Making Tax Digital (MTD) could be the biggest change to UK taxation since self-assessment, but HMRC estimates that hundreds of thousands of qualifying individuals are yet to prepare. This could lead to penalties and fines from HMRC.
At UWM, we’re already helping our clients prepare by updating accounting systems, reporting processes, and record-keeping methods. Because leaving the move to Making Tax Digital until the last minute can create avoidable disruption and stress.
What Is Making Tax Digital?
Instead of submitting a single self-assessment return each year, qualifying self-employed individuals and landlords will soon be required to send digital, quarterly updates to HMRC through approved software. This is known as Making Tax Digital, a government initiative designed to modernise the UK tax system by moving tax reporting onto digital platforms.
The goal is to reduce tax reporting errors and develop a more accurate picture of business income. HMRC estimates that mistakes in tax returns cost billions annually, which is why they’ve invested so heavily in this digital transformation.
The rollout represents a major shift in how millions manage their tax obligations. And while the system has already been introduced for VAT-registered businesses, the upcoming changes are bringing income tax reporting into the same digital framework.
Who will be affected by Making Tax Digital for income tax?
From April 6, 2026, Making Tax Digital will apply to self-employed individuals and landlords with total gross income (before expenses) above £50,000. This income will include property income, combined self-employment and rental income, and earnings made by self-employed professionals and sole traders.
A second phase is expected to follow in 2027, bringing people earning more than £30,000 into the system. Then, in 2028, the threshold will fall to £20,000 per year for property and self-employment income earned in the 2026/2027 tax year.
What you must do from April 2026
The new rules introduce three key responsibilities that affected taxpayers must follow.
1. Digital record keeping
Individuals and landlords must keep digital records of income and expenses. Digital records must be kept using compatible software. Spreadsheets can still be used, provided they are linked to HMRC using bridging software that meets Making Tax Digital requirements.
Each transaction, both income and expenses, must be recorded digitally so that accurate summaries can be produced throughout the year.
2. Quarterly updates to HMRC
Taxpayers will need to send quarterly updates summarising their transactions to HMRC. The first reporting period will run from 6 April to 5 July 2026, with the update due to HMRC by 7 August.
These updates provide a running summary of income and expenses based on your digital records, without requiring final accounting adjustments at this stage. Each update must be submitted through approved Making Tax Digital software, which connects directly with HMRC’s digital systems.
3. End-of-year final submission
At the end of the tax year, taxpayers must confirm their final figures and submit a year-end declaration before the usual January 31 deadline. This process replaces the current self-assessment return with a final declaration, supported by an end-of-period statement (EOPS), which confirms your final business income for the year.
Why are so many people still unprepared?
Although the HMRC Making Tax Digital deadline is quickly approaching, many people remain ill-equipped to handle the change. In conversations we’ve had with self-employed individuals and landlords, we hear the same concerns:
Confusion about which software to use
How to move away from years of manual record-keeping habits
Lack of understanding about quarterly reporting
Limited time to change accounting systems.
These are all problematic because changing to digital tax reporting is much more than simply installing new software. Qualifying individuals must also adjust their record-keeping routines and reporting timelines. This is why early preparation for MTD is crucial.
Choosing the right Making Tax Digital software
One of the first steps in preparing for HMRC Making Tax Digital is selecting the right software. HMRC requires you to use compatible tools that can store digital records and communicate directly with its systems.
Fortunately, many modern accounting platforms like Xero, QuickBooks, and Sage already offer this functionality. These are cloud-based bookkeeping systems that automate transaction tracking, categorise expenses, and generate quarterly reports.
The right choice for your software will depend on the size of your business and how complicated its finances are. For some sole traders, a straightforward bookkeeping tool will be enough. Those with multiple properties or significant self-employed income, however, may need integrated accounting software that links with payroll, invoicing, and financial reporting.
As you might expect, working with a professional accountant during this change can prevent costly mistakes later.
April 2026 is close so time to act now
If you are still preparing for Making Tax Digital, you need to:
Choose and test suitable software
Digitise existing financial records
Make a transition to quarterly reporting
Those who delay preparation may find themselves rushing to change systems and meet quarterly reporting deadlines. There are also penalties and fines being introduced, with each missed submission deadline resulting in a penalty point. If you receive a set number of these penalty points, you’ll receive a £200 fine. Points can expire after a period of compliance.
How we’re supporting clients through the MTD transition
At UWM Accountants, we’re already working closely with our clients to prepare them for the upcoming Making Tax Digital changes. Our approach focuses on practical steps that simplify the transition, so you can continue to focus on what makes your business tick.
This starts with us reviewing your existing bookkeeping methods and identifying where digital systems need to be introduced. Next, we help you choose suitable Making Tax Digital software that integrates smoothly with your business operations. We also guide you through the reporting structure so you understand how quarterly submissions will work in practice.
If you’re unsure how the changes will affect your business, we recommend speaking to a professional accountant sooner rather than later.
The benefits of moving to digital tax reporting
Although the transition to Making Tax Digital may feel challenging at first, digital tax reporting brings with it a distinct set of advantages.
These include:
Better visibility of income and expenses throughout the year
Reduced risk of errors in tax submissions
More organised financial records
Improved collaboration with accountants.
So, instead of scrambling to gather receipts and records every time January comes around, you have a better idea of your finances year-round. As a result, your bookkeeping could become easier and more efficient over time.
Looking ahead to April 2026
The introduction of Making Tax Digital for income tax represents a fundamental shift in how income tax reporting works. The deadline is imminent, and the preparation required should not be underestimated. Moving from annual reporting to a digital, quarterly system requires planning and new tools, but it also means updating financial habits.
Those who start preparing now will move into the new system with confidence. Those who wait may find themselves rushing to adapt. Our advice is to understand the requirements now, choose a suitable software, and seek professional guidance if needed. All of this will make the transition far smoother.
FAQs about Making Tax Digital
How do I know if I’m affected by Making Tax Digital?
If you were registered for self-assessment and your combined turnover (excluding expenses) from property and self-assessment was over £50,000 in the 2024-2025 tax year, you must move to the Making Tax Digital system.
Who is exempt from Making Tax Digital?
You may be exempt if you are digitally excluded (for example, due to age, disability, or lack of access to reliable internet), or for certain specific circumstances such as religious objections. Exemptions must be agreed with HMRC. Limited companies are not currently within the scope of Making Tax Digital for income tax.
Do Making Tax Digital quarterly updates have to be accurate?
When you send HMRC a quarterly update, you can revisit it later. Quarterly updates do not need to include final accounting adjustments, but must be based on accurate and complete digital records. You can make adjustments before the end-of-year declaration, and also add transactions you missed at this time.
Do I need special software for Making Tax Digital?
Yes, HMRC requires self-employed business owners and individuals with properties to use approved Making Tax Digital software that can maintain digital records and send updates directly to HMRC.
Will I still file a tax return after Making Tax Digital is introduced?
When it comes to Making Tax Digital, you’ll digitally submit quarterly updates throughout the year. You’ll then complete an end-of-year declaration instead of a traditional self-assessment return.
