Making Tax Digital: Everything You Need to Know

If you are self-employed, earn rental income, or run a side business, the way you report income to HM Revenue and Customs is changing.

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From April 2026, Making Tax Digital for Income Tax Self Assessment (often shortened to MTD for ITSA) begins rolling out for many taxpayers. Instead of submitting one annual self-assessment tax return in the traditional way, eligible individuals will need to keep digital records and send updates throughout the year.

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For many people, this sounds like more admin. However, it can also create better visibility over profits, expenses, and expected tax bills.

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In this workshop, we explain who it applies to, when it starts, how often you need to file, and what it means for your business.

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What Is Making Tax Digital?

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Making Tax Digital is a government programme designed to move tax reporting online and make record-keeping more accurate.

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There are different strands of the programme, including:

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  • Making Tax Digital for VAT
  • Making Tax Digital for Corporation Tax (future developments)
  • Making Tax Digital for Income Tax Self Assessment (MTD for ITSA)

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The focus here is MTD for Income Tax, which affects self-employed people and landlords.

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Instead of waiting until the end of the tax year to declare income, qualifying individuals will need to submit updates during the year using compatible software.

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Why Is This Being Introduced?

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Historically, many self-employed people only reviewed their figures once a year when it was time to complete a tax return.

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That often led to issues such as:

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  • Missing receipts
  • Poor record keeping
  • Unexpected tax bills
  • Late submissions
  • Cash flow pressure
  • Errors in returns

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More regular reporting is intended to reduce these problems.

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For business owners, it may also bring genuine advantages. When your records stay up to date, you can usually make better decisions about spending, pricing, growth, and tax planning.

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When Does Making Tax Digital Start?

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The rollout begins in stages.

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From April 2026

If your qualifying income is over £50,000, you will need to comply.

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From April 2027

The threshold reduces to over £30,000.

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Does Making Tax Digital Apply to Me?

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It depends on your income and where that income comes from.

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Making Tax Digital for Income Tax is aimed at:

  • Sole traders
  • Freelancers
  • Contractors
  • Landlords
  • People with self-employed side income

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The key test is your gross income, not profit.

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That means the threshold is based on your income before expenses are deducted.

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Example

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If you earn:

  • £20,000 from freelance work
  • £30,000 from rental property

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Your combined qualifying income is £50,000.

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That means you may fall within the rules once the relevant threshold applies.

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Is It Based on Revenue or Profit?

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This is one of the most common questions.

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The threshold is based on turnover / revenue, not profit.

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So even if your expenses are high and your profit is relatively low, the income threshold is still measured before expenses.

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That makes accurate bookkeeping especially important.

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What If I Have a Job and a Side Hustle?

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Many people now earn income from more than one source.

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If you have a normal salaried job through PAYE, that employment income does not count towards the MTD threshold.

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However, your self-employed or rental income does count.

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Example

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You earn:

  • £35,000 through PAYE employment
  • £18,000 from freelance design work

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Only the £18,000 freelance income is relevant for Making Tax Digital.

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If your side income remains below the threshold, you may not need to join yet.

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How Often Will I Need to File?

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Under the new system, you will usually need to submit:

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Quarterly Updates

You send income and expense summaries during the year.

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Final Declaration

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At the end of the tax year, you complete a final submission that confirms your overall tax position and includes adjustments such as:

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  • Allowances
  • Pension contributions
  • Reliefs
  • Other taxable income
  • Dividends (where relevant)

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So while annual reporting still exists in a final form, much of the work happens across the year instead of all at once in January.

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Do I Need to Pay Tax Every Quarter?

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No. This is another area where many people are confused.

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Quarterly reporting does not automatically mean quarterly tax payments.

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Tax payment dates generally remain aligned with the existing self-assessment system unless future rules change.

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That means many taxpayers will still pay in January, with payments on account where applicable.

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However, quarterly updates should give you a much clearer estimate of what you are likely to owe.

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That can make budgeting far easier.

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Can I Still Use Spreadsheets?

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Many sole traders currently manage records using:

  • Excel
  • Google Sheets
  • Paper receipts
  • Notes apps
  • Shoebox bookkeeping

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While spreadsheets may still play a role in some setups, the key requirement is that submissions must be made digitally through compatible software.

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In practice, many people will find it easier to move to cloud accounting tools, like Addition, that allow:

  • Bank feeds
  • Receipt capture
  • Expense categorisation
  • Real-time profit reporting
  • Digital submissions

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Manual systems often become harder to manage once quarterly filing starts.

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What Does a Good Accounting Setup Look Like?

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If you want the transition to be smooth, aim for a simple digital process.

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Ideal Setup for a Sole Trader or Landlord

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1. Separate Business Bank Account

Keep personal and business transactions separate.

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2. Receipt Capture App

Photograph receipts as you spend.

The Addition Go App does just this and is available on Apple and Android devices.

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3. Accounting Software

Use modern accounting software that tracks income, expenses, and tax estimates.

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4. Monthly Review Habit

Check figures monthly rather than yearly.

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5. Professional Support

If you are unsure about tax rules, a UK-based accountant who specialises in MTD, can save time and reduce mistakes.

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Why This Could Actually Help Your Business

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Although many people see Making Tax Digital as another compliance task, it may improve how you run your business.

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Benefits can include:

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  • Better awareness of profits
  • Fewer surprises at tax time
  • Improved cash flow planning
  • Cleaner records
  • Faster access to finance
  • Less stress in January
  • Better business decisions year-round

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For people who have always “done the books later”, this change may be the push needed to stay organised.

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What Should You Do Now?

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If you think the rules may apply to you, now is the right time to prepare.

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Practical Next Steps

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  • Check your annual gross self-employed and rental income
  • Review how you currently keep records
  • Move away from paper receipts
  • Consider digital bookkeeping software
  • Speak with an accountant if unsure
  • Build a routine before quarterly filing begins

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Starting early is usually much easier than scrambling close to a deadline.

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If you are unsure whether the new rules apply to you, need help choosing the right bookkeeping setup, or want expert guidance tailored to your business, speaking to a professional can save time and stress.

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Book a call today to discuss your situation and get clear next steps with an expert adviser.

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Final Thoughts

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Making Tax Digital is changing how self-employed people and landlords report income in the UK.

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While it introduces more regular reporting, it can also create better financial visibility and fewer year-end surprises. For many businesses, the biggest win will be staying organised and knowing where they stand throughout the year.

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If you prepare now, the transition in 2026 should feel far more manageable.

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