Making Tax Digital: What’s changing now, and what changes are still to come

If you’ve heard the term Making Tax Digital (MTD) and hoped it wouldn’t affect you just yet, here’s the reality: if you earn, file, or manage taxes in the UK, it will apply to you sooner or later.

It might sound intimidating, but once you understand what’s changing, it becomes much easier to manage, and in some cases, it can even simplify how you handle your finances.

What is Making Tax Digital?

Making Tax Digital is the government’s plan to move the UK tax system fully online. Instead of filing a single tax return once a year, you’ll keep digital records and send updates to HMRC throughout the year using approved software.

In practical terms, that means:

• You record your income and expenses digitally
• You submit updates to HMRC every quarter
• You use compatible software instead of manual spreadsheets or paper records

The goal is to reduce errors and make tax reporting more accurate. 

Why does it matter to you?

The changes aren’t optional, MTD is being rolled out in stages, and once you’re within scope, you’re legally required to follow the rules. If you don’t, you could face penalties, missed deadlines or unnecessary stress trying to catch up.

But it’s not just about compliance. Done right, MTD can give you:

• A clearer picture of your finances year round
• Fewer surprises when your tax bill arrives
• Better control over cash flow

So instead of seeing it as another admin burden, you can treat it as a an upgrade to a more efficient process.

Who does Making Tax Digital apply to?

Right now, MTD already applies to many VAT-registered businesses.

The next major phase affects you if you:

• Are self-employed, or
• Receive income from property

From April 2026, if your total income from self-employment and/or property is over £50,000, you’ll need to follow MTD for Income Tax.

From April 2027, the threshold drops to £30,000.

If that sounds like you, or might soon, you should start preparing now rather than waiting for the deadline.

What will you need to do differently?

The biggest shift is moving from a once-a-year mindset to an ongoing process.

1. Keep digital records

You’ll need to record all your income and expenses in a digital format. That doesn’t just mean typing things into a spreadsheet, but using software that can connect to HMRC.

2. Send quarterly updates

Instead of one annual submission, you’ll send updates every three months. These don’t need to be perfect, but they must reflect your current financial position.

3. Submit a final declaration

At the end of the tax year, you’ll still confirm everything is correct and submit a final declaration.

Think of it as replacing one big task with several smaller, more manageable ones.

What software should you use?

You’ll need HMRC-compatible software. This could be:

• Accounting platforms like QuickBooks, Xero, or FreeAgent
• Bridging software that connects spreadsheets to HMRC

The right choice depends on how you currently manage your finances.

If you’re already using spreadsheets, bridging software might be enough, for now. But if you want something more streamlined, full accounting software can automate much of the process.

What happens if you don’t comply?

HMRC is introducing a points based penalty system. Every time you miss a deadline, you get a point. Once you hit a certain number of points, you receive a financial penalty.

You could also face:

• Interest on late payments
• Additional penalties for repeated non-compliance

So while the system is designed to be fair, it still helps to stay organised.

How to prepare now 

You don’t need to overhaul everything overnight, instead, take a step-by-step approach.

Start with your records

Look at how you currently track income and expenses. If it’s manual or inconsistent, that’s your first area to improve.

Choose your software early

Don’t wait until the deadline. Give yourself time to learn the system and build it into your routine.

Build a quarterly habit

Even before you’re required to submit updates, start reviewing your finances every three months. This makes the transition far smoother.

Get support if you need it

An accountant or tax adviser can help you set things up correctly from the start and potentially save you money in the long run.

Common concerns 

“This sounds like more work”

At first, it might feel that way. But once you’re set up, you’ll likely spend less time scrambling at year-end.

“I’m not good with technology”

Most modern accounting tools are designed to be super user-friendly and you only need to learn the basics to stay compliant.

“What if I make mistakes?”

Quarterly updates don’t have to be perfect, you can still correct things in your final declaration.

Making Tax Digital isn’t just a policy change, it’s a shift in how you manage your finances. If you prepare early, choose the right tools, and build consistent habits, you’ll not only stay compliant, you’ll also be in a stronger position financially. Start now, stay organised, and if something goes wrong along the way, you have options to get it fixed.

This information is intended to give you a general overview of Making Tax Digital and shouldn’t be taken as financial or tax advice. How the rules apply will depend on your individual circumstances, so it’s worth speaking to a registered accountant or qualified tax professional before making any decisions.

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