Making Tax Digital is a major change to the way many self-employed people and landlords manage their tax affairs. But are you fully prepared for the change? Find out what steps you need to take.
HMRC’s Making Tax Digital for Income Tax programme is transforming the traditional Self Assessment process, bringing tax reporting into the digital age.
It’s the biggest change since HMRC launched Self Assessment more than 30 years ago.
So, if you are a sole trader or receive income from property, now is the time to start preparing.
Rather than completing one annual tax return using spreadsheets, Making Tax Digital requires businesses to keep digital records using compatible software and submit updates to HMRC throughout the year.
Under the new system, businesses will use recognised software to:
- record income and expenses
- send quarterly updates to HMRC
- submit your final tax return digitally
HMRC offers a range of approved solutions, including popular accounting platforms such as Xero, QuickBooks and Sage. You can also use software designed to connect existing spreadsheets to HMRC through so-called “bridging software”. This means you can choose a solution that matches your budget and your way of working.
When will Making Tax Digital be introduced?
Making Tax Digital is now mandatory for sole traders and freelancers earning over £50,000. It also applies if you earn money from property.
Government is rolling out Making Tax Digital in further two stages.
- From 6 April 2027, MTD for Income Tax will apply to individuals with qualifying turnover above £30,000
- From 6 April 2028, it will extend to those with turnover above £20,000
Early preparation can help you avoid last-minute pressure and make the change much smoother.
HMRC recommends three key steps:
- understand when the rules will apply to you
- choose compatible software
- sign up before your start date
Free and paid software options are available, and many platforms can automate tasks such as bank transaction imports, receipt capture and expense tracking, reducing administration and saving time.
Renée Canter, Enterprise Mentor at Business Surrey, said: “Changing your processes can feel daunting. But you may find that keeping records digitally give you better visibility to be able to track income, expenses and potential tax liabilities throughout the year, rather than waiting till January to complete you self-assessment and being surprised at the results.
“Bite the bullet and prep now to make sure you approach the transition confidently.“
Benefits of Making Tax Digital
- View up-to-date cash flow – useful for business planning
- No more scrambling for lost receipts – log them as you go, instead of all at once
- See your predicted tax bill, year round – goodbye to any January surprises
- Make tax admin easier – software can tally up invoices for you
- Fix any errors you spot as you go – so you don’t overpay or underpay tax
Have further questions? The FAQs section on the Making Tax Digital campaign page may be able to help.
Looking for support to grow your business? Get in touch via our Business Support Form.
