Making Tax Digital (MTD) for Income Tax – guide for the self employed

making tax digitial income tax self employed

There’s one certainty when it comes to running a business, and that’s the need to file a tax return.

That will never go away. In fact, with a new regime called Making Tax Digital (MTD) for Income Tax coming soon, the frequency of filing returns will increase quite dramatically for many people.

In this Making Tax Digital Q&A, we asked veteran Chartered Accountant and franchisor Elaine Clark to explain MTD and highlight the key things business owners need to be aware of.

What is Making Tax Digital (MTD)?

MTD plays a crucial role in the government’s efforts to minimise the tax gap, which is the discrepancy between the tax that is due and the tax that is actually paid. HMRC intend to do this by requiring businesses and individuals to:

  • keep digital records
  • use software that works with Making Tax Digital
  • submit updates every quarter, bringing the tax system closer to real-time

What does MTD mean in reality?

The first thing to state about the new MTD for income tax regime is that it applies to self-employed business owners and landlords who complete an annual self-assessment tax return.

It doesn’t apply to limited companies, although HMRC may introduce a different regime for companies in the future.

When do the new rules for MTD apply?

The new regime will apply to self employed business owners and landlords with a qualifying income over:

  • £50,000 from April 2026
  • £30,000 from April 2027

The government has said that those with income between £20,000 and £30,000 will also be brought into the new rules during the current Parliament although precise dates for this have not been given.

What are the new rules?

Individuals who fall into the new system will be required to keep electronic accounting records using suitable software or a spreadsheet and to make quarterly updates (also known as returns) as well as a final declaration to HMRC of their income and expenditure.

When do I need to submit the updates?

Under the new system, cumulative updates will need to be submitted to the tax quarter end dates which are different to the calendar quarters being:

Quarter Number Period covered by update Filing deadline
1 6 April to 5 July 7 August
2 6 April to 5 October 7 November
3 6 April to 5 January 7 February
4 6 April to 5 April 7 May

HMRC will allow updates to be filed to calendar quarter end dates, via making a calendar quarter election, to make things easier. This means that the filing dates would be:

Quarter Number Period covered by update Filing deadline
1 1 April to 30 June 7 August
2 1 April to 30 September 7 November
3 1 April to 31 December 7 February
4 1 April to 31 March 7 May

Final Declaration

In addition to the quarterly reporting a final declaration needs to be filed to the usual self assessment deadline of 31st January following the end of the tax year. The final declaration, which will also include other income not reported as part of the MTD returns such as savings interest, dividends etc, will replace the usual self assessment tax return for individuals falling within the new regime.


public liability

What about paying tax?

At the moment, the deadline for paying tax remains unchanged at 31st January following the end of the tax year, as well as for payments on account due on 31st January and 31st July.

How will I know if the new rules apply to me?

HMRC will write to those who need to follow the new rules. Initially, they will look at those with qualifying income over £50,000 on the Self-Assessment tax return for the 2024 to 2025 tax year.

In reality this means that you may not have much time to prepare if you wait until HMRC contacts you. Preparing for the new rules in advance, rather than waiting for a letter, may be a better approach.

What does this mean for my record keeping?

MTD for income tax means that those who full within the new regime will need to be on top of their record keeping i.e. their bookkeeping and accounting.

They will need to be doing the record keeping daily, weekly and certainly monthly. It’s no longer something that can be an annual task completed just before deadlines approach.

In reality the thing to remember is that whatever HMRC ask you to file the answer will be in the bookkeeping. So keeping on top of this means that you are prepared for whatever HMRC may throw at you!

Is there anything that I can do to make the reporting easier?

The answer to this is most definitely yes for sole trader business owners who have a turnover of less than £90,000. They can follow what is called the “three line approach” to filing the new quarterly returns as they can with their current self assessment tax returns.

In reality this means that you only need to enter two figures on your quarterly update being the total income and the total costs – the third figure of profit (income less costs) is calculated by the system.

This makes the bookkeeping a whole lot easier. You just need to capture all of your business income and all of your costs making sure that you exclude personal costs such as your own income tax, National Insurance, personal expenses and any amounts that you have taken out of the business to live on.

For most sole trader business owners the best way of capturing all of the income and costs is by using at dedicated business bank account. Accounts such as those from Starling, Mettle, Monzo or Tide are brilliant for just this purpose as they even have built in bookkeeping.

A top tip is to make sure that you only use the business account for business transactions. This is so much easier to do these days with the technology available (paying by phone and Apps) allowing you to be much better organised.

Do I need to use an accountant?

For anyone who is unsure about the new rules and if they fall into the regime the best advice is to seek out a reputable accountant to help them certainly through the first few reporting periods.

It may be that after this they can do the filing themselves or they may prefer to pay their accountant leaving them the time to focus on other business activities.

Our team of accountants are certainly gearing up ready to help both existing and new clients.

We’re focused on making this as painless as possible both in terms of time and costs for clients because no one can afford additional outlays at this time.

However, inevitably, a new and more frequent regime will bring with it increased costs, whether it be in software or time spent on record keeping. There simply doesn’t seem to be any way to avoid this.

What about current self assessments?

Any self assessments due under the old rules will still need to be filed. In particular the self assessment for the tax year 2025 / 2026 (6 April 2025 to 5 April 2026) which is due by 31 January 2027 will still need to be submitted under the old rules even though the first MTD update is due by August 2026. This is likely to create some confusion.

It might be worth getting the 2025 / 2026 return in as early as possible just to get it out of the way remembering that the tax due still won’t need to be paid until 31 January 2027.

It’s sounds very complicated

Yes the new rules and transitioning to them is complicated. In addition, there are still many things that HMRC need to iron out. Overall tax is complicated and unfortunately the new rules add even more complexity.

Who can help?

More information on MTD can be found on the HMRC website.

If you have an accountant, they should be able to explain the new rules to you and tell you when you will need to change to the new regime.

If you are confused, stuck or need some general help, there is a Q&A form where you can ask questions. This can be found at https://www.cheapaccounting.co.uk/mtd.

Chartered Accountant Elaine Clark is Managing Director of Award Winning online accountancy practice www.cheapaccounting.co.uk whose ethos is to empower self employed small business owners and individuals who need to do tax returns to embrace technology, education and knowhow to take advantage of their cost effective professional accountancy services.