Finance Matters Insights
What you need to know about Making Tax Digital
Happy Monday,
If it seems like we're always talking about tax, it's because there's a lot to talk about.
Whilst the Self-Assessment deadline is very quickly approaching, there's more you ought to be aware of.
If you're a Sole Trader or Landlord with turnover of £50,000 or more, the once-a-year tax return is officially being retired. Instead of one return a year, you'll need to submit five.
Here's everything you need to know before April 🗓️
Making Tax Digital (MTD):
MTD is the government’s move to modernise how income, expenses and tax information are recorded and reported to HMRC. Fundamentally it means:
- Keeping digital records using approved software, and
- Submitting information to HMRC digitally rather than paper forms or manual entry
It mimics the system in place for VAT that has already been in place for several years.
MTD for Income Tax:
If you have gross income of £50,000 or more from self-employment and/or rental property in the 2024/25 tax year you will need to comply from April 2026.
It is important to note that this threshold is based on gross income, not profit. If you have multiple streams for example, a consulting trade and a rental property, HMRC requires you to combine these figures. If the total exceeds £50,000, you are within the scope of the first wave.
🗓️ The roll out:
Whilst the first wave applies to those earning above £50K, the threshold is set to drop over time.
- April 2027: those earning above £30K
-
April 2028: those earning above £20K
How it works:
The tax year will still run from April 6 to April 5 but instead of one return by January 31st the following year, you will need to
- Record figures throughout the year
- Send four quarterly summaries of income and expenses to HMRC
- Submit a final declaration by the usual Self Assessment deadline (31 January after year end).
💻 What tools you need:
MTD requires you to use software that stores digital records and submits them directly to HMRC. You cannot simply keep paper notes and manually enter data on HMRC’s site.
If you are already using digital bookkeeping (e.g Xero or QuickBooks) this may feel familiar. If your system is older spreadsheets and paper records, then it's time to get upgraded.
What next:
To ensure you are appropriately prepared by April:
- Check whether your income is above the MTD threshold for 2024/25 (remember this is gross income before expenses)
- If you think MTD will apply, begin thinking about software options now rather than later
- If you use an accountant, confirm how they will support your digital submissions.
To note, MTD does not mean you pay tax earlier - you just have to keep HMRC in the loop throughout the year.
Apologies, I know tax isn't the most exciting topic - however, the earlier prepared you are, the smoother your transition when April comes around.
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F
Fisayo Martins
Founder at Finance Matters UK
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