Making Tax Digital (MTD) — What You Need to Know

A plain-English guide to HMRC's Making Tax Digital programme, what it means for your business, and how to prepare.

Last updated: August 2026

What is Making Tax Digital?

Making Tax Digital is HMRC's long-term programme to modernise the UK tax system. The core principle is simple: businesses and individuals must keep digital records and submit tax information to HMRC using compatible software, rather than manually entering figures into HMRC's online portal. The aim is to reduce errors, make tax administration more efficient, and give taxpayers a more real-time view of their tax position.

MTD for VAT (Already Live)

MTD for VAT has been mandatory for all VAT-registered businesses since April 2022, regardless of turnover. If you're VAT-registered, you should already be compliant. The requirements are:

Keep your VAT records digitally (not in a paper ledger or non-linked spreadsheet)

Use MTD-compatible software to file your VAT return

Maintain digital links between your records and your VAT return — no manual re-keying of figures

Popular compatible software: Xero, QuickBooks, FreeAgent, Sage, IRIS

MTD for Income Tax (From April 2026)

This is the big change. From April 2026, sole traders and landlords with qualifying income over £50,000 must comply with MTD for Income Tax Self Assessment (MTD ITSA). Those with income over £30,000 join from April 2027. This replaces the traditional Self Assessment tax return with a more frequent reporting cycle:

Quarterly updates: Submit a summary of your business income and expenses to HMRC every quarter (not a full tax return — just totals)

End of Period Statement (EOPS): After your accounting year ends, confirm your figures are complete

Final Declaration: Replace your Self Assessment return — confirm all income sources and claim reliefs

Deadlines: Quarterly updates due by the 7th of the month following the quarter end

Who Is Affected?

You'll need to comply with MTD for Income Tax if you are:

A sole trader with gross income (turnover, not profit) over £50,000 — from April 2026

A landlord with gross rental income over £50,000 — from April 2026

A sole trader or landlord with gross income over £30,000 — from April 2027

If you have BOTH self-employment and rental income, they are combined to determine whether you meet the threshold

Limited companies are NOT affected — MTD for Corporation Tax has been deferred indefinitely

Partnerships are currently exempt but expected to join in future years

What Software Do I Need?

You'll need MTD-compatible software that can submit quarterly updates to HMRC. The main options are:

Xero — Our recommended platform for most small businesses. Cloud-based, excellent bank feeds, strong MTD compliance.

QuickBooks Online — Good alternative, particularly popular with sole traders. Straightforward interface.

FreeAgent — Designed specifically for freelancers and micro-businesses. Simple and affordable.

Sage Business Cloud — Familiar to many businesses already using Sage products.

Spreadsheets + Bridging Software — You can continue using spreadsheets for record-keeping, but you'll need bridging software to submit to HMRC. This is a temporary solution — full digital records will eventually be required.

How to Prepare

If you'll be affected from April 2026, here's what to do now:

Move to cloud accounting software if you haven't already — don't wait until the deadline

Ensure your bank feeds are connected and categorising transactions correctly

Start submitting quarterly updates voluntarily to get used to the process (HMRC allows this)

Review your record-keeping — are you capturing all income and expenses digitally?

Speak to us about your specific obligations and whether any exemptions apply

Penalties Under MTD

HMRC is introducing a new points-based penalty system for MTD. Late submissions earn penalty points, and once you reach the threshold (4 points for quarterly obligations), you receive a £200 penalty. Points expire after a period of compliance. Late payment penalties are separate: 2% on tax unpaid after 15 days, a further 2% after 30 days, then 4% annualised on the outstanding balance.

How RJ Hart Can Help

We're already helping clients transition to MTD-compatible systems. Whether you need software setup, training, or want us to handle the quarterly submissions on your behalf, we can tailor a solution that works for your business. The key is to start preparing now — not in March 2026.

Need help with this?

Our team can provide specific guidance tailored to your circumstances. No jargon, no obligation.

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