In just four months, millions of small businesses, sole traders and landlords will need to change the way they track and report their finances to HMRC.
Making Tax Digital for Income Tax (MTD for IT) will come into effect and will see a move away from annual, paper-based tax returns towards more frequent, digital reporting.
Under the new rules you will need to use HMRC-approved software to keep digital financial records, send quarterly updates on income and expenses and complete an annual return confirming your final tax position for the year by the usual deadline of January 31st. It’s a big change and the biggest change to personal tax since self-assessment was introduced more than 30 years ago.
MTD for IT will be introduced gradually. If you are a small business, sole trader or landlord with an annual income of more than £50,000, you will be included from April 2026. It will then be expanded to include people earning more than £30,000 by April 2027 and anyone making more than £20,000 from April 2028.
With major changes coming, the coming months will be very important. Taking steps to prepare for the changes will help you navigate the transition with confidence and develop new habits you can rely on for years to come.
Why MTD happens for IT
The introduction of MTD for IT is part of the UK government’s wider effort to modernize the tax system and bring it in line with the digital tools that already power much of the economy. For years, policymakers have emphasized the need to invest in technology and reduce the administrative burden of outdated, paper-based processes. MTD for IT is one of the most important steps in this effort to build a more modern and sustainable tax system.
A fully digital tax approach aims to make financial management simpler and easier. However, for those who still rely on paper notes or spreadsheets, the transition might feel overwhelming. More than two-fifths (42%) of the smallest businesses do not use financial or accounting tools, and only 27% believe they are making the right technology and software decisions, according to our survey. For many of you, MTD for IT means using digital accounting tools for the first time and familiarizing yourself with a completely new way of working.
Choose the right tools to help
Preparing for a new digital way of doing taxes starts with choosing the right accounting software. Look for HMRC approved options that are easy to use. Ideally, digital tools should bring your financial management together so you have one place to log your spending, manage taxes, and stay on top of your finances.
It also helps to choose tools that make your daily work easier and faster. Features like the ability to take a photo of a receipt on the go with a mobile app mean you can record expenses instantly and update your accounts automatically. It’s a small change, but one that can save you time and reduce the risk of errors that often creep in when working more manually.
What to consider next
Once the software is installed, you can use the remaining time to become more familiar with digital recording and quarterly reporting. With the right setup, your income and expenses should flow directly into your software and quarterly updates, so you have a good idea of ​​how your business is doing and what your tax bill looks like after each quarterly update. This should lead to fewer tax surprises at the end of the year.
Up-to-date digital records also make it easier to keep track of what’s coming in and going out. Our research shows that almost two in five small business owners (38%) don’t know if they made a profit in the previous month and over half (55%) are struggling with cash flow management. With everything captured in one place, you get a clearer view of your numbers so you can spot early warning signs or problems – from unpaid invoices to unexpected costs to changing profit margins.
Get ready now
If you want extra reassurance that everything is set up correctly, an accountant or accountant can also be a great help. They can translate HMRC’s guidance into practical steps, help you choose the right digital tools and help you cope with new reporting requirements. This type of support will make the changes feel more manageable.
Switching to MTD for IT can take some getting used to, but taking action now will make the transition much easier. By taking steps to prepare for the changes, you can ease the pressure of the looming deadline and put yourself in a better financial position for the future.
Get ready for MTD for IT – sign up for one of our webinars that will break down everything you need to do to prepare for the changes. Check out our range of MTD-ready plans here, with new customers getting 95% off for six months.
