Making Tax Digital – It’s Almost Here
Keeping digital business records using software as part of Making Tax Digital requirements.
From April 2026, some sole traders and landlords will need to follow new rules under Making Tax Digital (MTD) for Income Tax.
This isn’t a new tax. It’s a change to how records are kept and how information is reported to HMRC.
Who It Applies To
Making Tax Digital for Income Tax will apply to:
Sole traders, and
Landlords
based on their total turnover from those sources.
The thresholds are:
From 6 April 2026:
MTD applies if your sole trade and/or property turnover is over £50,000.From 6 April 2027:
The threshold reduces to over £30,000.
At present, partnerships are not included in these rules.
It also does not apply to limited companies, whose reporting requirements remain unchanged.
How HMRC Decides If You Are Over the Threshold
HMRC does not look at what you expect to earn in the future.
Instead, they look at the figures reported on your most recently submitted tax return.
For the start of MTD in April 2026, this will generally be your 2024/25 tax return (filed by 31 January 2026).
So whether you fall within MTD is based on turnover you have already declared, not projections.
It Is Based on Turnover, Not Profit
The threshold is based on your gross turnover.
This means:
your total sales or rental income before expenses,
not your profit, and
not what you personally draw from the business.
For example, if your business has £60,000 of sales and £25,000 of expenses, HMRC treats the turnover as £60,000 for MTD purposes.
This is one of the most common misunderstandings.
What Is Changing?
Under the current system, lots of people:
keep records manually or on spreadsheets,
provide information once a year,
submit a Self Assessment tax return after the year end.
Under MTD, this moves to a digital process:
Records must be kept in compatible software.
Income and expenses are recorded throughout the year.
Updates are submitted to HMRC during the year.
A final year-end submission is still required.
It’s important to note that this is not four tax returns - it is more regular reporting of the same information.
You Will Need Compatible Software
MTD cannot be done through HMRC’s website alone.
It requires software that can:
maintain digital records,
connect directly to HMRC,
submit the required updates.
Spreadsheets alone will not meet the requirements unless linked to compatible software.
Signing Up Is Not Automatic
HMRC will not automatically enrol taxpayers into MTD.
You must register for the service and authorise your software before reporting begins.
HMRC’s guidance can be found here:
https://makingtaxdigital.campaign.gov.uk/
What You Should Do Now
If your turnover is close to or above the £50,000 threshold, the sensible next steps are:
Check your 2024/25 tax return to confirm your turnover.
Register with HMRC for Making Tax Digital.
Put appropriate software in place to maintain digital records.
Lots of people prefer their accountant to manage this process to ensure everything is set up correctly and runs smoothly from the outset.
We can help with registration, software setup and ongoing record-keeping so that the transition becomes part of your normal routine rather than an additional burden.
A Change in Process, Not in Tax
MTD does not change how much tax you pay.
It changes how and when information is reported.
With the right systems in place, it becomes a practical administrative change rather than something to worry about.