What is Making Tax Digital?
Making Tax Digital (MTD) is a long-term government initiative designed to modernise the UK tax system. Its goal is simple: to make tax reporting more accurate, efficient, and easier for businesses and individuals through the use of digital tools.
Making Tax Digital
Welcome to our dedicated hub for Making Tax Digital – your go-to resource for understanding what’s changing, who it impacts, and how Practical Business Solutions will support you every step of the way.
Where are we now?
The MTD journey began with VAT, which is already mandatory for all VAT-registered businesses, regardless of turnover. This first phase introduced digital record-keeping and submission of VAT returns through MTD-compatible software — a major shift from manual processes and paper-based returns.
Next on the roadmap is Making Tax Digital for Income Tax Self Assessment (MTD ITSA) — and this marks a much bigger change. Unlike MTD for VAT, MTD ITSA affects individuals directly, including sole traders, landlords, and those with multiple sources of income. It replaces the annual tax return with a system of quarterly digital updates, requiring affected taxpayers to stay on top of their income reporting throughout the year.
MTD ITSA represents a fundamental shift in how people manage and report their income, and it's something that businesses and individuals alike need to start preparing for now.
What is MTD ITSA?
We've already gone through the process of digitising the VAT system. The next step on this journey is digitisation of the Self Assessment system. Making Tax Digital for Income Tax Self Assessment (MTD ITSA) is a government-led initiative by HMRC designed to modernise the tax system. It requires eligible individuals to keep digital records and submit tax information to HMRC quarterly, using compatible software.
When does MTD for Income Tax Start?
Making Tax Digital for Income Tax is a new requirement that will affect individuals who earn income outside of PAYE, such as those who are self-employed or receive property income. It is being introduced in stages, based on your total qualifying income. Total qualifying income means the combined gross income you receive from self-employment and rental income.
Total Gross Income | Year MTD for Income Tax will become mandatory |
|---|---|
£50,000+ | 6th April 2026 |
£30,000+ | 6th April 2027 |
£20,000+ | 6th April 2028 |
For example:
If you earn £35,000 from your trade and £18,000 from rental income, your total qualifying income is £53,000 - which means you will fall into the April 2026 threshold.
What are the requirements?
Under the new system, there will no longer be the need to provide paper records, spreadsheets, bank statements, and the like. Everything will be handled digitally, through the use of approved tools, like Xero.
Digital Records
Keep digital records of all income and expenses using MTD-compatible software (e.g. Xero)
Submit Quarterly Updates
Submit quarterly updates to HMRC for each income source
End of Period Statement
Submit an End of Period Statement (EOPS) for each business or property stream
Final Declaration
Submit a Final Declaration (replacing the Self Assessment tax return)
Benefits of going digital
Change can be scary but when fully embraced, it can bring positive changes. MTD doesn’t just mean compliance — it’s an opportunity to simplify your finances.
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How Practical Business Solutions can help
Here at Practical Business Solutions, we're not underestimating the challenge ahead. We're already helping clients transition smoothly to MTD. These are just some of the ways we're helping.
Assess & Set Up
We’ll review your business to confirm if, and when MTD applies. Then, if necessary, get you set up with fully compliant software and establish processes to ensure you are well-prepared for MTD.
Training & Support
Our team has hosted events to educate our clients on the anticipated changes, and provides practical training and ongoing support so you can manage your digital records with confidence.
Manage & Advise
We are well-prepared to handle your quarterly submissions and offer proactive advice on cashflow, forecasting, and tax planning — keeping your business compliant and future-ready.
Free webinar
Getting ready for Making Tax Digital for Income Tax
See what changes, when they apply, and how to prepare without the stress. Enter your details for instant access to our expert walkthrough.
Free On-Demand Session:
Making Tax Digital Made Simple
See what changes are happening, when they apply, and how to prepare without the stress.
This informative video was taken from an event we hosted for our clients, to advise them on the anticipated changes.
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FAQ's
Do I need to register for MTD yet? Not yet — HMRC hasn’t opened full registration for most taxpayers. However, it’s a good idea to start preparing now if your total income from self-employment and property is over £30,000, as you’ll likely need to join within the next two years. If your income is over £50,000, you’ll fall into the first phase starting April 2026. If it’s between £30,000 and £50,000, you’ll need to comply from April 2027. If it's between £20,000 and £50,000, you’ll need to comply from April 2028. HMRC is currently running a limited pilot scheme, which some businesses and agents (like PBS) can join early to test the system. We recommend getting your records digital-ready now — using compatible software such as Xero — so that registration is simple when it opens. If you’re unsure whether you’ll need to register, contact Practical Business Solutions and we’ll confirm your timeline and help you prepare ahead of time.
What if my income drops below the threshold later? Once you’re in MTD, you stay in — unless HMRC allows you to opt out under future guidance.
What software should I use? You’ll need HMRC-approved compatible software to: - Keep digital business records - Send quarterly updates to HMRC - Submit your annual declarations Popular options include Xero, QuickBooks, FreeAgent, and Sage. As a Xero Gold Partner, PBS can help you set this up and train you to use the software confidently. Using Xero alongside a data-capture tool, such as Hubdoc, will help you to retain and track all of your records digitally.
Will HMRC know if I’m over the threshold? Yes — they’ll use your 2024/25 tax return to determine this and notify you accordingly.
What counts as qualifying income? Qualifying income means your gross income (before expenses) from self-employment and property combined. Example: £35,000 from your business + £18,000 from rental property = £53,000 You'll need to join MTD from April 2026
How often will I need to report my income? You’ll need to send quarterly updates to HMRC (every three months), followed by: An End of Period Statement (EOPS) to finalise each income source, and A Final Declaration replacing your Self Assessment return at year-end.
Will I still need to file a Self Assessment tax return? Not in the traditional sense. Under MTD, the Final Declaration replaces your annual Self Assessment. You’ll still confirm your total income, reliefs, and allowances once a year — but all data will already be collected digitally throughout the year.
How will this change my tax payments? The way you pay your tax won’t immediately change — you’ll still pay by 31st January and 31st July for Payments on Account. However, with quarterly updates, you’ll have a much clearer picture of your tax liability throughout the year, helping with cashflow and planning.
Can I be exempt from MTD? Yes. HMRC may grant exemptions if: You can’t use digital tools due to age, disability, or remote location You are a trustee, personal representative, or non-resident landlord You must apply directly to HMRC to request exemption.
What happens if I don't comply? Failure to meet MTD ITSA obligations may result in penalty points leading to fines for late submissions. HMRC will operate a points-based system, where multiple missed updates trigger penalties. Staying compliant from the start avoids unnecessary stress and cost.
How can PBS help me get ready for MTD? At Practical Business Solutions, we: - Review your business and confirm when MTD applies - Set you up with compatible accounting software (we’re a Xero Gold Partner) - Train you to use digital systems confidently - Handle quarterly submissions on your behalf - Provide ongoing support and tax planning advice Our goal is to make the transition smooth, simple, and stress-free.
