Making Tax Digital
What is Making Tax Digital?
Making Tax Digital is a large HMRC project to move all tax reporting to software and apps. The next stage to be introduced is Making Tax Digital for Income Tax Self-assessment.
Around 4.2 million taxpayers will be affected - including freelancers in our industry who operate as sole traders.
Many businesses already use digital accounting software but often wait until the end of the tax period to calculate and submit their obligations to HMRC.
The Making Tax Digital programme aims to make tax management more effective, efficient, and accurate by requiring digital financial records to be submitted quarterly.
Who does Making Tax Digital apply to?
Making Tax Digital for Income Tax Self-Assessment: Applies to UK taxpayers with business or property income over £50,000 from April 2026, over £30,000 from April 2027, and over £20,000 from April 2028. This includes landlords, sole traders, and partnerships.
Exemptions: Possible for those who are ‘digitally excluded’ due to age, disability, location, or religious beliefs.
Making Tax Digital for Income Tax Self-Assessment
Use of MTD is phased depending on annual income (NB: this means turnover, not profit):
- April 2026: For incomes over £50,000
- April 2027: For incomes between £30,000 and £50,000
- April 2028: For incomes over £20,000
Quarterly updates are due:
- Q1 (April 6 – July 5): August 5
- Q2 (July 6 – October 5): November 5
- Q3 (October 6 – January 5): February 5
- Q4 (January 6 – April 5): May 5
The end of period statement is due by January 31 following the tax year, as it is currently with tax return. Annual tax payments will be due by January 31, like how it is now.
There will also be new penalties for late submissions, and payments will be introduced using a points system. For example:
- Each missed deadline results in a penalty point. Reaching a set limit incurs a £200 fine
- Monthly submissions: 5-point limit
- Quarterly submissions: 4-point limit
- Annual submissions: 2-point limit
- Multiple Failures: Generally, only one point is given for multiple failures in the same month, with some exceptions
- Point Expiry: Points last for two years. To reset to zero after a fine, you must comply and submit all due returns within the preceding 24 months
- HMRC Discretion: HMRC can choose not to issue points or penalties and offers a review and appeals process
Although Making Tax Digital Income Tax Self-Assessment may seem far off, starting to make preparations now will ease the transition and help avoid penalties.
Sole traders with a turnover (income) above £50,000 in 2024-25 will be expected to use Making Tax Digital software and report just income and business expenses quarterly from April 2026. To get started you can:
- New banking apps/accountancy tools. As mentioned above, research what’s out there in terms of accountancy tools and applications for making tax digital compliance. Remember, learning new systems and transferring data can take time!
- Consult with current accountants or financial professionals to ensure a smooth transition.
- Improve your knowledge. The HMRC offers signposting with all the above outlines.
- Download the HMRC app using your gov.uk personal tax account log in (formerly called Government Gateway). This app doesn’t allow reporting for MTD, but it opens the door to checking national insurance, benefits, free childcare etc. If you don’t already have a Gateway account, you will be prompted to open one to access. Find out if and when you need to use Making Tax Digital for Income Tax.
Pros and cons of Making Tax Digital
According to the HMRC the following are pros and cons of the Making Tax Digital for both Freelancers and those who are self-employed.
- Reduced errors and human mistakes
- Quicker and easier tax filing
- Better understanding of tax obligations throughout the year
- Less paperwork and more environmentally friendly
- Some people are already using the money management apps
- Time and resources needed to update accounting practices
- Costs of new software and potential increased accountancy fees
- Possible future quarterly tax payments reducing annual interest income
Other compliant software
Please check comparisons to find out what suits you best. You should also be aware there are some banks that offer these or similar, free of charge with bank accounts. So, make sure you shop around.
Compliant accounting software for Making Tax Digital
Find examples of some of the Making Tax Digital software on the market. You can also visit the HMRC to see what software it has authorised for Making Tax Digital.
