As the rollout of Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA) approaches, many sole traders and landlords still have questions about what’s required of them.
At Treetops Chartered Accountants, we want to take the stress out of tax and help you stay informed and confident about the changes ahead. Keep reading as we tackle some of the common myths and misunderstandings our clients have about MTD for Income Tax and what you can do now to prepare.
Need help with MTD compliance? Email [email protected] today for expert guidance.
Key changes under Making Tax Digital for Income Tax
Making Tax Digital (MTD) is a forward-thinking initiative set out by the government to modernise the UK tax system and reduce human error. It’s a way of bringing more businesses up to date on their tax reporting and reduce the tax gap (i.e., the amount of money that should theoretically make its way to HMRC but currently does not due to poor tax reporting).
It’s already mandatory for VAT-registered businesses under MTD for VAT, and now the rules are expanding to cover self-employed individuals and landlords from 6 April 2026.
As part of the initiative, you’ll be expected to make some digital changes, including:
Digital record keeping
- You must keep digital records of your income and expenses using MTD-compatible accounting software. Relying on paper records and spreadsheets is no longer enough. You can still use spreadsheets, but you’ll need to connect them to bridging software that meets MTD regulations.
Quarterly updates
- You must submit quarterly updates through functionally compatible software.
End-of-year final declaration
- You will need to make a final declaration at the end of the year (to replace the current Self-Assessment tax return) to confirm your tax position, including income, expenses, and reliefs. But please don’t worry, as Treetops can handle this for you.
What you need for Making Tax Digital (MTD) compliance
To stay compliant with HMRC’s Making Tax Digital (MTD) initiative, every business must take a few key steps to manage tax records digitally.
Here’s what you’ll need:
- MTD-compatible accounting software or a bridging app to record and submit quarterly tax updates.
- Access to HMRC’s online system via your Government Gateway account.
- Clear visibility over your income sources, especially if you manage multiple businesses or rental properties.
- Dedicated bank accounts for business use, ensuring every income source is tracked separately.
- Separate credit cards for personal and business use to make financial reporting cleaner and more accurate.
- Getting your systems ready for MTD helps streamline your tax process, reduce errors, and keep your business compliant with HMRC regulations.
5 common myths about MTD for Income Tax
It’s natural for you to feel apprehensive whenever there’s a tax change, especially with modern technology moving so fast. We’re here to help when it comes to tax updates.
Take a look at some of the common myths we hear and get the truth about MTD.
Myth 1: “MTD for Income Tax is already mandatory for everyone.”
The truth:
Not yet. MTD for Income Tax will become mandatory from 6 April 2026 for sole traders and landlords with a gross combined taxable income from rental and self-employment exceeding £50,000. It will apply from April 2027 for those earning over £30,000 and from April 2028 for those earning over £20,000.
Myth 2: “I’ll have to submit a tax return four times a year.”
The truth:
This is a common misunderstanding. Under MTD, you will submit quarterly updates of your income and expenses through approved software, but that doesn’t mean quarterly tax payments. Payment dates will remain the same for Income Tax, so you’ll still submit a final declaration (similar to the current annual Self-Assessment tax return) once a year to finalise your figures and include income from other sources.
Myth 3: “I can continue using spreadsheets or paper records.”
The truth:
You cannot rely solely on paper records anymore. You must keep digital records of income and expenses, and submit updates using MTD-compliant software. Spreadsheet solutions are acceptable but only when linked to bridging software. We recommend getting ahead early and switching to digital tools where possible, such as an MTD-compliant cloud accounting system like FreeAgent (which is free with an RBS, Mettle, or NatWest bank account, or Xero).
Myth 4: “MTD will make things more complicated.”
The truth:
At first, it might feel like “more admin”, but in reality, MTD means better record keeping, improved accuracy, and helps you stay on top of your finances all year round, which in turn contributes to better informed financial decisions. With the right accounting software and support, the process becomes much simpler than trying to piece everything together at year-end.
Myth 5: “I don’t need to do anything until 2026.”
The truth:
While technically, yes, it might not affect you until 2026, it’s never too early to prepare. Getting used to digital bookkeeping now will make the transition much smoother later on. It also gives you time to test out software, speak with tax advisors, and adjust your processes without pressure. We strongly recommend that you start to use a separate bank account for your income and expenditure related to your rental or sole trade now.
If you want to get ahead but don’t know where to start, we can help!
Prepare for MTD for Income Tax with Treetops
Are you a sole trader or a landlord? Perhaps you’re both. Either way, Making Tax Digital for Income Tax may apply to you. It’s around the corner, and as with all tax changes, it will rear its head sooner than you realise.
Treetops Chartered Accountants are here to make the transition to MTD feel simple and stress-free.
Need support? Drop us an email at [email protected] and ask how we can help you prepare for Making Tax Digital, or request a callback at a time that suits you.
Are you ready to save time and money with our accounting services?
Here at Treetops we understand your time is precious! We pride ourselves on helping small to medium businesses navigate the complexities of accounting and tax, whilst instantly freeing up your time to focus on business growth.
Frequently asked questions about Making Tax Digital problems
Can my accountant handle MTD for Income Tax for me?
Yes. We’re encouraging clients to get ahead of the game with Making Tax Digital (MTD), and we’re right there alongside them. We’re reviewing our MTD accounting services to make them more helpful for you as MTD for ITSA rolls out. We’ll advise you on MTD-compliant software that works best for your business operations.
Will HMRC provide free MTD-compatible software?
Unfortunately no. Despite their push for a digital tax system, HM Revenue and Customs does not provide businesses with free software. There are affordable MTD-compliant software providers available, and with a bit of research and our support, we’ll help you find one that works for your business.
Do I need to sign up for MTD if I only have a small side hustle?
It depends on the taxable turnover of your side hustle. If your combined rental and self-employment turnover is over £50,000 in the 2024/25 tax year, you’ll need to join MTD from April 2026. Those earning over £30,000 in the 2025/26 tax year will be mandated from April 2027, and those with income over £20,000 in the 2026/27 tax year will join from April 2028.
That said, it’s still a good idea to adopt digital record-keeping early, as it helps improve accuracy, keeps your finances organised, and prepares you for the possibility of going over that threshold.
What if I’m digitally excluded?
If you cannot use digital tools due to age, disability, lack of internet access, or another reasonable excuse, you can apply to HMRC for an exemption. We can help you work out if this applies to you and guide you through the process.
