16 May 2025
Table of contents
Table of contents
Making Tax Digital for Income Tax (or MTD IT to its mates) changes the way you record and report income from self-employment and property. Rather than scribbling your sales figures on an old receipt and submitting a Self Assessment tax return once a year, MTD IT makes it compulsory to keep financial records digitally and use special software to submit this information to HMRC throughout the year.
This article explains who is affected and when (and what to do!).
The rules are rolling out in stages based on the earnings you get from being self-employed or a landlord. If this amount is more than £50,000 then the Making Tax Digital Income Tax rules will apply to you from April 2026 onwards. The threshold reduces to £30,000 the following year, and again to £20,000 from April 2028. It sounds really far away doesn’t it? That doesn’t mean it’s a good idea to leave it until the night before, like you used to with your Maths homework.
You’ll need to use your income figures from the previous tax year to work out if MTD Income Tax applies to you.
For example, if the total you earn from property and self-employment is more than £50,000 on your 2024/25 Self Assessment, you must be MTD compliant from April 2026.
The rules will apply from:
You can opt-in to MTD before the rules are mandatory, but if you do sign up you must follow the rules. Whether you’re a new start-up business or have been going for a while, it’s well worth making the move to MTD-compliance as soon as possible. It might not be compulsory for you yet, but getting everything in place early could save a big headache later on.
MTD is about much more than simply paying your tax bill, and the real focus is on robust digital record keeping. If you use different types of accounting software, they must be “digitally linked”. This isn’t always easy, so take the time to prepare well in advance, and definitely talk to your accountant!
You’ll need to start keeping digital records of all your business’s transactions. This could be on a spreadsheet, some other type of digital database, or dedicated accounting software.
You’ll also need software which allows you to send this information to HMRC on a quarterly basis throughout the year. This doesn’t have to be the same software you use for keeping your records, but it generally makes life much easier if it is! For example, spreadsheets will comply with the ‘digital record-keeping bit’ but you won’t be able to make submissions with them so you’ll also need to use bridging software to send your records to HMRC.
The final step is to send a Final Declaration at the end of the year (which replaces the current Self Assessment tax return).
The data you send to HMRC each quarter must include the details of any self-employment and property income and expenses from the previous 3 months. You’ll also need to provide your records from the start of that tax year (and any changes you’ve made to them).
While you can use traditional spreadsheets alongside bridging software, HMRC’s focus is on MTD-friendly accounts software. There are lots of MTD software options, but be sure to take a good look beyond the marketing write up.
Some software providers advertise themselves as MTD compliant, yet still require you to download a report and submit your return through bridging software. Ideally you should be able to report and submit to HMRC from within the software itself.
Look for tools to help you manage your day-to-day business activities as well as a offering information in real time. This will help you spot any missing information more easily, so you’re less likely to make mistakes. It allows for better financial and business planning generally.
If you’re already using a software provider then it’s worth checking your existing package is fit for purpose. If you do need to make the move or upgrade it can take time, depending on who you’re with!
Making Tax Digital has been on the radar for a while, so any fairly new cloud accounting software is likely to be MTD-friendly. Just keep in mind that some software providers might focus more on other countries, so their approach to MTD might be a bit of an after thought.
Simply updating your accounting software with the monthly total of all invoices won’t wash (unfortunately)
We can’t really emphasise this enough – you need comprehensive software that ticks all the boxes. Start researching now and if you have an accountant, discuss it with them as soon as possible. They’ll be able to use their experience to guide you in the best options for your business. It’s tempting to leave it, but that’s really not a great idea!
Some self-employed people, businesses, agents, and landlords already maintain digital records and provide updates to HMRC as part of a pilot scheme, rather than completing a Self Assessment tax return. You can also sign up on a voluntary basis on the Sign Up Your Business for Making Tax Digital for Income Tax page of the Gov.uk website.
Learn more about using Pandle to make business accounting easier. Create an account today and decide what to do with all the extra time you get back.
A content writer specialising in business, finance, software, and beyond. I'm a wordsmith with a penchant for puns and making complex subjects accessible.
Create your account today, and decide what to do with all the extra time you get back. We hear Pilates is popular.
Live chat support
No card details required
Making Tax Digital compliant
