Making Tax Digital — are you ready for the next phase?

Making Tax Digital (MTD) is HMRC's programme to move the UK tax system fully online. It has been rolling out in phases for several years and the next significant step — MTD for Income Tax Self Assessment — will affect millions of sole traders and landlords from April 2026.

If you are self-employed or receive rental income, this will affect how you report your income to HMRC. Here is what you need to know.

What is Making Tax Digital?

MTD requires businesses and individuals to keep digital records and submit tax information to HMRC using approved software. The aim is to reduce errors, speed up reporting, and eventually eliminate the annual tax return as we know it.

MTD for VAT has been mandatory for most VAT-registered businesses since 2022. MTD for Income Tax Self Assessment (MTD for ITSA) is the next major rollout.

Who is affected and when?

What changes in practice?

Under MTD for ITSA, the annual self assessment return does not disappear entirely — but the way you report to HMRC changes significantly:

• Quarterly updates: You submit a summary of income and expenses to HMRC four times a year, within one month of each quarter end
• End of period statement: An annual declaration confirming your final figures for the year
• Final declaration: Replaces the current self assessment return, covering any additional income and reliefs
• Digital records: All business income and expenses must be recorded digitally using MTD-compatible software

The quarterly updates are summaries only — they do not trigger a tax payment. Tax is still calculated and paid under the existing payment schedule. But the quarterly submissions do mean HMRC has a much more up-to-date picture of your finances throughout the year.

What software do you need?

You will need HMRC-recognised software that can submit MTD updates. The most widely used options include:

• QuickBooks — popular with small businesses, good mobile app
• Xero — strong for businesses needing multi-currency or more complex reporting
• FreeAgent — designed for freelancers and sole traders, included free with some business bank accounts
• Sage — established option, range of tiers available

HMRC also maintains a list of approved free software for those with straightforward affairs. Spreadsheets can be used with bridging software, though this adds a layer of complexity.

Pros and cons of MTD

The advantages

• You have a clearer, more up-to-date view of your tax position throughout the year — no nasty surprises in January
• Errors are more likely to be caught early, before they become a bigger problem
• Digital record-keeping is generally faster and less prone to mistakes than paper or spreadsheets
• HMRC's systems become more integrated, potentially speeding up refunds and reducing the volume of enquiries

The challenges

• There is a cost to software subscriptions — typically £10–£30 per month depending on the platform
• It requires a change in habits — you cannot leave your bookkeeping until January any more
• The quarterly submission deadlines add four additional filing obligations per year
• For those less comfortable with technology, the transition can feel daunting initially

What to do now

If you fall within the April 2026 threshold, you have time to prepare — but not as much as it might feel. Software selection, setup, and building the habit of regular record-keeping takes longer than most people expect.

1. Confirm whether you are in scope — add up your gross income from self-employment and rental to check against the threshold
2. Choose your software — speak to your accountant about what works best for your situation
3. Start keeping digital records now — even before the deadline, switching to digital bookkeeping will make the transition much smoother
4. Understand the quarterly deadlines — so you are not caught out in the first year

This article is for general information purposes and does not constitute tax advice. MTD rollout dates are subject to change by HMRC. Please speak to a qualified accountant for advice specific to your circumstances.