Understanding Making Tax Digital MTD and Its Impact on Your Business
- Accountancee
- Mar 26
- 3 min read
Making Tax Digital (MTD) is changing how small businesses and landlords in the UK manage their tax records and submit returns. If you run a sole trader business or rent out property, it’s important to understand what MTD means for you and how to prepare. This post explains MTD in simple terms, what you need to do, and how tools like FreeAgent can make the process easier.
What Making Tax Digital (MTD) Is
Making Tax Digital is a UK government initiative designed to make tax reporting more accurate and efficient by moving from paper-based or manual processes to digital record-keeping and submissions. The goal is to reduce errors and simplify tax management for businesses.
Instead of submitting one annual tax return, MTD requires businesses to keep digital records and send updates to HMRC every quarter. This means your tax information is more up-to-date and easier to manage throughout the year.
Who MTD Applies To and When
Making Tax Digital (MTD) already applies to most VAT-registered businesses.
For Income Tax (MTD for ITSA), the rollout is happening in stages:
From April 2026 – MTD will apply to sole traders and landlords with annual business or property income over £50,000
From April 2027 – It will extend to those earning over £30,000
If you fall into these thresholds, you’ll need to:
Keep digital records of your income and expenses
Submit quarterly updates to HMRC using compatible software
Complete an end-of-year final declaration
If your income is below £30,000, you won’t be required to join MTD just yet, but it’s expected to expand further in the future — so it’s worth getting prepared early.
What Quarterly Submissions Are
Under MTD, instead of submitting one Self Assessment tax return each year, you send four updates throughout the year. These quarterly submissions include:
Income received
Business expenses paid
Other relevant financial information
Each submission helps HMRC track your tax position more closely. At the end of the tax year, you send a final declaration confirming your total income and expenses.
This approach spreads the workload and helps you avoid surprises when tax payments are due.
What This Means in Practice for Business Owners
For sole traders and landlords, MTD means you need to:
Use digital tools to record all your income and expenses as they happen
Submit updates to HMRC every three months
Keep accurate and up-to-date records to avoid penalties
This might feel like extra work at first, but it can improve your financial organisation and reduce errors. You will also get a clearer picture of your tax position throughout the year, helping you plan better.
If you currently keep paper records or use spreadsheets, you will need to switch to software that connects directly to HMRC.
How Software Like FreeAgent Can Help
FreeAgent is an accounting software designed for small businesses and landlords. It simplifies MTD compliance by:
Automatically tracking your income and expenses
Generating quarterly reports ready to submit to HMRC
Sending digital updates directly from the software
Providing reminders for submission deadlines
Using FreeAgent means less manual work and fewer mistakes. It also gives you real-time insights into your finances, helping you make informed decisions.
Many sole traders and landlords find that using software like FreeAgent reduces stress and saves time during tax season.
What Happens If You Don’t Comply
Failing to comply with MTD rules can lead to penalties from HMRC. These may include:
Fines for late or missing submissions
Interest on unpaid tax
Increased risk of tax investigations
HMRC expects businesses to keep digital records and submit quarterly updates on time. If you struggle to meet these requirements, it’s important to seek help early to avoid penalties.
Accountancee can support you in setting up the right software and processes to stay compliant and avoid unnecessary costs.
Summary Checklist for MTD Compliance
Are you a sole trader or landlord with income over £10,000? MTD applies to you.
Start keeping digital records of all income and expenses.
Use MTD-compatible software like FreeAgent.
Submit quarterly updates to HMRC on time.
File your annual declaration after the tax year ends.
Contact Accountancee if you need help getting set up or understanding your obligations.
MTD is designed to make tax easier and more accurate, but it requires some changes to how you manage your records. With the right tools and support, you can stay compliant and focus on growing your business.
If you want to learn more or need assistance with Making Tax Digital UK requirements, get in touch with Accountancee today. We offer expert advice and practical support to help sole traders and landlords navigate MTD smoothly.
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