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What the Heck is MTD for Income Tax?

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If you're a sole trader managing your own books, you've probably heard whispers about "MTD for Income Tax" and wondered what all the fuss is about. Don't worry, you're not alone! Let's break down exactly what Making Tax Digital for Income Tax means, who it affects, and most importantly, what you need to do about it.


What is MTD for Income Tax?


Making Tax Digital (MTD) for Income Tax is HMRC's initiative to modernise the tax system by making it fully digital. Instead of filing one Self Assessment tax return per year, you'll need to submit quarterly updates of your income and expenses using MTD-compatible software.

Think of it as keeping HMRC in the loop throughout the year, rather than hitting them with everything at once in January.


The MTD Timeline: When Does This Kick In?


Here's where things get interesting. The rollout is happening in phases:


April 2026 – MTD for Income Tax becomes mandatory for sole traders and landlords with gross income over £50,000 per year.

April 2027 – The threshold drops to £30,000, bringing more businesses into the fold.

Future phases – HMRC may lower the threshold further, eventually including most self-employed individuals.

The key date to watch is 6 April 2026 – that's when the first group will need to be ready to go.


Who Does MTD for Income Tax Affect?


MTD for Income Tax will affect:

  • Sole traders with gross business income above the threshold

  • Landlords with gross property income above the threshold

  • Partnerships where the partnership's income exceeds the threshold


Important note: This is based on your gross income (total income before expenses), not your profit. So even if your expenses are high and your actual profit is lower, you still need to look at your total income figure.


Are You Affected?

Ask yourself: Will my gross business income be over £50,000 in the 2026/27 tax year?

If yes, you need to prepare now. If you're close to that threshold, it's worth getting ready anyway, you don't want to be caught off guard if you have a particularly good year!


What Do You Need to Do Now?


Don't panic – there's still time to prepare. Here's your action plan:


1. Get MTD-Compatible Software

Your current spreadsheets won't cut it, I'm afraid. You'll need software that can connect directly with HMRC's systems, such as Xero.

Research software options and choose one that fits your business needs and budget. Many offer free trials, so you can test before committing.


2. Start Using Digital Records

Get into the habit of recording your income and expenses digitally. No more shoeboxes of receipts or handwritten ledgers, everything needs to be digital. At Josie Dayment Bookkeeping we use Dext.


Start photographing receipts, using banking apps, and recording transactions in your chosen software. The sooner you build this habit, the easier the transition will be.


3. Understand Quarterly Reporting

You'll need to submit updates four times a year, covering:

  • 6 April to 5 July

  • 6 July to 5 October

  • 6 October to 5 January

  • 6 January to 5 April


Plus, you'll still need to submit a final declaration and pay any tax due by 31 January following the end of the tax year.


Mark these dates in your calendar now. Consider setting reminders a few weeks before each deadline.


4. Review Your Current Bookkeeping Process

Be honest,  is your current system up to scratch? Are you keeping on top of your records, or do you leave everything until the last minute?


If bookkeeping isn't your strong suit, now is the time to get help. 



5. Check Your Business Structure

For some businesses, MTD might be the nudge needed to reconsider whether sole trader status is still the right fit, or whether incorporating as a limited company makes more sense.

Have a chat with an accountant about your business structure and whether any changes might benefit you before MTD kicks in.


The Benefits

I know this might feel like another administrative burden, but there are genuine benefits to MTD:


  • Better financial visibility – Quarterly updates mean you'll have a clearer picture of your finances throughout the year

  • No January surprises – You'll know roughly what you owe well before the tax deadline

  • Reduced errors – Digital submission means fewer mistakes than manual tax returns

  • Improved cash flow management – Regular reviews help you plan for tax payments


Don't Leave It Until 2026


The biggest mistake you can make is thinking "I've got ages yet" and doing nothing. The businesses that thrive under MTD will be the ones that start preparing now.

Getting your systems and processes in place early means:


  • You'll have time to learn the software properly

  • You can iron out any issues before they become urgent

  • You'll build good habits that make quarterly reporting feel natural

  • You won't be scrambling in a panic come April 2026


Need Help Getting MTD-Ready?


If all of this feels overwhelming, remember you don't have to figure it out alone. Whether you need help choosing the right software, setting up your digital systems, or simply want someone to handle the quarterly submissions for you, support is available.


The transition to Making Tax Digital doesn't have to be stressful. With the right preparation and support, you'll be ready to take it in your stride.


Ready to get MTD-ready? Start by reviewing your current bookkeeping process and researching software options. Your future self will thank you for starting now rather than waiting until the deadline looms.



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