Making Tax Digital: Preparing For Changes To Tax Reporting

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.

The change will affect over 4.2 million taxpayers, including freelancers in our industry who are sole?traders.

Find out if and when you need to use this?tool

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, and over ￡30,000 from April 2027. This includes landlords, sole traders, and partnerships.

Exemptions: Possible for those who are ‘digitally excluded’ due to age, disability, location, or religious?beliefs.

Find out more about your eligibility

Key dates for Income Tax Self-Assessment

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
• No set date for incomes below ￡30,000, but government says, “within this parliament”, i.e. 2029 at the?latest

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.

New penalty points system for late submissions

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

Preparing for Making Tax Digital Income Tax Self-Assessment

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 2025–2026, will be expected to use Making Tax Digital?software and report quarterly from April 2026.?

To get started you?can:?

• Download the HMRC app. Not only will this support with the changes as mentioned above, but it also 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.
• 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.?

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.

Pros

• 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

Cons

• 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

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