Making Tax Digital for Income Tax is one of the biggest changes to the UK tax system in years. From April 2026, many sole traders and landlords will need to change how they keep records and report income to HMRC. While it can sound daunting, with the right guidance it can actually make managing your finances clearer and more efficient.
What is Making Tax Digital?
Making Tax Digital is HMRC’s initiative to modernise the tax system. For income tax, it means keeping digital records using approved software and submitting regular updates to HMRC throughout the year rather than just one annual return.
If you are affected, you will need to record your income and expenses digitally and send quarterly updates to HMRC. These updates feed into your end of year tax return, which finalises your tax position.
Who Does Making Tax Digital Apply To?
From 6 April 2026, Making Tax Digital for Income Tax applies to individuals with gross income over £50,000 from self employment and or property. Gross income means total income before expenses are deducted.
If your income is below this threshold, you will not be required to comply initially, but HMRC has already indicated that the regime will expand in future years.
What Changes in Practice?
Under Making Tax Digital, you will no longer rely solely on an annual self assessment return. Instead, you will submit four quarterly updates summarising income and expenses, followed by a final declaration after the end of the tax year.
These quarterly submissions are not tax bills and do not mean you pay tax four times a year. They are updates that give HMRC a clearer picture of your income as the year progresses.
The Importance of Using the Right Software
One of the most common mistakes we see is underestimating the software requirements. HMRC requires the use of Making Tax Digital compatible software. Basic spreadsheets on their own are not sufficient unless they are linked to compliant bridging software.
Using the right accounting software not only keeps you compliant but also gives you better visibility over your cash flow, profitability, and upcoming tax liabilities. We only work with Xero which is MTD compliant, so all our clients are in safe hands.
Common Pitfalls to Watch Out For
Many people fall into traps when preparing for Making Tax Digital. These include missing quarterly deadlines, incorrectly calculating whether they exceed the income threshold, using non compliant software, or failing to keep digital records up to date.
Another common issue is leaving preparation too late. Transitioning to digital systems takes time, particularly if you are used to paper records or manual spreadsheets.
Penalties and Compliance
HMRC is also introducing changes to penalties alongside Making Tax Digital. Late submissions can lead to penalty points, which can eventually result in financial penalties if issues are not corrected. Staying organised and meeting deadlines is more important than ever.
Where to start?
Look at your reported gross income from the 2024/25 tax year from self employment and / or UK rental income. If this is over £50k you must register for Making Tax digital.
Now you need to check you’re not exempt – here’s the link to make this easier for you.
If you’re not exempt you need to register. We are offering to do this for our clients, but if you insist you can do so here.
Returns will be due in for the following periods on the following dates:
6th April 2026 – 5th July 2026 – due in by 7th August 2026
6th July 2026 – 5th October 2026 – due in by 7th November 2026
6th October 2026 – 5th January 2027 – due in by 7th February 2027
6th January 2027 – 5th April 2027 – due in by 7th May 2027
Final self-assessment is due in by 31st January 2028 along with any tax that is due.
How Smooth Accounting Can Help
At Smooth Accounting, we help business owners navigate Making Tax Digital with confidence. We support you with choosing and setting up the right software, maintaining compliant digital records, and managing quarterly submissions.
Our approach is practical, proactive, and jargon free. We do not just focus on compliance. We help you understand your numbers and plan ahead so there are no surprises.
Final Thoughts
Making Tax Digital is a major change, but it does not need to be stressful. With the right systems and support in place, it can actually improve how you run your business and manage your tax affairs.
If you want to make sure you are fully prepared and compliant, speak to the team at Smooth Accounting. We are here to make the transition smooth, simple, and stress free.
