Making Tax Digital (MTD) for Income Tax is now in force. The first phase of HMRC’s new reporting requirements officially began in April 2026, bringing changes for many sole traders and landlords across the UK.
The good news is that MTD doesn’t change how much tax you pay. It just changes how you keep records and report your income to HMRC.
What is Making Tax Digital?
Making Tax Digital is HMRC’s initiative to modernise the UK tax system by moving businesses away from paper records and annual reporting.
For those within scope, MTD requires you to:
- Keep digital records of income and expenses
- Use MTD-compatible software
- Submit quarterly updates to HMRC
- Complete a final digital declaration at the end of the tax year
The aim is to improve accuracy, reduce errors and give taxpayers a clearer picture of their tax position throughout the year.
Who does it affect?
From April 2026, MTD for Income Tax applies to sole traders and landlords with qualifying income over £50,000. The threshold will reduce to £30,000 from April 2027 and to £20,000 from April 2028, which will bring many more individuals into the system over the coming years.
If you’re unsure whether you’ll be affected, it’s better to check now than wait for a letter from HMRC.
What is qualifying income?
Qualifying income usually means your total income before expenses. For sole traders, that’s your business turnover, while for landlords it’s your rental income before expenses.
If you have both self-employment income and rental income, HMRC may add them together. For example, if you have £35,000 from self-employment and £25,000 from rental income, your total qualifying income would be £60,000.
Why good record-keeping matters more than ever
One of the biggest changes under MTD is the requirement to maintain digital records.
Gone are the days of relying on a box of receipts at year-end or updating spreadsheets once every few months. Businesses now need accurate, up-to-date records throughout the year to meet quarterly reporting deadlines.
While this may sound daunting, many businesses find that digital record-keeping actually saves time. Accounting software can automatically import bank transactions, categorise expenses and provide real-time visibility of business performance. Better records also mean fewer errors and less stress when tax deadlines approach.
What are the quarterly updates?
A lot of business owners are concerned about the introduction of quarterly updates.
Under MTD, you’ll submit summaries of your income and expenses to HMRC every three months through your software. These updates are not full tax returns and don’t usually require tax calculations – they are more like regular progress reports.
Many people are finding that the process actually becomes simpler once they are maintaining digital records throughout the year.
Don’t leave preparation until the last minute
Recent industry research suggests that many small business owners are still unprepared for the transition to MTD, and many are yet to fully digitise their records.
You’ll find the transition easiest by preparing now. Review your current bookkeeping processes, choose suitable software and seek professional advice early to avoid unnecessary stress later.
Working with an accountant or bookkeeper under MTD
If you already work with an accountant or bookkeeper, it’s worth having a conversation about how things will work. You might decide that your accountant can handle everything on your behalf – keeping your digital records, submitting quarterly updates and filing your digital tax return at year end.
A popular alternative is to split the responsibilities – you handle the day-to-day record-keeping and quarterly updates, while your accountant takes care of the year-end digital tax return.
If you don’t currently have an accountant, MTD is still perfectly manageable. The software does the hard work. But if your tax situation is complex with multiple income sources, capital allowances, or anything beyond the basics, it’s worth engaging an accountant, even if it’s just for the annual tax return.
How we can help
Making Tax Digital is one of the biggest changes to Income Tax reporting in recent years, but you don’t have to navigate it alone.
Whether you need help to understand whether MTD applies to you, finding the right software or managing compliance, we’ll guide you through and make sure you’re fully prepared.
To better understand what this means for your business , get in touch. As Lune Valley accountants we’ll explain what’s involved and help you get ready.