updating your financial systems, it’s also a good time to review your business insurance. Whether you’re working from home, running a consultancy, or letting property, Howden can help you find cover that fits your needs—from professional indemnity and public liability to landlord insurance. Make sure your business is properly protected as you go digital.
Sources: Gov.UK, Nerd Wallet, Ross Martin
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