Making Tax Digital – preparing for new requirements
What Making Tax Digital means for you
Making Tax Digital (MTD) moves tax admin away from annual, last-minute number crunching and towards simple digital record keeping through the year. You’ll be keeping records in a digital format, using MTD-compatible software, and sending regular updates to HMRC.
That sounds like “extra work” on paper. In practice, you’ll often see fewer missing receipts, cleaner numbers, and fewer nasty surprises at year end – once your process settles down.
Who needs to act now?
Sole traders and landlords – MTD for Income Tax (MTD ITSA)
MTD for Income Tax rolls out in phases based on your qualifying income from self-employment and property:
· From 6 April 2026 – qualifying income over £50,000 (based on the 2024 to 2025 tax year)
· From 6 April 2027 – qualifying income over £30,000 (based on the 2025 to 2026 tax year)
· From 6 April 2028 – government plans for a £20,000 threshold (based on the 2026 to 2027 tax year)
HMRC will almost certainly be writing to you, but the responsibility sits with you to check and sign up on time.
VAT-registered businesses – MTD for VAT
MTD for VAT already applies widely. You need digital records and a digital journey from records to VAT return submission. Spreadsheet users often rely on bridging software to submit through MTD.
Limited companies – corporation tax
MTD for corporation tax does not have a mandate date, and HMRC has indicated it does not intend to introduce MTD for corporation tax.
What will change under MTD for Income Tax
1. Digital records become the default
You’ll record income and costs in software (or spreadsheets linked to bridging software), rather than relying on a year-end spreadsheet rebuild.
2. Quarterly updates to HMRC
You’ll send four updates each year. Think of these as running totals, not a final tax bill. You still complete your year-end submission and pay tax by the usual Self Assessment deadline.
3. A points-based penalty approach
HMRC plans a points-based system for missed submission deadlines. The number of points that triggers a penalty depends on how often you must submit.
4. Some people qualify for exemptions
Digital exclusion and other exemptions exist for certain circumstances (for example age, disability, location, or religious grounds). HMRC sets out the routes to check and apply.
A practical plan to get you ready for MTD
Step 1 – Work out your start date
Do two quick checks -
1. Add up your gross income from self-employment and property for the relevant tax year
2. Compare it to the threshold for your start year (2026, 2027, 2028)
Tip: “qualifying income” links to the tax year HMRC uses to decide your start date, not your best guess for the year ahead.
Step 2 – Pick your software approach
You have three common routes -
1. Full accounting software (cloud or desktop) – best for ongoing control and reporting
2. Spreadsheet plus bridging software – works well where you love spreadsheets but need compliant submission
3. Accountant-led setup – they set the workflow and you feed clean data.
When you choose, look beyond “MTD-compatible” and focus on what you’ll do weekly:
- Raising invoices
- Tracking costs
- Handling mileage
- Splitting mixed-use bills
- Managing property income and expenses
Step 3 – Sort your bank and card feed
Your records live or die on clean bank data.
- Use a separate business bank account where possible
- Keep business spend off personal cards
- Set a simple rule for mixed spend – decide it once and stick to it
The aim: faster posting, fewer missing items, less time staring at statements.
Step 4 – Build a simple expense habit
MTD works best with light, frequent admin.
- Capture receipts on the day you spend
- Add a short note while you still remember what it was for
- Reconcile weekly, not quarterly
Step 5 – Clean up your categories
Your quarterly updates will look messy when your categories look messy.
- Use a small chart of accounts
- Keep “Other” to a minimum
- Separate one-off big costs from day-to-day running costs
This step also makes your accountant’s work quicker and your year-end smoother.
Step 6 – Decide who does what
Write down responsibilities in plain English -
- Who posts income?
- Who posts costs?
- Who checks the bank?
- Who sends quarterly updates?
- Who handles year-end adjustments?
That clarity avoids missed deadlines and duplicated work.
Step 7 – Consider joining early
Voluntary sign-up and pilots exist, which lets you practise before the mandate hits your business.
Common pitfalls to avoid
Leaving software choice too late
You’ll need time to set up -
- Opening balances
- Bank feeds
- VAT settings (where relevant)
- Access for your accountant
- A repeatable process
Treating quarterly updates like final accounts
Quarterly updates work as regular snapshots. Your year-end work still matters.
Breaking the digital journey for VAT
Copying and pasting figures from one place to another risks non-compliance. Digital links and bridging tools exist for a reason.
A quick checklist you can use this week
- Check your likely start date based on the published thresholds
- List your current record-keeping method and the pain points
- Choose software or a spreadsheet + bridging route
- Separate business and personal spending
- Set a weekly 20-minute “books tidy” slot
- Agree roles with your accountant and grant software access
- Trial the workflow ahead of April 2026 (or your relevant start date)
Keep it simple – build a routine - talk to Liondaris
MTD rewards steady habits, not heroic year-end sprints. Start small, keep it simple, and build a routine you’ll still follow in six months. When you do that, MTD stops feeling like a threat and starts feeling like a calmer way to run your numbers.
Speak to our MTD experts about the practical, straightforward steps you need to be ready for the change.