Making Tax Digital (MTD)
Making Tax Digital (MTD) is a UK government initiative aimed at simplifying and modernising the tax system. It requires businesses and individuals to keep digital records and submit their tax returns directly through compatible software.
Who does MTD apply to?
All VAT-registered businesses with a taxable turnover above the VAT threshold (£85,000) must follow MTD for VAT.
Businesses & Sole Traders
MTD will eventually apply to income tax, starting with self-employed individuals and landlords with an income of £10,000 or more.
Self-Employed & Landlords
All limited companies will be required to submit tax information digitally through MTD-compatible software for corporate taxes in the near future.
Limited Companies
Improved Accuracy: Digital submissions reduce the risk of manual errors, ensuring your tax returns are precise.
Time-Saving: Keeping digital records and automating submissions can save time, freeing you up to focus on running your business.
Compliance: MTD helps you stay compliant with HMRC, avoiding penalties for late or incorrect submissions.
Real-Time Insights: You’ll have a clearer, more up-to-date picture of your financials, allowing better planning and decision-making.
Key benefits
What is Making Tax Digital (MTD)?
Making Tax Digital (MTD) is HMRC's move to a fully digital tax system. You keep your income and expense records in compatible software, send quarterly updates to HMRC, and finalise everything at year-end through the same software. No more once-a-year scramble with a shoebox of receipts.
If you're a sole trader or landlord, it depends on your gross income from self-employment and property combined. The first phase started on 6 April 2026 for anyone earning over £50,000. From April 2027, the threshold drops to £30,000, and from April 2028 it drops again to £20,000. Employment income, dividends and pensions don't count towards the threshold.
It's your total turnover or rent received before expenses, not your profit. So if you brought in £30,000 from freelance work and £25,000 from a rental property, your qualifying income is £55,000, and you're in scope from April 2026.
You send a summary of your income and expenses for that three-month period through compatible software. The first quarterly update for Phase 1 taxpayers covers 6 April to 5 July 2026, due by 7 August 2026. These updates aren't tax returns they're rolling year-to-date figures.
For 2025/26, yes, that's the last one under the old system, due 31 January 2027. After that, your Final Declaration replaces it. Your first MTD Final Declaration covers 2026/27 and is due 31 January 2028. Payment dates of 31 January and 31 July stay the same.
You need HMRC-recognised MTD-compatible software. Options include Xero, QuickBooks, FreeAgent and others. Spreadsheets alone won't work, though bridging software can link them to HMRC. Picking the right tool early is worth the effort — switching halfway through a tax year is a headache.
HMRC has introduced a points-based system. Each missed quarterly update or Final Declaration results in 1 penalty point. Hit four points and you'll get a £200 fine, plus another £200 for each further late submission. There's a soft-landing concession in 2026/27 — no points for late quarterly updates in the first year, though you still have to submit them.
Possibly. You can apply for exemption if you're digitally excluded — for reasons of age, disability, location, religious beliefs, or other circumstances that make digital record-keeping unreasonable. You apply through HMRC and they'll review your case.
Partnerships will be brought in later — HMRC hasn't confirmed a date. Limited companies aren't part of MTD for Income Tax at all. If you're a partner, your share of partnership profit doesn't count towards your personal qualifying income.
Freed Accountancy works with sole traders and landlords across Kent to get ready for MTD properly, not at the last minute. That typically means:
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Checking your gross income to confirm when you're in scope
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Recommending and setting up compatible software that suits how you actually work
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Migrating your existing records and getting your digital bookkeeping habits in place
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Filing your quarterly updates and Final Declaration on your behalf
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Acting as your authorised agent with HMRC so you don't deal with the admin
Based in Ramsgate, Freed offers face-to-face support across Thanet and the wider Kent area — handy if you'd rather sort this in person than over a help line. Getting started a few months before your deadline tends to save money and avoid the rushed-decision trap.
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