Making Tax Digital is Coming Here’s How to Get Prepared

June 23, 2025

The way self-employed individuals and landlords manage their taxes is changing. HMRC’s Making Tax Digital (MTD) initiative is at the heart of this transformation—bringing in a digital-first approach that aims to simplify and modernise tax reporting. But what does this mean for sole traders and property landlords?

In this blog, we break down what MTD is, who it affects, and how to get ready.

What is Making Tax Digital (MTD)?

Making Tax Digital is a UK government programme that aims to make tax administration more effective, efficient, and easier for taxpayers by encouraging the use of digital tools.

The ultimate goal? To eliminate paper-based tax records and manual submissions in favour of real-time, accurate reporting using approved software.

Who Will Be Affected?

While MTD is already in place for most VAT-registered businesses, the next big phase is MTD for Income Tax Self Assessment (MTD for ITSA).

From April 2026:

Sole traders and landlords with combined business and/or property income over £50,000 must comply.

From April 2027:

Those earning between £30,000 and £50,000 will also fall under MTD rules.

Note: If your income is below £30,000, HMRC plans to review whether MTD will apply to you in the future.

What Will You Need to Do?

Under MTD for ITSA, you’ll need to:

1. Keep Digital Records

You must maintain digital records of all your income and allowable expenses using MTD-compatible software. This replaces traditional handwritten records or Excel spreadsheets.

2. Send Quarterly Updates

Every three months, you must send a summary of your income and expenses to HMRC via your software. These are not tax returns, but progress updates.

3. Submit a Final Declaration

At the end of the tax year, you’ll submit a final declaration (also known as the End of Period Statement) to confirm your income, claim reliefs, and finalise your tax bill.

What Are the Benefits?

While MTD introduces new processes, it also brings several benefits:

Better financial visibility throughout the year
Fewer errors thanks to automation and real-time reporting
More accurate tax bills and reduced risk of surprise payments
Less stress at tax year-end with ongoing reporting

How to Prepare for MTD

If you’re a sole trader or landlord, now is the time to start preparing:

Choose MTD-compatible software like Xero, QuickBooks, FreeAgent, or Sage.
Keep business and personal finances separate to simplify reporting.
Work with a qualified accountant to ensure compliance.
Start digitising your records now to get used to the new system.

Final Thoughts

Making Tax Digital marks a significant shift in how self-employed people and landlords manage their tax obligations. By preparing early, you can avoid future headaches and take full advantage of the tools available to help streamline your finances.

If you’re unsure where to start or need help choosing the right software, speak to a tax advisor or accountant today they can guide you through the process and help you stay compliant.