Making Tax Digital: are you prepared?

David Crowter, Partner and Head of Private Client Services, Carpenter Box

With the new tax year now underway, many businesses and individuals are adapting to the changes introduced by Making Tax Digital (MTD). From April 2026, sole traders and landlords with income over £50,000 are required to comply with the new rules, including submitting quarterly updates to HM Revenue & Customs (HMRC).

It is estimated that around 900,000 individuals have now been brought into MTD. For those affected, this represents a significant shift in how tax affairs are managed, and early preparation has been key to ensuring a smooth transition.

What is Making Tax Digital?

Making Tax Digital is a UK government initiative designed to modernise the tax system. Its aim is to improve the accuracy of tax reporting by encouraging better, more timely record-keeping and reducing the risk of errors.

MTD introduces a more advanced digital platform within HMRC, enabling features such as improved security, pre-population of data and prompts to help taxpayers stay compliant. It forms part of the Government’s wider effort to reduce the tax gap.

What does MTD involve?

In simple terms, MTD introduces three key requirements:

• Maintaining digital records of your income and expenses

• Submitting quarterly updates to HMRC

• Completing a year-end declaration to finalise your tax position

Importantly, while the reporting process has changed, the payment deadlines for tax remain the same as under the Self-Assessment system.

Using approved software

One of the most significant changes under MTD is the requirement to use software to maintain records and submit information to HMRC.

Whether you already use accounting software or are new to digital bookkeeping, it is essential to ensure that your chosen system is compatible with MTD requirements. HMRC does not provide its own software, but most major providers offer compliant solutions.

Digital records can be maintained using dedicated accounting software or spreadsheets, provided they are digitally linked to submission tools.

Beyond compliance, using software brings wider benefits. These include improved efficiency, fewer errors, better visibility over your financial position and enhanced cash flow forecasting. For many businesses, MTD acts as a catalyst to modernise systems and gain better financial insight.

Who will be affected?

MTD is being given a phased introduction, applying to sole traders and landlords based on the following income thresholds:

• From 6 April 2026 – individuals with income over £50,000

• From 6 April 2027 – individuals with income over £30,000

• From 6 April 2028 – individuals with income over £20,000

The threshold is based on your most recent submitted tax return. For example, your 2024/25 tax return determines whether you are required to comply from April 2026. Voluntary sign-up is also available for those who prefer to adopt the system earlier.

If you jointly own property, only your share of the rental income is taken into account.

Are there any exemptions?

There are some automatic exemptions from MTD. For instance, if you are submitting a tax return as a trustee or as a personal representative of a taxpayer who has died, there is no need to sign up for MTD. Generally, HMRC will tell you if you are automatically exempt.

In addition to automatic exemptions, there are situations where an exemption can be applied for. So, it pays to check whether your situation might mean you can apply.

Understanding quarterly updates

A key feature of MTD is the requirement to submit quarterly updates summarising income and expenses. These updates are not full tax returns. They provide HMRC with a snapshot of financial activity throughout the year, without requiring detailed tax adjustments at each stage.

By default, quarterly reporting periods align with the tax year, with submissions due shortly after each quarter ends. Alternatively, businesses can elect to use calendar quarters, which may better align with internal accounting processes.

Where there are multiple income sources, such as both self-employment and property income, separate quarterly updates are required for each. This can result in multiple submissions throughout the year.

End-of-year requirements

Despite the move to quarterly reporting, a year-end declaration is still required. This replaces the traditional Self-Assessment tax return and confirms your final tax position  for the year.

Digital links and compliance

MTD requires all data transfers between systems to be made digitally. This includes submitting quarterly updates, making corrections and filing the year-end declaration.

Permitted methods include importing data, emailing files and system integrations. Manual processes such as copying and pasting or retyping figures are not allowed.

Summary

Making Tax Digital represents a significant shift in how tax is reported and managed. While the changes are substantial, they also provide an opportunity to improve processes, gain better financial visibility and reduce errors.

Understanding your obligations, using the right software and maintaining accurate digital records are key to ensuring compliance.

For further information or guidance on Making Tax Digital, contact a member of our Private Client team on 01903 234094 or visit www.carpenterbox.com.