Making Tax Digital (without loosing the plot)

Hello. So if you're here, it's probably because you think there might be something you need to do about Making Tax Digital (MTD) but you haven't quite got around to it yet.

Maybe you've been meaning to watch a webinar, or look into it properly, and somehow it keeps not happening.

"It's all going to be ok and you are not going to get in trouble!"

I'm going to go through the main points — what it actually is, whether it affects you, what you need to do about it and when.

And then you can get back out to admiring the bluebells!

P.s. if you prefer to listen I also have an audio version for you:

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And Calm...

Just before we get into it: I know this stuff can feel quite daunting and triggering. Tax, compliance, the ominous "there's something I need to do" - that particular flavour of dread is real.

So I'd like to invite you to get comfy first, pop the kettle on. Perhaps, if are able to, have a look out of the window, scan the horizon, admire the trees, or simply look around the room, notice the colours. And breath. Because it helps if you can ground and settle into this space.

Ok let's go through it together.

What actually is Making Tax Digital?

Here's where a lot of people get confused, because they're already filing self-assessment online not filling in a paper form and thinking, well, I'm already digital? I'm good, no?

And the thing is, you are. But that's not quite what HMRC means by digital in this context.

"What they're actually talking about is full digital record keeping, with quarterly updates going from your software directly to them throughout the year"

The annual self-assessment isn't going away — there's still an end-of-year filing — but on top of that, you're sending a summary of your income and expenses to HMRC every quarter.

This is the general direction of travel, we are seeing really, transparency, government having oversight of what's going on in real time rather than waiting until January.

"The big bit to hold onto: Making Tax Digital doesn't change how much tax you pay or when you pay it. Just how and how often you report it"

It's the same thing they did with MTD for VAT a couple of years ago. Whether you think that's reasonable or not is a whole other conversation, but that's essentially what it is.

Does it actually affect me?

MTD for Income Tax applies to sole traders and landlords, and it's being phased in based on your gross income — that's your sales or turnover before expenses, not your profit.

If you're both a sole trader and a landlord, you add those incomes together to check the threshold.

The phasing

• April 2026 — gross income over £50,000 in 2024/25
• April 2027 — gross income over £30,000 in 2025/26
• April 2028 — gross income over £20,000 in 2026/27

The threshold is checked against the previous year's tax return. So for example if you were over £50k in qualifying gross income on your 2024/25 return — the one due in January just gone — you're 'in scope' from this April.

What counts towards the threshold)?

This is worth knowing, because it's not everything you earn.

Counts

The relevant forms of income here are:

- Self-employment income, from soletrader activities (based on gross turnover)

- UK rental income

- overseas property income.

If you have a combination, i.e. you are both a soletrader and a landlord -both of these income activities are added together to work out if you meet the threshold.

Doesn't count

You can ignore...:

- PAYE employment income

- dividends

- pension income

- savings interest

- investment income

...when working out if your earnings qualify for Making Tax Digital.

So for example, if you're self-employed and you also have a job, you don't add your PAYE salary in when you're working out whether you're in scope you would only need to look at the soletrade earnings. Which is useful to know.

Who's not included (yet)?

• Partnerships and LLPs — not in scope yet for MTD, no dates confirmed
• Limited companies — MTD for Corporation Tax has been cancelled
• Trusts and estates — not included
• Foster carers — care income is also excluded from the threshold calculation

There are also some exemption categories you can apply for: digital exclusion (age, disability, location) and — interestingly — religious objection to technology.

Check your own figures

At this point it is worth checking with your actual numbers so you know exactly where you stand.

"Go and have a look at what you filed for 2024/25, if the income figure you reported was over £50,000 then you are required to do Making Tax Digital for the 2026/27 tax year (i.e. from 6 April 2026)."

If you weren't over that £50,000 threshold in 2024/25, then this means you don't need to do Making Tax Digital from April. But it's worth checking how your earnings in 2025/26 are looking because in this tax year, the threshold drops to £30,000 and, if that applies for you, then it means you will be joining Making Tax Digital from next year, April 2027.

If you're earnings for 2025/26 are below £30,000 then you probably won't need to do anything around MTD till at least April 2028.

If you're 'in scope' for MTD, what do you actually have to do?

Five filings a year instead of one. Four quarterly updates to HMRC plus an end-of-year final declaration (which is the standard self assessment tax return we have now) delivered through MTD compliant software.

The quarterly deadlines

• Q1: 6 April – 5 July, due 7 August
• Q2: 6 July – 5 October, due 7 November
• Q3: 6 October – 5 January, due 7 February
• Q4: 6 January – 5 April, due 7 May
• Final declaration: due 31 January

At present, tax payment dates stay the same 31 January (and 31 July if you're on payments on account).

The practical shift

Everything has to go through MTD-compatible software. No more paper records or standalone spreadsheets and then just popping high level figures into the return. Everything needs to be digital, and your submissions go to HMRC through HMRC-approved software.

How will you know if you need to join?

HMRC should write to you — if your gross income was over £50k on your 2024/25 return, you should have received a letter by March 2026. But don't rely on that.

"It's your responsibility to sign up to MTD. HMRC won't do it for you"

You can sign up here

If you've got an accountant, there's a good chance they'll be signing up on your behalf and talking to you about it. If you haven't got one, it's worth thinking about whether now might be the time or you want to tackle it yourself.

Can you sign up early?

Yes — the public beta is open for voluntary registrations if you want to get ahead of it. Just bear in mind: once you're in, you're in. You can't decide you didn't like it after a quarter and leave. So if you do voluntarily register, make sure you're ready to keep going with all four quarters and the final declaration.

"Should I just set up a limited company and avoid all this?"

I'm hearing this a lot, and I totally get the logic. Limited companies pay Corporation Tax, not Income Tax. HMRC has confirmed MTD for Corporation Tax is not happening. So yes, technically, going limited would take you out of MTD for Income Tax.

"But in short - probably not a good idea, to 'go Limited' to get away from MTD if that's your only reason for incorporating"

What you'd be taking on instead

Being a Limited Company involves other kinds of admin, company accounts, company tax return, personal tax return. Companies House filings, director responsibilities, payroll admin, higher accountancy costs. Different taxes and new filing dates and deadlines to get your heard around. It's a lot to take on to avoid four quarterly submissions.

The tax savings aren't what they were

The maths on incorporation has got significantly less compelling in the last few years. Corporation tax went up, if you are a sole director Limited Company, it's likely that you will pay more in Employers National Insurance now and they've just increased dividend tax rates coming into April 2026. Such that, if there was perhaps a couple of grand saving in there before with savvy tax planning, there a good chance its eroded now.

There's a wider conversation to have if you're thinking about going limited for strategic reasons - bringing people into the business, raising investment, pension contributions, et cetera. That's worth exploring properly and in many situations is a really good idea. But purely as a Making Tax Digital avoidance strategy, it's probably not the one.

I've got a Google Sheet where you can put in your own numbers and see the comparison between taxes for soletrader vs. limited company

MTD Software — what are your options?

Controversially, HMRC has not created free software for this. Which I think is quite surprising, given it's mandatory. So it's really down to the commercial market to provide solutions.

The main accounting platforms

All the major ones — Xero, QuickBooks, Sage, FreeAgent — are building MTD-compliant updates. If you're already using one of these, you're well on your way.

Xero (my personal pick — they don't pay me to say this)

Xero have created a new Simple plan specifically for non-VAT sole traders and landlords: £7+VAT a month, includes quarterly updates, final declaration, bank feeds and receipt capture. One account handles both sole trader and rental income if you have both. There's currently 80% off for the first six months — check their site for the current deal. Their MTD resources are also actually pretty good: xero.com/uk/programme/making-tax-digital

What it actually looks like in practice

You run your bookkeeping as normal, coding transactions as they come in. At the end of each quarter there's a module that pulls it all together — a bit like a VAT return if you've ever done one — and you can review and submit to HMRC in one click. You can also see a running tax estimate as you go because the quarterly filings are cumulative (which is handy for planning).

Challenger banks

Banks like Monzo and Starling have built MTD tools directly into their accounts — Monzo powered by Sage, Starling with their own free tool which is now live. If you're already banking with either of them it's worth looking at what they've got before committing to separate software. Other banks will also be building in MTD software, so do check for what else is avaiable as these are just examples.

There are actually some upsides to this

I know it can just feel like something else being imposed on you — because it is. But getting properly set up with digital bookkeeping does have real benefits beyond compliance.

"Real-time visibility of your finances. Knowing roughly what your tax bill is going to be before January. Making decisions based on actual numbers, not end-of-year guesswork"

Professional invoices with payment links, intuitive apps, And if growth, VAT registration, or hiring staff is in your future, you're already set up for it.

My view is that your finances should make sense for your business first — tell you what's going on, help you plan, help you make decisions. The tax compliance bit should just drop out of that. Tax shouldn't be the whole point of your bookkeeping. Unfortunately for a lot of people it has ends up being exactly that. It doesn't have to be.

What if I don't do it?

HMRC have introduced a new points-based system for penalties: if you miss a quarterly deadline and you get one penalty point. Reach four points and it's a £200 fine. Points expire after 24 months if you get back on track.

"There's a soft landing for the first year — no penalty points for late quarterly updates in 2026/27."

So if you're feeling a little unprepared and out of your depth right now, don't worry there is plenty of time for you to get sorted, and up to speed. You will not be in trouble.

So where does that leave you right now?

Over £50k in 2024/25?

You're 'in scope' from April 2026. Register for MTD now — or get your accountant to do it. Get your software sorted. Your first quarterly filing covers 6 April to 5 July and is due 7 August. Your 2025/26 return still gets filed the usual way in January 2027, running alongside this (unless you voluntarily opt to start early).

Under £50k in 2024/25?

Nothing immediate, but keep an eye on your 2025/26 gross income. Over £30k means you're in from April 2027 — close enough that it's worth starting to look at software options and getting organised.

Reading this later than April and panicking a little?

It will be ok.  Remember there is a soft landing with the penalties for late quarterly filings in the first year but get onto it as soon as you can.

Handy Resources

You can access:

- my MTD presentation slides

- check out my LTD vs ST comparison guidance and Google Sheet

-And if you want to watch the full MTD workshop I delivered especially for Wild Coworking, you can get the recording in the Wild member's library by joining the community!

There's also an audio version of this blog over on the CFO Voicenotes Podcast.

Questions?

Have questions or want to talk through what this means for your situation?

Find me at belowthelinefinance.co.uk, on Instagram @belowthelinefinance

Please note: The information shared here is for general guidance only, as at the publication date. It is not tax advice and does not cover all eventualities and circumstances.

I recommend that you obtain appropriate, tailored professional advice to inform your own business or tax decisions.