Making Tax Digital: What It Means For You
The days of paper tax returns and last-minute submissions are coming to an end. From April 2026, Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) will become mandatory for sole traders and landlords with a gross income of £50,000 a year. If that applies to you, it’s time to start preparing.
What Does MTD Mean For You?
Quarterly income and expense submissions, digital records, via approved software – you’ll now report income and expenses every three months using accounting software that links directly to HMRC. There will still be a final annual submission, similar to the tax return we are all used to.
Key Changes You Need To Know
- Digital record-keeping: You’ll need to maintain financial records in a digital format.
- Quarterly reports: Every three months, you’ll submit tax data to HMRC via your accounting software.
- Final end-of-year submission: Once the tax year ends, you’ll make an annual declaration of your total taxable income.
Who Needs To Comply?
- April 2026: Sole traders and landlords earning over £50,000 per year.
- April 2027: The threshold will lower to £30,000 per year.
- April 2028: The threshold is predicted to lower to £20,000 per year.
How Can You Prepare?
- Check if you’re affected – If your combined sole trade and rental income is over £50,000, MTD will apply to you from April 2026. If you earn between £30,000 and £50,000, you’ll need to comply by April 2027.
- Get MTD-Compatible software – Spreadsheets won’t cut it anymore – you’ll need software like Xero or another MTD-approved platform that integrates directly with HMRC.
- Start keeping digital records now – Switching to digital bookkeeping sooner rather than later will make the transition easier. For example, anyone already familiar with Xero by April 2026 will find meeting the first deadline much smoother.
- Work with your accountant – Your accountant can manage the transition and ensure compliance. If you handle your taxes independently, it might be worth consulting an expert to set up the correct system.
Reporting Dates
- If your year-end is 31st March, your first quarterly return will cover 1st April 2026 – 30th June 2026, and must be submitted to HMRC by 7th August 2026.
- If your year-end is 5th April, your first quarterly return will cover 6th April 2026 – 5th July 2026, and must be submitted to HMRC by 7th August 2026.
Then, shift these dates forward by three months for each subsequent quarterly submission.
One Further Complication
The same individual may need to submit multiple quarterly reports:
- If you have multiple sole trades, you will need separate quarterly submissions for each.
- If you have UK property income and overseas property income, they must also be filed separately.
For example, if an individual has two sole trades, a UK rental property, and an overseas holiday let, that would be a total of four quarterly submissions for the same person.
Get Ready For Making Tax Digital With Expert Support From Sidaways
HMRC will use the gross income on the 05-04-2025 tax return to determine who must file quarterly submissions. Our chartered accountants will also be monitoring these returns for all clients for whom we prepare tax returns and will raise the issue with affected individuals. At that stage, we will prompt you to have a plan in place.
As you can see, this can be a minefield. HMRC is still tweaking some of the legislation, so we’re not yet 100% sure how submissions will be made. However, rest assured that Xero is one of the few software companies already approved by HMRC, and they guarantee their software will be compliant when the time comes.
If you have any queries in the meantime, please do not hesitate to contact us.
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Michael Broome
Email: michael@sidaways.co.uk
Tel: 01392 360008
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