Making Tax Digital for Income Tax is changing how many UK sole traders and landlords maintain their financial records and report information to HMRC. Preparing before the rules apply to you can make the transition considerably easier.
The first step is understanding whether and when you are required to use Making Tax Digital. From 6 April 2026, it applies to qualifying sole traders and landlords with annual qualifying income over £50,000. The threshold falls to over £30,000 from April 2027 and over £20,000 from April 2028.
Qualifying income broadly means your gross income from self-employment and property before expenses are deducted. If you have both types of income, they can be considered together when determining whether you exceed the relevant threshold.
Once you know when the rules apply to you, review how you currently keep your financial records. Businesses that rely heavily on paper records or update their bookkeeping only once a year may need to make the biggest changes.
Making Tax Digital requires relevant business and property records to be maintained digitally using compatible software.
Choosing the right software is therefore an important part of preparing. Look for a system that fits the size and complexity of your business while allowing you to maintain income and expense records and communicate the required information to HMRC.
You should also consider connecting your business bank account to your bookkeeping software where appropriate. Bank feeds can make it easier to identify transactions and keep your accounts updated, although transactions should still be reviewed and categorised accurately.
Digital receipt management can also help. Instead of storing large amounts of paperwork, businesses can maintain organised digital evidence supporting their expenses.
Developing a regular bookkeeping routine is equally important. Rather than waiting until the end of the tax year, consider updating your records weekly or monthly. This reduces the amount of work required when quarterly information needs to be submitted.
You should also ensure personal and business transactions remain clearly separated. Using a dedicated business bank account can make bookkeeping easier and reduce the risk of incorrectly treating personal spending as a business expense.
If you receive rental income, maintain clear records of rental payments and qualifying property expenses. If you also operate a self-employed business, keeping separate categories for your different income sources can simplify your MTD reporting.
Making Tax Digital does not remove the importance of the annual tax process. Your records will still need to be reviewed and your final tax position completed after the end of the tax year.
The earlier you prepare, the more opportunity you have to identify problems with software, missing records or bookkeeping processes before they begin affecting your submissions.
At EasyFig, we can help review your bookkeeping setup, organise digital financial records and prepare your business for Making Tax Digital.
Not sure whether your current bookkeeping is ready for MTD? Book a free consultation with EasyFig today.