What Is Making Tax Digital? Everything You Need to Know
Making Tax Digital is a government initiative designed to modernise the UK tax system. For sole traders and landlords, it means a shift from annual tax returns to more frequent, digital reporting. This change aims to make tax administration more efficient, reduce errors and help businesses and individuals stay on top of their tax affairs.
If you are a sole trader or landlord with income above the threshold, you will need to comply with the new rules. Finniston and Company can guide you through the process, ensuring you meet all requirements with minimal disruption to your day-to-day operations.
What Making Tax Digital Is
Making Tax Digital (MTD) is HMRC’s plan to move the UK tax system into the digital age. The goal is to make tax reporting more accurate, efficient and easier to manage. Instead of filing a single annual tax return, you will submit quarterly updates to HMRC using compatible software. This approach is intended to reduce mistakes, improve financial visibility and help you budget for tax payments more effectively.
The initiative applies to Income Tax Self Assessment (ITSA) for sole traders and landlords. It does not replace your annual tax return but adds quarterly reporting requirements to the process.
When It Starts and the Key Dates
Making Tax Digital for Income Tax started in April 2026. If your accounting period aligns with the tax year, your first quarterly update will cover the period from 6 April 2026 to 30 June 2026. The deadline for this submission is 7 August 2026.
Key Quarterly Deadlines
Quarter 1 (6 April – 30 June): Submit by 7 August
Quarter 2 (1 July – 30 September): Submit by 7 November
Quarter 3 (1 October – 31 December): Submit by 7 February
Quarter 4 (1 January – 31 March): Submit by 7 May
After the final quarterly update, you will also need to submit a Final Declaration to complete your annual tax return. This is due by 31 January following the end of the tax year.
Who It Applies To
Making Tax Digital for Income Tax applies to sole traders and landlords with combined income above £50,000. This is based on your qualifying income from the previous tax year, so the 2024/25 return determines whether you must join from April 2026. The threshold will reduce to £30,000 from April 2027, and the government plans to extend it to £20,000 from April 2028, subject to legislation. If your income is below these thresholds, you will not be required to join MTD at this stage, though you can choose to do so voluntarily.
If you are already using digital accounting software, the transition may be straightforward. If not, you will need to adopt compatible software to meet the new requirements.
What You Need to Do to Comply
To comply with Making Tax Digital, you must:
Use Compatible Software
You will need to use MTD-compatible software to keep digital records of your income and expenses. This software must be able to connect to HMRC’s systems to submit your quarterly updates.
Submit Quarterly Updates
Every three months, you will need to send a summary of your income and expenses to HMRC using your software. This is not a tax payment but a report of your financial activity.
Finalise Your Annual Return
At the end of the tax year, you will complete a Final Declaration to confirm your income and expenses for the year. This replaces the traditional Self Assessment tax return.
Pay Tax as Usual
You will continue to pay your tax bill by the existing deadlines (31 January for the balance and 31 July for payments on account). MTD does not change how or when you pay, only how you report your income.
Software You Need
HMRC will not provide free software for Making Tax Digital. You will need to choose a compatible commercial product. Many accounting software providers, such as QuickBooks, Xero and FreeAgent, already offer MTD-compatible solutions. Finniston and Company uses approved software to file MTD returns on behalf of clients, ensuring compliance and accuracy.
If you are unsure which software is right for you, we can recommend options based on your business needs and help you get set up.
Who Is Exempt
You may be exempt from Making Tax Digital if:
Your income is below the threshold (£50,000 in 2026/27, reducing to £30,000 and then £20,000 in later years).
It is not reasonably practicable for you to use digital tools due to age, disability or remoteness of location.
If you believe you qualify for an exemption, you can apply to HMRC. Finniston and Company can assist with this process if needed.
How an Accountant Helps
Navigating Making Tax Digital can feel daunting, especially if you are used to filing a single annual return. An accountant can:
Ensure Compliance: We will make sure your quarterly updates and annual submissions are accurate and submitted on time.
Recommend Software: We can advise on the best MTD-compatible software for your business and help you set it up.
Manage Submissions: If you prefer, we can handle the entire MTD process for you, from record-keeping to submission.
Provide Peace of Mind: With our support, you can focus on running your business while we take care of the tax reporting.
Finniston and Company already uses MTD-compatible software to file returns for our clients. This means we are fully prepared to help you transition smoothly to the new system.
Frequently Asked Questions
When does Making Tax Digital start?
Making Tax Digital for Income Tax started in April 2026. The first quarterly update for the 2026/27 tax year is due by 7 August 2026.
What does Making Tax Digital mean for me?
It means you will need to submit quarterly updates of your income and expenses to HMRC using compatible software. You will also need to finalise your annual return with a Final Declaration.
How does Making Tax Digital work?
You will use MTD-compatible software to keep digital records and submit quarterly summaries to HMRC. At the end of the tax year, you will confirm your annual income and expenses and complete a Final Declaration to finalise your tax bill.
Next Steps
If you are a sole trader or landlord, now is the time to prepare for Making Tax Digital. Start by reviewing your current accounting processes and considering whether your existing software is MTD-compatible. If you need assistance, Finniston and Company is here to help.
Contact Finniston and Company today for clear, practical advice. Your first meeting is free and with no obligation.