Making Tax Digital: What you need to know and how to prepare

Mar 3
2 min read

Making Tax Digital (MTD) is the government’s long-term plan to modernise the tax system. It aims to make tax reporting more accurate, more efficient and less reliant on manual paperwork.

While it can feel overwhelming at first, understanding the basics now will make everything feel much simpler when the rules begin to apply to you.

This guide explains what MTD is, who it affects, when it begins and how to prepare in advance.

What is Making Tax Digital

Making Tax Digital is an initiative by HMRC, designed to move the UK tax system online. Under MTD, certain taxpayers must keep digital records and send quarterly updates instead of submitting one annual tax return.

The goal is to reduce errors and give taxpayers a more accurate picture of their tax position throughout the year.

Who will Making Tax Digital apply to

The first group to be affected are self employed individuals and landlords with business or property income above £50K. Employees and pensioners are not affected unless they also have self employed or property income above the threshold.

Limited companies are not part of the current rollout.

What will change under Making Tax Digital

If you fall under the new rules, you will need to:

Keep digital business records using compatible software (we recommend Xero)
Submit quarterly updates to HMRC
Send an end of period statement
Send a final declaration at the end of the tax year

This is all in addition to your annual personal tax return.

When does MTD start

The current timetable states:

From April 2026 - self employed individuals and landlords with income above £50,000 per year

From April 2027 - self employed individuals and landlords with income above £30,000 per year

From April 2028 - self employed individuals and landlords with income above £20,000 per year

What records need to be digital

You will need to keep digital copies of:

Income received
Expenses paid
Invoices and receipts
Bank transactions (through a bank feed or manual recording)

Software such as Xero already supports digital recordkeeping and will be fully compatible with MTD reporting.

How to prepare now

Preparing early can make the transition smoother. Here are simple steps you can take:

Start using accounting software if you are not already
Make sure your bank feed is working properly
Begin keeping receipts digitally using apps or software
Update your bookkeeping more regularly
Get familiar with categorising your income and expenses
Keep personal and business spending separate where possible

These habits will help you feel organised long before MTD becomes mandatory.

Support available

If the idea of Making Tax Digital feels confusing or you simply want someone to guide you through the setup, we have the following support available.

Reach out to us for a free, no obligation consultation call.