“I’ve been using a spreadsheet and calculator to do my taxes for years. Do I actually need to go with digital accounting software?”
(Example 1) A self-employed graphic designer from SKZ asked during a local business workshop in early 2024. Like many sole traders and landlords, she has heard of Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) but wasn’t sure when or if she needed to act.
If you’re along with me, let’s break down what MTD does for you, when it comes in, and if you need to switch your system before 2026.
What Is Making Tax Digital (MTD) for Income Tax?
Making Tax Digital (MTD) is an HMRC initiative aimed at simplifying the UK tax system. Rather than the old annual tax return, MTD for Income Tax will expect qualifying individuals to:
- Maintain digital records of income and expenses
- File quarterly returns to HMRC through MTD compatible software
- Make a final end-of-year filing (like the current Self-Assessment of Tax Return)
It’s part of a broader plan to minimise mistakes and increase the accuracy and promptness of tax reporting.
Who Will Be Impacted by MTD for Income Tax?
From 6 April 2026, MTD for Income Tax will cover:
- Self-employed and landlords
- With an annual income of more than £50,000
- April 2027 to those with income between £30,000 and £50,000, and from April 2028 to those with income between £20,000 and £30,000
Important:
- The £30,000–£50,000 is a gross income level, not net profit.
- So, if you’re a sole trader, freelancer, or landlord earning more than £50K per annum, the clock is ticking.
Do I Need to Update My System Before 2026?
The short answer: Yes — but not straight away.
Though the mandate starts in 2026, here’s how doing it early might save you trouble down the road:
Real-Life Example: Planning Pays Off
(Example 2) A person owns a small plumbing company in London. He trailed MTD-compatible software, such as FreeAgent and Xero, in 2023. They were experiencing difficulty with the new system, particularly in transferring historical data. However, by the last quarter of the year, they noticed fewer bookkeeping mistakes, quicker invoicing, and even identified outstanding client balances that they had not noticed.
He explained:
“It took a few weekends to get used to, but now my professional accountants bills are lower because everything’s already clean and digital.”
The Risks of Waiting Until 2026
1. Waiting for the last moment switch can be stressful
Waiting until April 2026 might mean you’re scrambling to learn new software during the busiest tax months.
2. Incompatibility with Your Accountant
Most online accountants are already urging clients to make the transition earlier. If you don’t, your accountant may charge extra or stop dealing with paper records altogether.
3. Possible Fines – High Chance to Face HMRC Penalties
HMRC will ultimately impose digital-only submissions. Submitting incorrectly or being late because of last-minute disarray may result in fines.
What Do You Need to Use?
You’ll require MTD-compatible software that HMRC has certified. Some widely accepted options are:
- Xero
- QuickBooks
- Free Agent
- Sage
- Zoho Books
These systems enable digital recordkeeping, VAT automation (where applicable), and easy quarterly submission.
If you’re operating in spreadsheets, there are bridging software solutions, but they’re just a stopgap—a temporary solution, not one for the long haul.
Is MTD Truly Helpful?
Not as widely acknowledged as you might think—if applied properly. But if you use it properly, it can be beneficial for you.
According to HMRC, around £9 billion of tax was lost in 2022–23 due to avoidable taxpayer errors. Digital recordkeeping helps minimise this by enhancing:
- Accuracy
- Timeliness
- Transparency
Freelancers who’ve transitioned early say they experience less stress, fewer surprises, and improved cash flow forecasting.
What Should I Do Now?
Step-by-Step Action Plan
Check Your Income – If you’re above the £20K limit, you’re in the first wave (April 2026).
Speak to Your Accountant – Ask them about their MTD support and Tax advisory.
Test MTD-Compatible Software – Many software options have free trials or accountant partnerships.
Start Recording Digitally – Even if it’s a shadow system in addition to your existing one, acclimatise.
Stay Updated – HMRC can issue new guidance, exemptions, or extensions.
Final Thoughts: Don’t Wait for the Deadline
Making Tax Digital for Income Tax is not so much a new HMRC regulation—it’s a change in the way small businesses and landlords account for their finances.
By getting ahead of things now, you’ll prevent last-minute chaos, enhance financial clarity, and remain compliant with minimal hassle.
Don’t wait until 2026 like that person (Example 1). Be like that person (Example 2), future-ready, proactive, and prepared.
Future-proof your finances? Ready to go?
Begin researching MTD-compatible accounting software today—or consult a qualified local or online accountant, just like accountants in Ilford, accountants in London, accountants in Brentwood, or accountants in Romford who can walk you through the process. The earlier you start, the easier it will be.
Contact us! For CFO Services, Payroll Bureau Services, Accountants in Croydon, Accountants in Essex, CIS Accountants, Accountants in Brentwood, Accountants in Central London, Accountants in Barking, Accountants in Canary Wharf, Accountants in Romford, Accountants in Stratford, Accountants in Ilford, Practical Accounting Training in UK, Accountants in Liverpool Street, Accountants in NewHam, and Accountants in Middlesbrough.