If you run a small business or are self-employed in the UK, you've probably heard about Making Tax Digital (MTD).But what does it actually mean for you, and when do you need to act? Here's a straightforward breakdown without the jargon.

What Is Making Tax Digital for Income Tax?

Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) is HMRC's initiative to move tax reporting from annual paper returns to quarterly digital submissions. Instead of filing one Self Assessment return at the end of the year, eligible taxpayers will need to maintain digital records and submit updates to HMRC every quarter using compatible software.

The goal is simple: reduce errors, close the tax gap, and make it easier for taxpayers to stay on top of what they owe. According to HMRC, avoidable mistakes cost the UK economy billions each year — digital record-keeping aims to cut that figure significantly.

Who Needs to Comply?

MTD for ITSA is being rolled out in stages based on income thresholds:

From April 2026: Sole traders and landlords with qualifying income over £50,000

From April 2027: Those with qualifying income between £30,000 and £50,000

Later phases: Partnerships and those with income below £30,000 (timing to be confirmed)

"Qualifying income" means your gross income from self-employment and property income combined, before deducting expenses. If you have multiple self-employments or rental properties, you'll need to add them together to check if you cross the threshold.

What You'll Need to Do

Under MTD for ITSA, you'll need to:

1. Keep digital records — Use MTD-compatible software to record your income and expenses. Spreadsheets alone won't be enough unless they meet HMRC's digital link requirements.

2. Submit quarterly updates — Every three months, your software will send a summary of your income and expenses to HMRC automatically.

3. Submit an end-of-period statement — After the tax year ends, you'll finalise your figures and make any adjustments.

4. Confirm your final liability — A single final declaration will take the place of your usual annual Self Assessment filing.

Choosing the Right Software

HMRC maintains a list of MTD-compatible software on their website. Popular options include QuickBooks, Xero, FreeAgent, and Sage. The right choice depends on your business size, complexity, and budget. If you're already using accounting software, check whether your provider has MTD for ITSA functionality built in — many are updating their platforms now.

How This Affects Your Tax Return

The traditional Self Assessment tax return as we know it will be replaced. However, you'll still need to pay tax on your income — the change is in how you report it, not how much you pay. Quarterly submissions mean you'll have a clearer picture of your tax liability throughout the year, which can help with cash flow planning.

Getting Prepared Now

If you're above the £50,000 threshold, you should be preparing already. Here's what to do:

- Move your bookkeeping to MTD-compatible software if you haven't already

- Ensure your records are accurate and up to date

- Talk to your accountant about how MTD will affect your specific circumstances

- Budget for potential software subscription costs

If you're unsure whether you'll be affected or need help getting ready, speaking with a qualified accountant can save you time and stress. At Apex Accountants & Tax Advisors (apexaccountants.tax), we help UK small businesses and sole traders navigate tax changes like MTD with confidence. From software setup to quarterly submissions, we handle the compliance so you can focus on running your business.

Common Myths About MTD for ITSA

"I'll pay tax four times a year instead of once." No — quarterly submissions are simply progress reports to HMRC, not additional tax bills. Your tax is still calculated once a year as normal.

"I can just use Excel." Only if your spreadsheet meets HMRC's digital link requirements. Many people will need proper accounting software.

"MTD only affects big companies." It's actually designed for small businesses and sole traders — large companies already file digitally under MTD for Corporation Tax and VAT.

For the official guidance, visit HMRC's MTD for ITSA page on GOV.UK (gov.uk/guidance/making-tax-digital-for-income-tax).

Final Thoughts

Making Tax Digital represents the biggest change to the UK tax system in a generation. While it requires new habits and software, it also brings benefits: better record-keeping, fewer mistakes, and a clearer view of your tax position throughout the year. The key is to start preparing now rather than waiting until the deadline.

Book a meeting with Apex Accountants (apexaccountants.tax/book-a-meeting) to discuss how MTD for ITSA affects your business and get a tailored compliance plan in place.