What is Making Tax Digital?

Making Tax Digital (known as MTD for short) is taking effect from April 2026 for some businesses.

Note: MTD for VAT is already in place, and this blog post focuses on the new MTD for Income Tax regime.

What is changing?

Currently, a sole trader or landlord will prepare an annual self assessment tax return (form SA100) and submit it to HMRC on or before 31 January following the tax year.

Once MTD comes in, those impacted will start to send quarterly submissions to HMRC in addition to a new annual process.

Importantly, if you don't already, you will be mandated to keep digital records.

Digital records for this purpose should not be as onerous as it may sound - unless you are keeping an old style paper ledger book (or a carrier bag of receipts!). Digital records is either using a bookkeeping software product (capable of submitting data to HMRC either directly or via another product), or a spreadsheet that captures the following information; date of transaction, description, category, amount.

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When will I be impacted?

MTD is being introduced over three years, depending on your income level.

1. From 6 April 2026 - for those with 'qualifying income' of £50,000 or more,

2. From 6 April 2027 - for those with 'qualifying income' of £30,000 or more,

3. From 6 April 2028 - for those with 'qualifying income of £20,000 or more

   
   

In this context, 'qualifying income' includes the following;

• Gross income (turnover) from any sole trade business, and

• Gross rental income

So, as an example if your business has a turnover of £45,000, and you receive £6,000 rental income, your qualifying income is £51,000 and so you will be within MTD from it's inception on 6 April 2026.

However, if you have business turnover of £40,000, £6,000 rental income, and £5,000 employment income - your qualifying income is £46,000 and you will be within the MTD regime from April 2027.

If your qualifying income does not exceed £20,000 then, under the current plans, you will not be within quarterly MTD. However, at some point in the future, it is likely that the current self assessment process will be replaced by an annual MTD process.

Finally, this currently only impacts sole traders and landlords - partnerships will be included within MTD in the future, and limited companies are excluded from the MTD rules.

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What are the practical implications?

Best demonstrated by an example, using a sole trader called John.

Example - John

John's tax return for the year ended 5 April 2025 showed sole trade turnover of £40,000, and gross rental income of £11,000. For MTD purposes, his qualifying income is £51,000 and so he will enter MTD from 6 April 2026.

This has two impacts for John;

1. He must ensure he is keeping Digital Records on or before 6 April 2026, and

2. He must be able to make quarterly submissions to HMRC

Digital Recordkeeping

The digital records need to cover both John's business, and his rental income - importantly, they need to be kept separately, as submissions are made for each. For each entry, John will need to record the date, amount, and a suitable description and category to identify the entry.

Income

All sales, takings, fees, rents and lease premiums need to be recorded.

Expenses

All expenses related to the business and property also need to be recorded; travel costs, office admin, finance costs, stock, repairs and maintenance are all examples of typical expenses.

Submissions

Four quarterly submissions will be due for each 'business' - the sole trade, and the property income, as follows;

Period Start	Period End	Deadline
6 April	5 July	7 August
6 July	5 October	7 November
6 October	5 January	7 February
6 January	5 April	7 May

If John is using HMRC recognised software, then the submission can be done from within his recordkeeping tool. However, if John is using a spreadsheet, then additional software (known as Bridging Software) will be required to make the submission to HMRC.

In addition to the quarterly submissions, an annual submission for the tax year 2026/27 will be due to HMRC on or before 31 January 2028. If you wish to make your own submissions, it is important to check that the tool you have selected for recordkeeping can make the full annual submissions as well - not all record keeping tools will cover all scenarios.

Planning and organisation is vital - the first year of MTD will involve getting used to the processes. However, in year two (for John the tax year ending on 5 April 2028) it starts to get confusing - as an example, on 31 January 2028 John needs to make his annual submission for 2026/27... and by 7 February 2028, he is making his third quarterly submission for 2027/28.

This blog is an overview of the process, and does not cover specifics or the fine details. Further coverage of late submission penalties, deadlines for registering etc will be covered in later posts.

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