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.
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.
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’s being introduced in stages and will require affected individuals to keep digital records and submit updates to HMRC throughout the year, rather than just an annual tax return. This change is designed to make the tax system more efficient, accurate, and easier for taxpayers to manage.
MTD for Income Tax will become mandatory from:
6 April 2026
6 April 2027
6 April 2028
For individuals with a total gross income over £50,000
For those with a total gross income over £30,000
HMRC have suggested that this will be the requirement for those with self employed or property income over £20,000
HMRC will determine your income based on your 24/25 Self Assessment Tax Return. The sooner you complete your tax return, the sooner you will know that you are required to enrol onto MTD ITSA.
You must follow MTD ITSA rules if you:
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Are registered for Self Assessment
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Earn over the relevant income threshold
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Receive income from self-employment, UK property, or both
What are the requirements?
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)
FAQ's
Do I need to register for MTD yet? Not yet - but we can let you know when you're eligible or help you join the pilot scheme early.
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? We recommend Xero + Hubdoc, fully MTD-compliant and easy to use. We’ll help get you set up. But you're free to use any compatible software.
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.
