Change is on the horizon for self-employed individuals. Whether you’re a freelancer, consultant, landlord, or small business owner, from April 2026, the way you report your Income Tax could look very different thanks to Making Tax Digital (MTD).
With MTD in place, self-employed individuals and landlords will be expected to:
- Use MTD-compatible software
- Keep digital records
- Send quarterly updates to HMRC
- Submit a final declaration at the end of the year
But it’s not just about stricter rules and additional admin. If you’ve ever felt the stress of a last-minute Self Assessment deadline, this shift could be a real game-changer for keeping you more organised throughout the year.
In this blog, we explore what this new government initiative is and what it means for you. Keep reading or contact Ascott Blake today for advice from tax experts who’ve helped numerous people like you.
What is Making Tax Digital?
Making Tax Digital (often shortened to MTD) is a government initiative that will soon affect how individuals and businesses report their tax. The aim is to make the UK tax system more efficient, accurate, fair, and easier to manage.
MTD first started with VAT-registered businesses, but the next phase, MTD for Income Tax Self Assessment (MTD for ITSA), is being introduced for self-employed individuals and landlords over the coming months.
How does Making Tax Digital affect self-employed individuals like freelancers and contractors?
If you’re self-employed and earn more than £50,000 a year in business or property income, you’ll need to follow the MTD for Income Tax rules from April 2026.
If you earn between £30,000 and £50,000, you’ll join the system a year later, from April 2027.
And if you earn under £20,000, you will be last to join in April 2028.
This means you’ll have to:
- Keep digital records of all your income and expenses
- Use MTD-compatible software to send updates to HMRC every quarter
- Submit a final declaration at the end of the tax year to confirm your total taxable income
As you’re probably already thinking, this will be a significant change. For most self-employed people, it will affect how they manage tax. But, not to fret, as the right setup can make things much smoother in the long run.
Key benefits of Making Tax Digital
Running a small business is already time-consuming and puzzling enough, without new systems and rules shaking things up. While Making Tax Digital for Income Tax may feel like more work at first, there are benefits for sole traders and self-employed people:
- Fewer errors: Switching to digital tools helps keep mistakes to a minimum. The odd error can still slip through (at least without an experienced tax accountant in your corner), but on the whole, digital records are far simpler and time-saving than manual ones.
- Less last-minute stress: Being forced to submit quarterly updates means you won’t face the year-end scramble to find receipts and compile expenses.
- Know your finances better: With organisation comes clarity. The new MTD rules offer an opportunity to organise your financial records and get a clearer picture of your income, expenses, and how much tax you owe throughout the year.
- Plan and budget: Regular reporting can help you plan ahead and avoid unexpected tax bills. This is great news for your cash flow and your peace of mind.
- Save precious time: Leaning into accounting software helps you automate mundane and time-consuming processes, leaving you with more time to focus on running your business.
Preparing for Making Tax Digital for Income Tax Self-Assessment
Getting ready for MTD doesn’t have to be as complicated as it feels, but it’s worth starting early. Here’s what you can do now to make a smooth transition later.
Start using MTD-compatible software
To submit your quarterly updates, you’ll need MTD-compliant software that connects directly to HMRC’s system. This software helps you record income, track expenses, and send digital reports securely.
There are plenty of options out there, from cloud-based accounting tools to industry-specific apps. We recommend getting familiar with the different accounting software that works with MTD. At Ascott Blake, we’re big fans of Xero accounting software for small businesses and sole traders, and we can help you find the perfect setup for your business, whether you’re a sole trader, consultant, or tradesperson.
And if you’re already using accounting software, check that it’s MTD-compliant or find out how to upgrade.
Focus on digital record-keeping
Under MTD, you’ll need to maintain digital records of your business income and expenses. That includes all your sales, purchases, invoices, and receipts.
This doesn’t mean you have to scan every document. Many MTD-compatible tools will automatically store records digitally when you upload receipts or link your business bank account.
To prepare for MTD, the key is to keep your tax records accurate and up to date, so you always know where you stand.
Get familiar with quarterly filing
Instead of submitting a single Self Assessment tax return once a year, the new rules will make it mandatory to send quarterly updates to HMRC.
These updates summarise your income and expenses for that period. After your fourth update, you’ll complete a final declaration (this is similar to your current Self-Assessment tax return), where you’ll finalise your total income for the tax year, including any other taxable income you’ve made.
You’ll still pay tax and National Insurance based on your total earnings, but you’ll have better insight into what you owe along the way.
In need of MTD guidance? Contact Ascott Blake today
Making Tax Digital is one of the biggest changes to the UK tax system in years, but it presents an opportunity to simplify how you manage your business finances.
If you’re self-employed and need help preparing for Making Tax Digital, get in touch with our team at Ascott Blake today or call the office on 01279 797 222.
Frequently asked questions about MTD for income tax
What does qualifying income mean?
Your qualifying income is the total of all your business and property income before expenses. This includes income from self-employment, rental properties, or other taxable sources such as service charges or commissions.
It does not include your savings interest or employment income! Only your self-employed or property-related income is used to determine if you meet the Making Tax Digital income thresholds.
Do all self-employed people have to go digital?
Not yet. Only those earning above the MTD income threshold need to join from 2026, 2027, or 2028.
If your total qualifying income is below the threshold, MTD won’t apply to you, although you can voluntarily sign up if you want to prepare early.
Alternatively, if things like age, disability, or unreliable internet make it difficult to use digital tools, you can apply for an exemption with HMRC.
Is Making Tax Digital based on turnover or profit?
MTD is based on your turnover, not your profit. HMRC uses your total business and property income (before expenses) to decide whether you fall within the MTD threshold. So even if your profits are low, if your total income exceeds the threshold, you’ll still need to follow MTD for Income Tax rules.
