MTDIT is a huge change for self employed people

For self employed small business owners, tax admin has traditionally meant gathering a year’s worth of receipts, bank statements and invoices shortly before 31st January. Unless you were VAT registered, this was often the only time the books would be written up.

Making Tax Digital for Income Tax changes that routine. Rather than leaving the records until year end, businesses need to keep digital records and send regular updates to HMRC through compatible software.

It is a big change to get your head around. In practice, a regular bookkeeping routine often makes it easier to see where the business stands, spot missing paperwork and avoid the January scramble. The key is knowing whether the rules apply to you and getting the right habits in place before an update is due.

Who needs to follow Making Tax Digital for Income Tax?

Making Tax Digital for Income Tax Self Assessment, often shortened to MTDIT, started April 2026 for sole traders and landlords with qualifying income over £50,000 per year. Qualifying income means sales or rent. It is NOT your profit which they use to assess this.

The £50,000 test for the first group is based on the 2024-25 tax return. If your combined turnover from your business and rental income was above that level, HMRC should have contacted you about joining.

From April 2027, the requirement is due to extend to people with qualifying income over £30,000. HMRC has also set out plans to bring in smaller businesses over time.

What changes in day-to-day bookkeeping?

The main change is NOT that you pay tax four times a year!! Your usual Self Assessment payment dates have not changed, so the 31 January balancing payment and payments on account in July where they apply.

Instead, you will keep digital records of business income and expenses, then submit quarterly updates to HMRC using compatible software. Those updates give HMRC a running picture of your figures. They are not final tax returns and they do not normally create a tax bill each quarter.

At the end of the tax year, you will check the information, make any necessary accounting or tax adjustments, report other relevant income and submit a Final Declaration. This takes the place of the familiar annual Self Assessment tax return process for income covered by MTD.

For a straightforward sole trader, the records may include sales invoices, bank transactions, fuel or travel costs, materials, subcontractor payments, phone costs and other day-to-day expenses. For a landlord, the focus will be rental income and property-related costs. The right categories depend on your business, but the principle is simple: record transactions accurately as they happen, rather than trying to recreate them months later.

Quarterly updates: the dates to watch

Most businesses will work to standard quarterly periods running from 6 April to 5 July, 6 July to 5 October, 6 October to 5 January and 6 January to 5 April. The update is usually due one month after the period ends.

That means the deadlines will commonly fall on 5 August, 5 November, 5 February and 5 May. Some businesses may be able to use calendar quarters instead, which can suit the way they already manage their accounts. The important thing is to choose a process you can maintain consistently, not one that looks good for a month and then becomes another job left until the last minute.

Do you need to change software?

You will need software that is compatible with Making Tax Digital for Income Tax. For many businesses, this is a good time to move from a spreadsheet or paper-based system to accounting software such as Xero or QuickBooks. Bank feeds can bring transactions into the system, invoices can be raised from the same place and records are easier to keep current.

Software will not magically make the books correct, though. A bank feed cannot tell whether a payment was for materials, equipment, fuel or a personal purchase. Someone still needs to review transactions, match sales invoices, chase missing receipts and make sure the records reflect what actually happened.

Spreadsheets may still have a place for some businesses, particularly where they are already well organised. But the data must be transferred to HMRC through compatible software and with the required digital links. Copying and pasting figures by hand between systems is not a reliable long-term answer.

The best option depends on the size and complexity of the business. A tradesperson sending a handful of invoices each month has different needs from a business with several staff, regular supplier bills and stock. Choose a system that makes everyday bookkeeping easier, rather than buying features you will never use.

How to prepare without making it a bigger job

The most useful preparation is often the least glamorous: bring your existing records up to date. If bank transactions have not been reconciled for several months, invoices are stored across emails and WhatsApp messages, or receipts are in the glovebox, deal with that before the first quarterly deadline is close.

Start by separating business and personal spending wherever possible. A dedicated business bank account gives you a cleaner starting point and reduces the time spent working out what each payment was for. Keep copies of receipts and supplier bills digitally, ideally at the point you receive them. A quick photo or upload is much easier than searching through faded paper later.

Then create a regular rhythm. This might mean reviewing the bank weekly, sending invoices on a set day, checking unpaid customer invoices every Friday and completing the bookkeeping each month. The exact schedule is less important than making it predictable.

A monthly routine also gives you more than compliance. It shows whether customers are paying late, whether costs are rising and whether there is enough cash coming in to cover the next few weeks. Those are useful conversations to have while there is still time to act.

Common worries, answered plainly

“Will HMRC see every transaction in my bank account?”

MTD updates report business income and expense totals in the required categories. They are not the same as giving HMRC an open view of your bank account. Your underlying records still need to support the figures you submit.

“What if I make a mistake in a quarterly update?”

Quarterly updates are not the final position. Errors can generally be corrected in a later update or as part of the year-end process, depending on the issue. That said, accurate records from the start make corrections far less stressful.

“Do I need an accountant?”

These quarterly returns are being classified as bookkeeping returns – and then the final submission is still the same as the personal tax return that your accountant always filed. Business owners can submit their own quarterly figures or get a bookkeeper to do them – then continue to use your accountant in the same way you always did.

“What happens if my income drops below the threshold?”

Your obligation can depend on your qualifying income in the relevant tax year and the wider rules in force at the time. Do not simply leave MTD because one year has been quieter. Check your position before changing how you file.

A calmer way to stay on top of it

Making Tax Digital for Income Tax is really a push towards records that are kept as the business runs, not reconstructed once a year. For a busy owner, that may mean changing a few habits or asking for support with the financial admin that never seems to fit around customers and jobs.

At BW Bookkeeping & Project Solutions, we sit at desks so you do not have to. Whether you need help moving to software, catching up overdue records or establishing a dependable monthly routine, the aim is the same: clear figures, fewer last-minute surprises and more time to run your business with confidence.

Contact us to see how we can help your business.

Follow the link to the GOV website for more information.

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