How Clients Can Prepare for Making Tax Digital (MTD)

Making Tax Digital for Income Tax Self Assessment is a major HMRC initiative designed to modernise how individuals report their income. From April 2026, anyone with more than £50,000 of combined self employment or property income will need to keep digital records and send quarterly updates using approved software. Lower income thresholds will follow, meaning even more people will be included from 2027. Preparing early removes stress, avoids penalties and gives you better financial visibility throughout the year.

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1. Check whether MTD will apply to you
MTD for Income Tax affects individuals with self employment income, property income or both. If your total qualifying income exceeds £50,000 you will be required to enter the system from April 2026. If you earn money from both trading and property you must keep separate records and send separate quarterly updates for each type of income before they are pulled together into your end of year tax return.

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2. Start moving to digital record keeping now
Under MTD you must maintain digital records of your income and expenses. This means using HMRC approved software such as Xero, QuickBooks or FreeAgent. Early adoption gives you time to test the software, get used to daily and weekly bookkeeping and avoid the rush when deadlines arrive.

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3. Get comfortable with quarterly reporting
Instead of submitting one annual Self Assessment tax return, you will send quarterly updates followed by an end of period statement. These updates must reflect the income and expenses for each period. Missing a deadline will result in a penalty point under HMRC’s new points based system. Accumulating too many points leads to fines, so keeping on track is essential.

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4. Keep your records organised digitally
Digital record keeping means maintaining receipts and accounting information within your software. You can scan receipts using your phone, use a bank feed to pull transactions directly into the system and categorise your income and expenses regularly. This creates accurate records and makes quarterly updates much easier.

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5. Separate your personal and business finances
A dedicated business bank account helps create clean data for your software and prevents personal and business spending being mixed together. This protects you from errors that may lead to penalties under MTD.

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6. Understand how corrections work
If you miss something from a quarterly update you do not need to resend it. HMRC allows you to add the missing information to your next update. The important part is to maintain good records and keep each period as accurate as possible.

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7. Check whether your current software is compatible
Even if you already use software for your tax return you must confirm with your provider that it will work with MTD for Income Tax. Some systems will not be compatible and may need to be changed in advance of the new rules.

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8. Know where exemptions apply
You can apply for exemption if you are digitally excluded. This includes situations where age, disability, health, remote location or religious beliefs make it unreasonable to use digital tools. Exemption requests must be approved by HMRC.

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9. Consider how MTD interacts with CIS
If you work within the Construction Industry Scheme you must continue submitting your monthly CIS returns. Some software can handle both CIS and MTD requirements together, so it is worth asking software providers about this.

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10. Speak to your accountant early
Preparing for MTD takes time. Early conversations help you choose software, set up digital record keeping correctly and understand exactly what each quarterly update involves. This avoids last minute stress as 2026 approaches and ensures you stay fully compliant.