Arjun Kumar, Founder, Taxd
More than 200,000 letters are being sent out to individuals who will fall under Making Tax Digital (MTD) in April 2026. If you are a self-employed individual or landlord who filed by 31 August 2025 and had £50,000 of “qualifying income” you can expect to receive this letter.
If you are one of them, here’s what you can do to prepare for MTD:
Steps for Success:
- Work out your income
Although HMRC are sending letters, you must check if and when you need to use MTD for Income Tax. This responsibility lies with the individual.
Your qualifying income is your gross rental income and gross self-employment (sole trader) income. From a tax return perspective, it’s on your self-employment (SA103) pages or rental income (SA105) pages. Total up this income.
MTD does not currently include income from employment, pensions, interest or dividends. So if you earn over £50,000 from other sources, but have under £20,000 in your sole trader or property business – you won’t be brought under MTD with the current rules.
- Get prepared
If you have a qualifying income of over £20k you are subject to MTD. However, when you have to file depends on how much you earn. You will need to start filing quarterly updates from April 2026 (£50K), April 2027 (£30K) or April 2028 (£20K).
The changes don’t end there. You must also keep digital records, and file an end-of-year submission.
- File quarterly updates
Each quarter, you must file an update under MTD. Don’t forget, these are tax quarters so start in April (not January!) Q1 (April-June) will be filed by August. Each update is cumulative, so in Q3, you would provide a full update for Q1, Q2 and Q3 at the same time. This means if you have amendments, you don’t need to go back and amend a previous quarter – just take account of the changes with the next quarterly update.
If your business has under £90K income, you only need to report total income, total expenses and net profit.
If your income is over £90K – you will report expenses broken down.
MTD Need-to-know:
Do I need to pay HMRC quarterly?
No! This is a common misconception. Your payments are the same as before, you pay your final bill by 31 January and payments on account by 31 January and 31 July.
How do I keep digital records?
A key component of MTD is keeping a digital record of your transactions. Software can help you do this by connecting directly to your bank account and help to analyse transactions for the quarterly updates. If HMRC ask, you must have a digital record of your income, a paper receipt will not cut it.
If you want the software to help with digital records, you should look for tracking software to help with this.
To make this process easier, it’s a good idea to set up a separate bank account for business transactions. This way, tracking is easier.
Can I use my spreadsheet?
If you have been using a spreadsheet to track your expenses, you can absolutely keep it. It’s a common misconception that you can’t continue using your spreadsheet. A spreadsheet is a digital record, but you may need further evidence of expenses if subject to an enquiry.
You can also use a spreadsheet to file quarterly updates with bridging software. The key is to have a digital link or upload between the spreadsheet, the software and HMRC.
How does the end of year submission work?
Once the tax year ends, you will be able to file your end of year submission. Similar to the current process, this will bring in the business income from the MTD quarterly updates along with other income, from employment, pensions, investments and more.
It’s also where any reliefs, credits and deductions are factored in. You don’t need to use the same software as the quarterly updates – however keeping it in one place can help to make things easy. (Software like Taxd is perfect as they are experts at the end of year already).
This needs to be filed by 31 January after the end of the tax year which is the same as previous years.
What to do next?
If you are one of the 200,000 people who have received letters, now is the ideal time to start doing research. Try out different software, see how they work and what they cost. If you need it, definitely get some support or look for solutions which come with the option of support.