Making Tax Digital (MTD) for Income Tax is HMRC’s updated method for Self-Assessment for sole-traders and landlords. It is already live for those with qualifying income over £50,000 and from April 2027 this will be applicable for individuals with qualifying income of £30,000. Instead of one annual tax return, you keep digital records and file a quarterly update to HMRC for each trade and all property businesses you run, followed by an annual submission at the end of the year.

Under MTD for Income Tax, you’ll need to:

-         Keep digital records of your income and expenses
-         Send quarterly updates to HMRC during the tax year
-         Submit a final declaration after the year ends. This is very similar to your current annual return and is something we’ll continue to complete for you.

HMRC sets out 5 steps to prepare for MTD. Below, we run through these steps and outline how we can support you at each stage.‍

1. Work out your qualifying income.

Your qualifying income is your total self-employment and property income, before expenses, as entered on your self-assessment tax return the previous year. (This is also referred to as your turnover). If you have more than one business or property, add these totals together. For example, £25,000 of rent plus £26,000 of self-employment turnover would mean you had a qualifying income of £51,000.
Other types of income (PAYE, dividends, pension or your profit share from a partnership) do not count towards your ‘qualifying income.’
We already hold your tax return figures, so we can work out your qualifying income for you and confirm if you are affected. You can find more details on HMRC’s website here.

2. Find out if and when you should start with MTD

HMRC is gradually phasing out the requirement. You will be affected by MTD if you are a sole-trader or landlord registered for self-assessment, and your qualifying income is over the threshold for the relevant year:

If your qualifying income is over £50,000 in your 2024/25 Tax Return, you must start from 6 April 2026‍

If your qualifying income is over £30,000 in your 2025/26 Tax Return, you must start from 6 April 2027

If your qualifying income is over £20,000 in your 2026/27 Tax Return, you must start from 6 April 2028‍

We can review your position and flag when you need to start following the MTD rules. You can also use HMRC’s online checker.

3. Get compatible software

HMRC does not provide its own software, so you will need a product which is compatible with MTD for Income Tax. We recommend:

-         Xero
-         QuickBooksOnline
-         FreeAgent

We can help you choose the right one for your business and get it set up. We can also provide the software through our accountant’s licence and recharge this to you alongside your regular accounting fees. (We may even be able to offer a discount on the standard rate!) ‍

4. Sign Up For MTD for Income Tax

There are two options for registering:

Register yourself: you can sign up directly with HMRC using their online service.
We can register you: At your request, we can manage the registration process on your behalf.‍

5. Use MTD throughout the year

Once you are registered, you must keep digital records in your chosen software and send a quarterly update for each business. Updates are summaries of your income and expenses for the period and you must still send one even if nothing happened in that quarter. ‍

Standard  MTD period            Filing  deadline

6 April to  5 July                     7 August

6 April to  5 October              7 November

6 April to  5 January              7 February

6 April to  5 April                    7 May

After the year ends, your annual submission is made through compatible software. You’ll also notify HMRC if your circumstances change, e.g. you cease a sole-trade business or start letting a property.

If filing your own quarterly updates, you will need to maintain your digital records and ensure you file every update to HMRC on time.

Alternatively, we can file these for you. We offer various levels of support, so you can choose which best suits you:

- We can prepare your quarterly bookkeeping in digital software, prepare and file the quarterly updates on your behalf.
- If you keep your own records in Xero, QBO or FreeAgent, we can check your figures, notify you of any bookkeeping issues which need correction and then file on your behalf.

If you’re unsure which option suits you best, we’d be happy to discuss this and work out the best solution for you. Just contact us. We’ll always confirm the current fee for your chosen option before we start the work.‍

Get ready for MTD

These new requirements may feel unfamiliar, but we are here to support you each step of the way. As outlined above, there are several ways to approach this change and we’re happy to talk you through these options to make sure you’re set up in the way that suits you best. If you have any questions, please reach out to your usual contact at Frost, or email us at enquiries@frostca.co.uk

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_{This is published for the information of clients. It provides only an overview of information available at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore, no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this publication can be accepted by the authors or the firm.}