The UK government’s Making Tax Digital (MTD) initiative is transforming the way self-employed individuals report their taxes. With new rules requiring digital record-keeping and quarterly submissions, it’s essential to understand how MTD affects your business.
At MSA Accountants, we specialise in helping self-employed individuals navigate MTD with ease. Whether you need expert tax advice, MTD-compliant software recommendations, or full tax management, we’re here to assist.
In this guide, we’ll cover:
- What Making Tax Digital means for self-employed individuals
- Key deadlines and requirements
- The best MTD-compatible software
- Frequently asked questions (FAQs)
What Is Making Tax Digital (MTD)?
Making Tax Digital is a UK government initiative aimed at modernising the tax system. Instead of manual record-keeping and annual tax returns, MTD requires businesses and self-employed individuals to:
✅ Keep digital records of income and expenses
✅ Use MTD-compatible software to submit tax updates
✅ File quarterly tax reports instead of one annual return
MTD is designed to reduce tax errors, make compliance easier, and provide a clearer view of your finances throughout the year.
Who Needs to Comply with MTD for Income Tax?
From April 2026, self-employed individuals and landlords earning over £50,000 per year must follow MTD for Income Tax Self Assessment (MTD for ITSA) rules. Those earning over £30,000 will be included from April 2027.
If you’re self-employed but earning below £30,000, MTD does not yet apply to you—but voluntary adoption is encouraged.
🔹 Important: MTD for VAT is already in place, meaning VAT-registered businesses must comply now.
What Are the MTD Requirements for the Self-Employed?
To comply with MTD, self-employed individuals must:
1. Keep Digital Records
You must maintain digital records of income and expenses using MTD-compatible software. Spreadsheets alone are not sufficient unless linked to bridging software.
2. Submit Quarterly Updates
Instead of an annual tax return, you’ll need to send four quarterly updates to HMRC via MTD software.
3. File an End-of-Period Statement (EOPS)
At the end of the tax year, you must finalise your income by submitting an EOPS alongside a final declaration.
4. Use HMRC-Approved Software
You must use MTD-compatible software (such as Xero, QuickBooks, or FreeAgent) to manage records and send updates.
Best Software for MTD Compliance
There are several MTD-compliant accounting software options available, including:
🔹 Xero – Simple, cloud-based accounting software with MTD compatibility
🔹 QuickBooks – Ideal for freelancers and small businesses
🔹 FreeAgent – Great for self-employed professionals
🔹 Sage Accounting – A robust solution for growing businesses
Using the right software ensures seamless tax reporting and compliance with MTD rules.
To find out if and when you need to use Making Tax Digital for Income Tax
Frequently Asked Questions (FAQs)
1. Do I Need to Register for MTD for Income Tax?
Yes, if you’re self-employed and earn over £50,000 per year, you must register for MTD for ITSA by April 2026.
2. Can I Still Use Spreadsheets for MTD?
No, unless they are linked to MTD-compatible bridging software. HMRC requires fully digital record-keeping.
3. What Happens If I Don’t Comply with MTD?
Failure to comply may result in penalties, with HMRC introducing a new points-based penalty system for late submissions.
4. Is MTD Already Mandatory for VAT?
Yes, all VAT-registered businesses must follow MTD rules.
5. Can I Use Free Software for MTD?
HMRC has confirmed that some free software options will be available, but most businesses will need paid MTD-compliant software.
Final Thoughts – Get Ready for MTD Now
Making Tax Digital is transforming the UK tax system. If you're self-employed, it's crucial to start preparing before the 2026 deadline.
✅ Choose MTD-compatible software
✅ Start keeping digital records now
✅ Understand quarterly reporting requirements
By taking early action, you can ensure smooth compliance with MTD and avoid last-minute stress.
Would you like help choosing the best MTD software for your business? Get in touch today!