Is Your Business Ready for Making Tax Digital? | Winchester Bourne

Is Your Business Ready for Making Tax Digital?

25/04/2025

From April 2026, Making Tax Digital for Income Tax (MTD for IT - sometimes known as MTD for ITSA) will change how many UK sole traders and landlords manage and report their finances. You're not alone if you're wondering whether your business is ready. Let's break it down into simple steps to help you prepare—and even benefit—from this shift towards digital.

What is Making Tax Digital?

MTD is an HMRC initiative designed to make tax administration more effective, efficient, and easier for taxpayers. Under MTD for IT:

If you earn over £50,000 in annual gross income from self-employment or property, you'll need to follow MTD rules from April 2026.
If your income is between £30,000-£50,000, MTD applies from April 2027.
You'll keep digital records and send quarterly updates to HMRC, instead of the traditional once-a-year Self Assessment tax return.

Why Prepare Now? The Benefits of Early Adoption

Reduce your stress levels - getting familiar with digital tools now means fewer headaches when MTD becomes mandatory.

Increase your understanding of your numbers - real-time records help you understand your income, expenses, and tax liability as you go, which ultimately will help you run your business better.

Embracing the tech and automations can reduce the time you spend thinking and worrying about the 'dreaded' tax return.

Digital systems help minimise mistakes, and some software can even give you nudges when something looks off.

Step-by-Step Guide to Get Ready for MTD for Income Tax

1. Check If MTD Applies to You

Do you have gross income over £30,000 from self-employment or property?
If not yet, it’s still worth understanding the basics, as MTD may expand further in future.

2. Choose MTD-Compatible Software

HMRC requires you to use software that can send updates directly.
Look for tools like Xero, FreeAgent or QuickBooks, or simpler apps like Sage Accounting Start—ideal for sole traders.
Many tools offer free trials, so test a few to find what suits you best.

3. Start Digital Record-Keeping Now

Record all sales and expenses as they happen.
Keep digital copies of receipts and invoices—snap them with your phone or use scanning apps.
Create a simple habit - log your income and expenses weekly or monthly.

4. Understand Quarterly Updates

Instead of one big tax return, you'll submit four updates a year.
Each update is a summary of your business income and expenses for that period.
You’ll also submit a final declaration at the end of the tax year, confirming your overall figures.

5. Work with Your Accountant

Speak with your accountant or tax advisor about how MTD affects you.
They can help ensure your records are accurate and your software is set up correctly.
Many accountants are already helping clients with MTD transitions, so you don’t have to go it alone.

Best Practices for Digital Record-Keeping

Be consistent - set a regular time to update your records (e.g., every Friday afternoon).
Use bank feeds - many MTD software tools sync with your bank account, saving time.
Categorise expenses properly - this helps you claim the right tax deductions.
Backup your data - even cloud systems benefit from occasional manual backups.
Stay organised - keep your invoices, receipts, and contracts easily searchable.

Conclusion: Don't Wait—Get Ahead of the Game

Making Tax Digital is here to stay. Starting now gives you time to find the right tools, build good habits, and make your tax life simpler. Early adoption doesn’t just help with compliance—it can also give you clearer insight into your business finances and more control over your tax planning.

At Winchester Bourne, we’re here to guide you through every step of preparing for MTD. If you'd like help setting up your digital records or choosing the right software, get in touch for a free consultation.