Making Tax Digital: What it means for you and how to prepare
Making Tax Digital (MTD) is one of the biggest changes to the UK tax system in recent years. Introduced by HMRC, it will change how many individuals report their income and manage their tax affairs.
If you’re self-employed or a landlord, it’s important to understand what’s changing, when it applies to you, and what steps you may need to take.
What is Making Tax Digital?
Making Tax Digital is a new system that requires you to record and report your income and expenses digitally throughout the year, rather than submitting a single annual tax return.
Instead of one submission, you’ll be expected to provide regular updates to HMRC using compatible software.
The aim is to make tax reporting more accurate, more up to date, and more transparent.
Who does Making Tax Digital apply to?
Making Tax Digital will apply to individuals based on their income (turnover), not profit.
You will need to comply if you are:
- Self-employed, and/or
- A landlord
The rollout is being phased:
- From April 2026: If your income is over £50,000
- From April 2027: If your income is over £30,000
If you fall into either of these categories, it’s worth preparing early to avoid any last-minute disruption.
What will you need to do under Making Tax Digital?
MTD introduces a more structured and ongoing approach to reporting.
1. Keep digital records
You’ll need to track your income and expenses using digital software, rather than spreadsheets or paper records.
This ensures your records are accurate and easily shareable with HMRC.
2. Submit quarterly updates
Instead of one annual return, you’ll submit four updates per year.
These updates will summarise your income and expenses for each quarter, giving HMRC a more up-to-date view of your tax position.
3. Complete a final submission
At the end of the tax year, you’ll still need to confirm your figures.
This final submission replaces the traditional Self Assessment tax return, ensuring everything is accurate and complete.
What is actually changing?
The key shift with Making Tax Digital is how often and how you report your information.
Before:
- One tax return per year
- Often prepared retrospectively
Under MTD:
- Four quarterly updates
- One final year-end submission
- Mandatory use of approved digital software
While the overall tax calculation remains similar, the process becomes more frequent and more structured.
Will you pay tax more often?
No, this is a common misconception.
Even under Making Tax Digital, tax is still paid annually and in line with current rules.
However, because your reporting is more frequent, you may have a clearer, more up-to-date view of your tax position throughout the year.
Will this increase administration?
In the short term, it’s likely that MTD will mean:
- More regular reporting
- A shift away from manual record-keeping
- The need to learn new systems
You may also need to use paid accounting software, some examples of which are:
- FreeAgent
- QuickBooks
- Xero
That said, once set up properly, many people find that digital systems can actually make ongoing record-keeping more efficient.
How should you prepare for Making Tax Digital?
While the changes don’t take effect until 2026 or 2027 for most people, early preparation can make a big difference.
Consider:
- Moving to digital record-keeping sooner rather than later
-Reviewing your current processes
- Speaking to an accountant or advisor about suitable software
- Understanding how your income levels may bring you into scope
What could this mean for you?
Making Tax Digital is ultimately about changing habits rather than changing tax.
For many, it will mean:
- Being more organised throughout the year
- Having better visibility over income and expenses
- Taking a more proactive approach to tax planning
Final thoughts
Making Tax Digital represents a significant shift in how tax is reported in the UK.
While it may feel like an administrative burden initially, it also creates an opportunity to:
- Improve financial organisation
- Gain clearer insights into your position
- Plan more effectively for the future
If you think these changes may affect you, it’s worth seeking advice early and putting the right systems in place well ahead of the deadlines. Our advisers would be more than happy to talk through the upcoming changes with you and building a financial plan.
If you wish to speak to an adviser you can email us at info@thepennygroup.co.uk or call 0207 061 2345.
For specialist tax advice, please refer to an accountant or tax specialist.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
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