How to Navigate Making Tax Digital: Essential Steps & Guide
- Millie O'Neill
- May 18
- 3 min read
Updated: 3 days ago
Making Tax Digital for Income Tax: What You Need to Know
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Making Tax Digital for income tax is set to change how you file your tax returns starting in 2026. This guide outlines what you need to know and the steps to get ready.
Understanding Making Tax Digital
You might have heard of Making Tax Digital (MTD) before. HMRC has emphasized the need to use digital software for filing tax returns for several years. Since 2019, VAT-registered businesses with a taxable turnover above the VAT registration threshold (currently £90,000) have needed to keep digital records and submit their VAT returns through MTD-compatible software.
Now, this requirement will extend to most self-employed individuals and landlords, regardless of VAT registration. The first group affected will be self-employed individuals or landlords earning over £50,000 during the tax year 2024/25.
What Changes Are Coming?
As MTD rolls out, three significant changes will take effect from April 2026 for those with a turnover above £50,000. They are outlined below:
Quarterly Reporting
Instead of filing one annual Self Assessment tax return, you will submit quarterly updates of your income and expenses digitally to HMRC.
These updates must be submitted within a defined timeframe after each quarter ends (exact dates will be provided by HMRC).
Submissions must be made through software that is compatible with HMRC's MTD system.
It is crucial to note that these quarterly updates are merely summaries of income and expenses, not final tax calculations.
Digital Record Keeping
You will be required to maintain digital records of your income and expenses using compatible software or apps. This means tracking all transactions, including sales and expenses, digitally. You must avoid merely entering data and then deleting it.
End of Year Declaration
While quarterly updates are mandatory, you will still need to submit a final declaration at the end of the tax year. This declaration is due by January 31 following the end of the tax year, as in previous years’ Self Assessment submissions. It will finalize your year's tax liability based on all quarterly submissions and other relevant factors. This is where any final adjustments can be made, showing any tax owed or due.
Preparing for the Change
MTD aims to simplify filing your income tax returns. Crucially, this means using software that is MTD-compliant.
Choose MTD-Compatible Software
Research and select accounting software that complies with HMRC's MTD requirements. Consider aspects such as ease of use, features, and cost. Ensure the software is officially recognized by HMRC.
Start Keeping Digital Records Now
Don’t delay in keeping digital records, even if your business income falls under lower threshold bands. Practice makes perfect! This will acclimate you to the software and prepare you for MTD.
Seek Professional Advice
If uncertain about any aspects of MTD, consult an accountant or tax advisor. They can help you select appropriate software and ensure compliance with the regulations.
The MTD Roadmap
April 2026: MTD for ITSA becomes mandatory for self-employed individuals and landlords with income exceeding £50,000 for the tax year 2024/25.
April 2027: MTD for ITSA will become mandatory for self-employed individuals and landlords with income exceeding £30,000 for the tax year 2025/26.
Future: HMRC plans to expand MTD to include additional taxpayers, with potential new thresholds to be announced.
For more about MTD-ITSA timelines, visit HMRC’s website here.
Conclusion
MTD doesn’t need to be a heavy burden. Starting early can ease the transition. Even if it doesn’t impact you immediately, familiarizing yourself with keeping digital records and receipts might be beneficial for the future. Transitioning to a fully digital system will help streamline your tax reporting process.
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