Making Tax Digital (MTD): What Businesses and Landlords Need to Know
The UK tax system is becoming increasingly digital, and Making Tax Digital (MTD) is a major part of that transformation. Introduced by HMRC, MTD aims to make it easier for individuals and businesses to keep accurate records and submit tax information online.
If you run a business, are self-employed, or receive income from property, the MTD rules are something you should start preparing for now.
What is Making Tax Digital?
Making Tax Digital is a government initiative designed to modernise the UK tax system by requiring taxpayers to:
Keep digital records of income and expenses
Use compatible accounting software
Submit tax information to HMRC digitally
The goal is to reduce errors in tax reporting and make the process more efficient for both taxpayers and HMRC.
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MTD for VAT (Already in Place)
Making Tax Digital for VAT is already mandatory for most VAT-registered businesses.
Businesses that are VAT registered must:
Keep digital VAT records
Submit VAT returns using MTD-compatible software
Maintain a digital link between records and submissions
Since April 2022, these rules apply to all VAT-registered businesses, regardless of turnover.
MTD for Income Tax (Coming Soon)
The next phase is Making Tax Digital for Income Tax Self Assessment (MTD for ITSA).
This will apply to:
Self-employed individuals
Landlords with property income
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From April 2026
MTD will apply to individuals with:
Annual business or property income above £50,000
From April 2027
The rules will extend to those with:
Income above £30,000
Further expansions may follow in later years.
What Will Change?
Under MTD for Income Tax, taxpayers will need to:
1. Keep Digital Records
You will need to maintain digital records of income and expenses using accounting software or apps.
Spreadsheets may still be used, but they must connect digitally to HMRC-compatible software.
2. Submit Quarterly Updates
Instead of submitting one Self Assessment tax return per year, you will send quarterly updates to HMRC.
These updates will provide a summary of income and expenses during the year.
3. Submit an End-of-Year Declaration
At the end of the tax year, you will still submit a final declaration confirming:
Total income
Allowable expenses
Any other taxable income
This will replace the traditional Self Assessment process.
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Benefits of MTD
While the transition may require adjustments, the long-term benefits include:
Better record keeping
Fewer tax calculation errors
More visibility over tax liabilities throughout the year
Less pressure at the end of the tax year
Many businesses already using accounting software may find the transition relatively straightforward.
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How to Prepare for MTD
If you are self-employed or earn rental income, it is worth preparing early.
Key steps include:
Moving from manual records to digital accounting software
Ensuring your software is MTD-compatible
Keeping records updated throughout the year
Speaking with your accountant about how the new reporting process will work
Early preparation can make the transition much smoother.
Final Thoughts
Making Tax Digital represents one of the biggest changes to the UK tax system in recent years. With MTD for Income Tax starting from April 2026, many landlords and self-employed individuals will soon need to adopt digital record-keeping and quarterly reporting.
Although it may require some changes to how records are kept, MTD is intended to create a more efficient and transparent tax system.
If you are unsure how the new rules will affect you or your business, it is worth speaking with a tax advisor now to ensure you are ready before the new requirements come into force.
