Embracing the Future of Tax: Your Guide to Making Tax Digital (MTD)
Making Tax Digital, often shortened to MTD, is HMRC’s move towards digital tax reporting. It means keeping digital records and using compatible software to send tax information to HMRC. MTD is already in place for VAT-registered businesses, but the next big phase is Making Tax Digital for Income Tax. This will affect many sole traders and landlords over the next few years, so it’s important to understand when the rules apply and what you may need to do.
What is Making Tax Digital?
Making Tax Digital is a government initiative designed to make tax reporting more accurate, efficient and up to date. Instead of relying on manual records or pulling everything together once a year, MTD requires businesses, sole traders and landlords to keep digital records and use MTD-compatible software to submit information to HMRC. The aim is to reduce errors, make tax reporting easier to manage and give you a clearer view of your finances throughout the year.
Who does Making Tax Digital affect?
MTD already applies to VAT-registered businesses. The next phase, Making Tax Digital for Income Tax, will affect many sole traders and landlords who meet HMRC’s income thresholds.
This includes people with income from:
- Self-employment
- Property rental
- A combination of self-employment and property income
HMRC refers to this as “qualifying income”. This means your total income from self-employment and property before expenses.
Making Tax Digital for Income Tax: Key Dates
Making Tax Digital for Income Tax is being introduced in phases:
| Start date | Who it applies to |
|---|---|
| April 2026 | Sole traders and landlords with qualifying income over £50,000 |
| April 2027 | Sole traders and landlords with qualifying income over £30,000 |
| April 2028 | Sole traders and landlords with qualifying income over £20,000 |
For example, if your property income exceeded £30,000 in the 2025/26 tax year, you may need to follow the MTD for Income Tax rules from April 2027.
You can read more about the April 2026 phase in our detailed guide here:
Making Tax Digital for Income Tax 2026
What will change under MTD for Income Tax?
If you fall within the rules, you will need to:
- Keep digital records of your income and expenses
- Use MTD-compatible software, such as Xero or QuickBooks
- Send quarterly updates to HMRC
- Finalise your tax position after the end of the tax year
This is a significant change from the current annual Self Assessment process. Instead of pulling everything together once a year, you’ll need to keep your records updated throughout the year.
What counts as digital records?
Digital records usually include details of your income and expenses, kept in software that is compatible with HMRC’s MTD system.
This might include:
- Sales invoices
- Rental income
- Business expenses
- Property expenses
- Bank transactions
- Receipts and supporting documents
You do not necessarily need to do everything yourself, but you will need a system that allows the right information to be kept digitally and submitted to HMRC when required.
What software will I need?
You will need to use MTD-compatible software. This could include cloud accounting platforms such as Xero or QuickBooks, depending on your circumstances and how complex your records are.
The right software will depend on things like:
- Whether you are self-employed, a landlord, or both
- How many transactions you have
- Whether you already use accounting software
- How confident you are with digital record keeping
- How much support you want from your accountant
At Harland, we can help you choose the right option and get everything set up properly.
How should I prepare?
The best thing you can do is start early. Even if MTD does not apply to you until 2027 or 2028, getting your records into good shape now will make the transition much easier.
Here are a few sensible first steps:
- Check whether your income is likely to bring you within the MTD rules
- Start moving away from paper records or manual spreadsheets
- Consider whether your current bookkeeping process is fit for purpose
- Speak to your accountant before choosing software
- Get into the habit of keeping records up to date throughout the year
How Harland Accountants can help
Making Tax Digital is a big change, but you do not need to figure it all out on your own. We can help you understand when MTD applies to you, choose suitable software, set up digital records and prepare for the new quarterly reporting requirements. Whether you are already using cloud accounting software or starting from scratch, we’ll guide you through the process in plain English.
If you’re already a Harland client, we’ll be in touch when action is needed. If you’re new to Harland, book a free discovery call to explore how we can support you.
Useful links:
• Read our guide to Making Tax Digital for Income Tax 2026
• Check HMRC’s Making Tax Digital guidance
