What Making Tax Digital actually is
Making Tax Digital (MTD) is HMRC's long-running push to move tax reporting away from a once-a-year paper or PDF exercise and into ongoing digital record-keeping. It's already been mandatory for VAT-registered businesses for a few years. The bigger change now underway is Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) — and it's arriving in phases that are catching a lot of sole traders and landlords by surprise.
Who it applies to, and when
MTD for ITSA applies to sole traders and landlords based on their combined gross income from self-employment and property (not profit — gross income). It's being phased in by income threshold rather than switched on for everyone at once:
- From 6 April 2026: anyone with gross business and/or property income over £50,000 must comply, starting with the 2026/27 tax year.
- From 6 April 2027: the threshold drops to £30,000, covering the 2027/28 tax year.
- From 6 April 2028: it drops again to £20,000, pulling in a much larger group of smaller sole traders and landlords for 2028/29.
If your gross income is below whatever threshold currently applies to you, you carry on filing a normal Self Assessment return for now — but it's worth watching those thresholds, because they're clearly heading towards catching almost everyone eventually.
What changes in practice
Once you're in MTD for ITSA, the annual tax return as you know it goes away. Instead, you'll need to:
- Keep digital records of your business and/or property income and expenses throughout the year, in MTD-compatible software (not a spreadsheet on its own, unless it's linked to bridging software).
- Submit a quarterly update to HMRC every three months, summarising income and expenses for that period.
- Submit a Final Declaration after the tax year ends, confirming your total income across all sources and finalising any adjustments — this replaces the old SA100 return.
The quarterly updates aren't a full tax calculation each time — think of them more as a running total that keeps HMRC (and you) up to date, with the real reconciliation happening at the Final Declaration stage.
Why this is actually a good thing (mostly)
It's easy to see MTD as pure extra admin, and there's no getting around the fact that it is more frequent than the old system. But the flip side is that quarterly updates mean far fewer surprises at year-end — you'll have a much better real-time sense of what you owe, rather than discovering it in one lump sum the following January. For businesses that are already using cloud accounting software like Xero, most of this is a smaller shift than it sounds, since the record-keeping habit is already there.
What to do now
If your gross income is anywhere near £50,000 from self-employment or property, don't wait until April 2026 to think about this:
- Check whether your current record-keeping (or lack of it) is MTD-compatible software, or whether you'll need to move onto something like Xero.
- Get comfortable keeping digital records now, ahead of the deadline, rather than scrambling in year one.
- If you're close to a threshold, plan for it rather than being pulled in unexpectedly partway through a tax year.
We're already moving clients over ahead of their applicable date so it's a non-event when it lands rather than a scramble. If you're not sure which threshold and date applies to you, that's exactly the kind of thing we can check in a quick call.