What Is Making Tax Digital? A Simple Guide

What is Making Tax Digital and How Does it Work

What is Making Tax Digital — and does it affect you? If you are a sole trader, landlord or small business owner in the UK, the answer is almost certainly yes, and sooner than you might think.

Making Tax Digital is a government initiative designed to modernise the UK tax system by moving it entirely online. Rather than completing a single annual tax return, affected taxpayers will be required to keep digital records and send quarterly updates to HMRC through approved software, followed by a final declaration at the end of the tax year.

The goal is simple — to reduce errors, make tax management easier and close the UK’s tax gap. But for many business owners, the transition raises a lot of questions. This guide explains everything you need to know in plain English.

If you need to understand how these rules apply specifically to you, see our full guide to Making Tax Digital for Income Tax.

Key Dates and Thresholds

MTD for ITSA will be introduced in phases based on your qualifying income:

From 6 April 2026: If your total gross income from self-employment and/or property exceeds £50,000.
From 6 April 2027: If your total gross income from self-employment and/or property exceeds £30,000.
From 6 April 2028: If your total gross income from self-employment and/or property exceeds £20,000.

Qualifying income refers to the total gross income (before expenses) from self-employment and property combined.

What Will Change Under MTD?

If you’re affected, you’ll need to:

Keep Digital Records: Utilise MTD-compatible software to accurately record all income and expenses digitally.
Submit Quarterly Updates: Every three months, send a summary of your business income and expenses to HMRC through your chosen software.
Submit a Final Declaration: This replaces the traditional Self Assessment tax return, which needs to include details of all your other income and confirms your full tax liability for the year.

Who Will Be Affected?

MTD for ITSA will apply to you if you’re a sole trader or landlord with a combined gross income from self-employment and/or property exceeding the thresholds outlined above. HMRC will assess your qualifying income based on your submitted Self Assessment tax returns and notify you accordingly.

Preparing for the Change

To ensure a smooth transition to MTD, consider the following steps:

Choose the Right Software: Select MTD-compatible software that suits your business and property management needs.
Digitise Your Records: Begin transitioning your financial records to digital formats to comply with the new requirements.
Stay Informed: Keep up-to-date with the latest MTD developments and guidelines from HMRC.
Seek Professional Advice: Consult with a chartered accountant, such as Maynard Johns, who can help you navigate the new requirements and ensure you’re fully prepared.
Cash Basis: Assess whether the cash basis is the most appropriate method for preparing your accounts to assist with MTD

Benefits of Making Tax Digital for Income Tax

While the transition to MTD may seem daunting, it offers several advantages:

Improved Accuracy: Digital records reduce the likelihood of errors in your tax submissions.
Efficiency: Quarterly updates make it easier to manage your taxes throughout the year.
Transparency: Regular reporting provides a clearer picture of your financial health and tax liabilities.

Need Help Making the Switch?

Are you still confused over what is Making Tax Digital or need help getting set up? Contact Maynard Johns Chartered Accountants today on 01237 472071 to discuss how we can support your transition to Making Tax Digital.

*Note: This article reflects the latest HMRC guidance as of April 2025. For the most current information, please refer to the official HMRC website.*