Everything You Need to Know to Go Digital with Your Tax

Making Tax Digital is transforming the way individuals and businesses manage tax in the UK. If you’re self‑employed, a landlord, or already VAT‑registered, moving to a digital income tax system is becoming mandatory for those who meet HMRC thresholds, with changes being rolled out in phases.

This guide explains Making Tax Digital for income tax (also known as MTD for Income Tax) who it applies to, how it works, and, most importantly, how to make my tax digital with confidence and ease.

What Is Making Tax Digital?

Making Tax Digital (MTD) is a government initiative designed to modernise the UK tax system. Instead of relying on paper records and annual tax returns, HMRC now requires taxpayers to:

• Keep tax records digitally
• Use HMRC‑approved software
• Submit tax updates online throughout the year

The aim of Making Tax Digital is to reduce errors, increase accuracy, and give taxpayers a clearer picture of their tax position in real time.

What Is Making Tax Digital for Income Tax?

Making Tax Digital for income tax, also known as MTD for income tax, replaces the traditional Self-Assessment system for qualifying individuals.

Under MTD for income tax, self‑employed individuals and landlords must:

• Keep digital records of income and expenses
• Send quarterly updates to HMRC
• Submit a final digital declaration at the end of the tax year

This new digital income tax system reduces last-minute pressure and helps avoid unexpected tax bills.

Who Needs to Follow MTD for Income Tax?

MTD for income tax is being introduced gradually and applies to gross income (turnover):

Phase 1

From April 2026, self‑employed individuals and landlords with annual turnover over £50,000

Phase 2

From April 2027 the threshold reduces to £30,000

Phase 3

Finally, from April 2028 the annual income threshold reduces again to £20,000

The turnover is calculated on total income, not profit, and includes income from self‑employment and property combined.

VAT registered businesses are already required to comply with Making Tax Digital, regardless of turnover. 

How to Make My Tax Digital: Step‑by‑Step

If you’re wondering how to make your tax digital, the process is a lot simpler than it sounds when broken down into steps.

1. Move Your Records Online

You must keep all income and expense records digitally. Paper records alone are no longer sufficient under Making Tax Digital rules.

2. Choose MTD‑Compatible Software

HMRC requires the use of approved software such as:

• Xero
• QuickBooks
• FreeAgent
• Sage

These platforms allow you to record transactions, maintain digital links, and submit updates directly to HMRC.

3. Submit Quarterly Updates

Instead of one annual tax return, MTD for income tax requires four quarterly updates each year. These give HMRC an ongoing view of your income and expenses.

4. Send Your Final Declaration

At the end of the tax year, a final digital declaration confirms your figures and finalises your tax bill.

Are There Any Exemptions from Making Tax Digital?

Some individuals may be exempt from Making Tax Digital if they are:

• Digitally excluded due to age, disability, or location
• Part of a religious group that prohibits use of digital technology

Exemptions must be formally approved by HMRC; otherwise, digital income tax compliance is mandatory once you meet the threshold.

What Are the Penalties for Not Complying?

Failing to follow MTD for income tax can result in:

• Late submission penalty points
• Financial penalties
• Interest charges on unpaid tax

The penalties increase with repeated failures, which is why early preparation is essential.

Benefits of Making Tax Digital

While the change can feel daunting, Making Tax Digital offers real advantages:

• Fewer errors in tax calculations
• Better visibility of your finances throughout the year
• Less stress at tax return time
• Improved cash‑flow planning

When set up correctly, digital income tax can make managing your finances clearer and more efficient.

Get Help with Making Tax Digital

Many people choose professional support when switching to Making Tax Digital for income tax. An accountant or tax specialist can:

• Set up MTD‑compliant software
• Manage quarterly submissions
• Ensure full HMRC compliance
• Save you time and reduce stress

Professional support is especially valuable if your income is complex or if you want reassurance that everything is done correctly.

If you’re not sure whether you’ll be affected or how to get set up, it pays to prepare early. If you’d like support getting compliant, we can help you get started with MTD for Income Tax and keep everything running smoothly.

Please note that some technical taxation terms used within this article are further explained within our 'Tax Tutor' resource.