What is Making Tax Digital and do I need to worry about it

Making Tax Digital (MTD) is HMRC's shift from one annual Self Assessment tax return to quarterly digital updates. If you are a sole trader or landlord, it changes how you report your income and expenses. It does not change how much tax you pay or when you pay it.

The short version: if your self-employment or property income is above £50,000, MTD already applies to you — it became mandatory on 6 April 2026. If it is above £30,000, you are in scope from April 2027. Above £20,000, April 2028. Below £20,000, you are not currently affected.

What actually changes

Under the old system, you kept records however you liked — paper receipts, spreadsheets, memory — and handed everything to your accountant once a year. Under MTD, you need to do three things differently.

First, keep digital records of your income and expenses throughout the year. This means using software, not a shoebox of receipts.

Second, send a summary to HMRC every quarter. These are not mini tax returns. They are a snapshot of what you have earned and spent in that three-month period. The deadlines fall in August, November, February, and May.

Third, submit a final declaration by 31 January after the end of the tax year. This replaces your Self Assessment return and is where you make year-end adjustments, claim reliefs, and bring in any other income.

You still only pay tax once (or twice, if you make payments on account). The payment schedule is not changing.

Do I need to worry about it

If your income is above the threshold, yes — but not in the way you might think. The biggest change is not filing quarterly. It is keeping digital records throughout the year instead of reconstructing everything in January.

For sole traders who already use accounting software, the transition is minimal. For the majority who rely on paper diaries, bank statements, and memory, it is a bigger shift. Research from Monzo Business found that sole traders spend an average of 27 hours a year on tax admin, and nearly seven in ten do not currently pay for any digital tools to manage it.

The good news is that HMRC has confirmed no penalties for late quarterly updates in 2026/27, the first year — a soft landing while the system beds in. The requirement to keep digital records, though, has been in force since day one.

What software do I need

You need HMRC-compatible software that can send quarterly updates and file your final declaration. HMRC does not provide its own platform for this — you need to use an approved provider.

There are a range of options, from standalone MTD tools to full business management platforms that handle invoicing, expense tracking, and tax reporting in one place. The right choice depends on how much of your admin you want to bring into one system versus bolting MTD compliance onto your existing setup.

If you already use an accountant, check with them. Many are already preparing their clients for the transition and will recommend software that works with their processes.

What if my income is below the threshold

You are not required to use MTD yet. But the thresholds are coming down — £30,000 in 2027, £20,000 in 2028 — so most sole traders will be affected eventually.

Even if you are not in scope today, moving to digital record-keeping now has practical benefits. It eliminates the January scramble through bank statements. It means your numbers are up to date when you need them, not just when HMRC asks for them. And it means you will not be scrambling to learn a new system when your threshold arrives.

What MTD does not do

MTD does not change your tax rates, your payment dates, or your Personal Allowance. It does not mean you need to file more complex returns. It does not mean you need to be good with technology — it means you need software that is good enough to make the technology invisible.

It also does not solve the broader admin problem. Quarterly tax updates are one piece. Managing your customers, your work, your invoices, your expenses, and your schedule is the rest. MTD-compatible software that only handles tax compliance still leaves you with five other systems to manage.

How to prepare

Start with two things. First, check which phase you fall into — April 2026 (now live, £50k+), April 2027 (£30k+) or April 2028 (£20k+). HMRC uses your 2024/25 Self Assessment return to determine your start date.

Second, think about what kind of system you actually want. If you are going to move to digital record-keeping anyway, it is worth considering whether you want a tax tool or a single system that can handle tax alongside everything else you do to run your business.

For the £50k+ tier the deadline has arrived; the penalties will follow once the 2026/27 soft-landing year ends. For the £30k and £20k tiers, the window to prepare quietly — rather than scramble in the final months — is still open.