How Does Making Tax Digital Affect Self Employed Peopl

At Towerstone Accountants we provide specialist personal tax services, for self employed, and individuals across the UK. This article has been written to explain How does Making Tax Digital affect self employed people, in clear practical terms, so you understand how personal tax and Self Assessment rules apply in real situations. Our aim is to help you stay compliant, avoid costly mistakes, and make confident tax decisions.

Making Tax Digital, often shortened to MTD, is one of the biggest changes to the UK tax system in decades. I speak to self employed people every week who have heard the term but are not quite sure what it actually means for them. Some assume it is already live, others think it will never really happen, and many feel anxious that it will add more admin and cost to running their business.

In this article I want to explain clearly how Making Tax Digital affects self employed people, what is changing, what is not changing, and how you can prepare without overcomplicating things. I will focus on what HMRC is actually requiring, when the changes are coming in, and what I see working well in practice. My aim is to replace uncertainty with clarity, so you know where you stand and what to do next.

What Making Tax Digital is trying to achieve

At its core Making Tax Digital is HMRC’s long term plan to modernise the tax system. The goal is to move away from paper records and annual catch up reporting, and towards digital records with more frequent updates.

From HMRC’s perspective this is about:.

• Reducing errors caused by manual record keeping

• Improving accuracy of tax reporting

• Helping people understand their tax position earlier

• Closing the tax gap over time

Whether you agree with the approach or not, the direction of travel is clear. Digital record keeping is becoming the default expectation rather than the exception.

Making Tax Digital for Income Tax explained simply

For self employed people the relevant part of the programme is Making Tax Digital for Income Tax Self Assessment, often called MTD for ITSA.

This applies to individuals who are:.

• Self employed, or

• Landlords, or

• Both

and who have qualifying income above a certain threshold.

Under MTD for Income Tax you will no longer just file one Self Assessment return each year. Instead you will be required to:.

• Keep digital records of income and expenses

• Send quarterly updates to HMRC

• Submit an end of period statement

• Submit a final declaration

This sounds like a lot, and I understand why people feel nervous when they first hear it. In reality the quarterly updates are not full tax returns, and they do not mean paying tax four times a year. That is a very important point.

When Making Tax Digital applies to self employed people

At the time of writing the rollout is staged.

MTD for Income Tax will apply from:.

• April 2026 for self employed people and landlords with qualifying income over £50,000

• April 2027 for those with qualifying income over £30,000

Qualifying income refers to gross income from self employment and property combined, not profit.

If your income is below £30,000, MTD for Income Tax is not yet mandatory, although HMRC has indicated it may be extended further in the future.

This phased approach means many self employed people still have time to prepare, but leaving it too late is rarely a good idea.

What digital records actually mean in practice

One of the biggest misconceptions I see is that digital records mean complex systems or constant reporting.

In practice digital records simply mean that your income and expenses are recorded in compatible software. This could be accounting software, or in some cases spreadsheets linked to software that meets HMRC’s requirements.

Digital records must include:.

• Date of income or expense

• Amount

• Category

• Business purpose

If you are already using accounting software, you may be much closer to being MTD ready than you think.

If you currently rely on paper records or manual spreadsheets, this is the area where change will be needed.

Quarterly updates and what they are not

Quarterly updates are summaries of income and expenses sent to HMRC every three months. They are not full tax calculations, and they do not finalise your tax bill.

From experience I find it helpful to explain what quarterly updates are not:.

• They are not tax returns

• They do not trigger tax payments

• They do not need detailed adjustments

They are simply snapshots designed to give HMRC and you a more up to date view of how your business is performing.

Many people worry that this means four times the work. In reality if records are kept up to date, the quarterly submission is often a few clicks rather than a major task.

The end of period statement and final declaration

At the end of the tax year you will still finalise your figures.

The end of period statement is where you make accounting adjustments such as:.

• Capital allowances

• Accruals and prepayments

• Private use adjustments

The final declaration then replaces the current Self Assessment return. This is where all income sources are brought together and the final tax position is agreed.

So while the process changes, there is still a familiar year end step where everything is reviewed properly.

How Making Tax Digital changes day to day life for the self employed

From my experience the biggest shift is not technical, it is behavioural.

MTD encourages, and in practice forces, people to engage with their numbers more regularly. For some this feels uncomfortable at first. For others it becomes a positive change.

The main impacts I see are:.

• Less last minute panic at tax return time

• Better awareness of profits and cash flow

• Fewer surprises when tax bills arrive

• More reliance on software and support

People who already keep decent records usually adapt quickly. Those who have relied on once a year catch up tend to feel the change more sharply.

Costs and software concerns

Another common worry is cost.

There will usually be some cost involved, either for software, professional support, or both. However this needs to be weighed against the time saved, reduced stress, and lower risk of errors.

In my opinion the mistake is focusing only on the headline cost rather than the overall impact on your business. Good systems often pay for themselves through better decision making and fewer problems.

What I am advising self employed clients to do now

Even if MTD does not apply to you yet, there are sensible steps you can take now.

From experience I recommend:.

• Reviewing how you currently keep records

• Moving away from paper where possible

• Getting comfortable with digital tools

• Understanding your income levels and thresholds

• Having an honest conversation about support

You do not need to overhaul everything overnight. Small changes made early are far easier than rushed changes later.

What Making Tax Digital does not change

It is also important to be clear about what MTD does not change.

It does not change:.

• How much tax you pay

• The tax rates or allowances

• The underlying rules on expenses

• The payment dates for income tax

It changes how information is reported, not the fundamentals of the tax system.

Key points to takeaway

Making Tax Digital is coming, and for self employed people it represents a shift in how tax compliance works rather than a complete reinvention. In my experience the people who struggle most are those who delay engaging with it because it feels intimidating.

Those who approach it gradually, with the right tools and advice, often find it less painful than expected, and sometimes even beneficial.

If you are self employed, the key is not to panic, but not to ignore it either. Understanding what is coming and preparing at a sensible pace puts you back in control, which is exactly where you want to be when changes like this arrive.

You may also find our guidance on When will I need to submit digital tax returns, and What records do I need to keep for my Self Assessment, helpful when reviewing related personal tax questions. For a broader overview of Self Assessment deadlines, reporting, and obligations, you can visit our self assessment guidance hub.