How Does Making Tax Digital Affect Self Employed Peopl

The way self employed people report their income to HMRC is changing. Under Making Tax Digital (MTD), the traditional annual Self Assessment tax return will be replaced with a new system of digital record keeping and quarterly submissions. This change aims to make tax reporting more accurate and efficient, but it also means that self employed people will need to adapt to new software and reporting requirements. This article explains what Making Tax Digital means for the self employed, when it starts, and how to prepare for it.

What is Making Tax Digital

Making Tax Digital is a government initiative designed to modernise the UK’s tax system. It requires taxpayers to keep digital records of their income and expenses and submit updates to HMRC through compatible accounting software.

The goal is to reduce errors, improve accuracy, and give taxpayers a clearer picture of their financial position throughout the year. Instead of filing one annual tax return, you will send regular updates directly from your digital accounting system.

MTD was first introduced for VAT-registered businesses, and it will soon apply to self employed people and landlords who report income through Self Assessment.

When does Making Tax Digital start for self employed people

MTD for Income Tax Self Assessment (often called MTD for ITSA) is being introduced in stages:

  • From 6 April 2026, it will apply to self employed people and landlords with an annual income of more than £50,000.

  • From 6 April 2027, it will apply to those earning between £30,000 and £50,000.

Anyone earning below £30,000 will remain under the current Self Assessment system for now, although HMRC plans to review whether to extend MTD further in the future.

If your total income from self employment and property combined exceeds these thresholds, you must follow MTD rules.

What changes under Making Tax Digital

MTD changes how self employed people record and report their income. The main differences are:

1. Digital record keeping

You must keep digital records of all your business income and expenses. This can be done using HMRC-approved accounting software such as QuickBooks, Xero, FreeAgent, or Sage.

Spreadsheets can still be used if they are linked to compatible bridging software that can connect with HMRC’s systems. Paper records will no longer be acceptable for tax purposes.

2. Quarterly submissions

Instead of one annual tax return, you will submit quarterly updates to HMRC every three months. These updates will summarise your income and expenses for the period and provide an estimate of your tax liability.

Quarterly reporting means you will have four submission deadlines each year, keeping your records up to date and reducing the risk of end-of-year errors.

3. End of Period Statement (EOPS)

At the end of each tax year, you will need to submit an End of Period Statement (EOPS) for each business or property income source. The EOPS finalises your accounts, allowing for adjustments such as capital allowances or reliefs.

This replaces the process of calculating and declaring profits in an annual Self Assessment tax return.

4. Final declaration

Alongside the EOPS, you will submit a Final Declaration confirming all your income sources and final tax liability for the year. This step replaces the traditional Self Assessment return and ensures that all tax due is calculated correctly.

5. Payment deadlines

Although MTD changes how you report income, it does not alter when you pay your tax. Payments are still due by 31 January following the end of the tax year, with payments on account (if applicable) remaining unchanged.

Benefits of Making Tax Digital

While MTD may seem like extra work, it offers several long-term benefits for self employed people:

  • Improved accuracy: Digital submissions reduce the risk of calculation errors.

  • Real-time view of tax: Quarterly updates give a clearer picture of how much tax you owe, helping with budgeting.

  • Less paperwork: Digital records replace manual spreadsheets and receipts.

  • Fewer surprises: With regular updates, there are no last-minute shocks at tax time.

  • Simplified communication: Accounting software automatically connects to HMRC, reducing the need for paper forms or phone calls.

For many self employed workers, using digital tools can also make it easier to track cash flow and manage finances more effectively.

Challenges of Making Tax Digital

Despite its benefits, MTD also brings challenges, especially for those not used to digital accounting systems. Common concerns include:

  • Learning new software: You may need training to use MTD-compliant software effectively.

  • Increased frequency of submissions: Quarterly updates mean more regular admin.

  • Cost of software: Some MTD-compliant tools charge monthly fees.

  • Internet access: You will need reliable online access to submit records.

While these challenges may seem daunting initially, many accountants and software providers offer guidance and support to help self employed people transition smoothly.

How to prepare for Making Tax Digital

The key to success with MTD is preparation. You can take several steps now to make the transition easier.

1. Choose MTD-compatible software

Start using a digital accounting system before MTD becomes mandatory. Software such as QuickBooks, Xero, or FreeAgent can automate record keeping and generate real-time reports.

If you prefer spreadsheets, use bridging software that links your data to HMRC’s systems.

2. Keep your records up to date

Begin entering your income and expenses digitally on a regular basis. This will help you get used to the new system and make future quarterly reporting easier.

3. Speak to an accountant

An accountant familiar with MTD can guide you through registration, software setup, and quarterly submissions. They can also ensure your records remain accurate and compliant throughout the year.

4. Register for MTD early

If you are within the income threshold, register for MTD ahead of the deadline. This gives you time to test your system and resolve any technical issues before reporting becomes mandatory.

5. Plan for regular submissions

Mark quarterly deadlines in your calendar to ensure you never miss a submission. Staying organised will prevent penalties and reduce last-minute stress.

How an accountant can help with MTD

Accountants play a vital role in helping self employed people meet MTD requirements. They can:

  • Recommend and set up suitable accounting software.

  • Provide training on digital record keeping.

  • Manage quarterly updates and year-end submissions.

  • Review financial data to ensure accuracy.

  • Offer tax planning advice based on real-time figures.

By delegating the technical and compliance aspects to a professional, you can focus on running your business while remaining fully compliant with HMRC.

Final thoughts

Making Tax Digital represents a significant shift for self employed people, replacing the annual tax return with a digital, real-time reporting system. While it requires new habits and software, it also offers greater visibility, efficiency, and accuracy in managing your taxes.

Preparing early, choosing the right tools, and seeking help from an accountant will make the transition much smoother. By embracing MTD, self employed people can take control of their finances and benefit from a simpler, more transparent tax process.