Making Tax Digital April 2026: Your Action Plan

From 6 April 2026, if you are in scope, you must: 1. **Keep digital records** of your business income and expenses using MTD-compatible software (not paper, not standalone spreadsheets) 2. **Submit quarterly updates** to HMRC through your software — four times a year, reporting your income and expenses by category 3. **Submit a Final Declaration** by 31 January 2028 (replacing the traditional Self Assessment tax return for your business income) What is not changing: - You still pay tax on the same dates (31 January and 31 July) - You still calculate tax the same way - Your tax liability does not increase — this is a reporting change, not a tax increase - You can still claim the same allowances and reliefs - You can still use an accountant The fundamental shift is from annual reporting (one Self Assessment return per year) to quarterly reporting (four updates per year plus Final Declaration). HMRC's goal is to get closer to real-time tax information, reduce errors, and make tax easier to get right.

To determine whether you are in scope for MTD from April 2026, you need to check your qualifying income from the 2024/25 tax year. **Qualifying income** = gross self-employment income + gross UK property income, before expenses, combined. Key points: - Use your 2024/25 Self Assessment figures - It is gross income (before any expenses are deducted) - Self-employment and property income are added together - Employment income, dividends, savings interest, and pension income do not count - Partnership income counts (your share of partnership turnover) - If you have multiple self-employments, add them all together

If you are in scope, here is exactly what to do and when. **Step 1: Check your 2024/25 qualifying income (Do this now)** Look at your 2024/25 Self Assessment return. Add your gross self-employment turnover and gross property income. If the combined figure exceeds £50,000, you are in scope. If you have not filed your 2024/25 return yet (due 31 January 2026), estimate from your records. **Step 2: Choose MTD-compatible software (By January 2026)** Do not leave this until March. You need time to set up the software, import your data, and learn how it works. Free options include AccountsOS and QuickFile. Paid options include Xero, QuickBooks, and FreeAgent. If you already use accounting software, check that your provider supports MTD for ITSA. **Step 3: Sign up for MTD on HMRC (Available from October 2025)** Sign up through HMRC's online service. You need your Government Gateway ID, UTR number, and National Insurance number. You must have chosen your software before signing up, as HMRC will ask which software you are using. **Step 4: Set up digital records from 6 April 2026** From the first day of the 2026/27 tax year, your records must be digital. This means entering income and expenses into your MTD software (or having them imported automatically via bank feeds). Keep receipts digitally — photograph them or forward them by email. **Step 5: Know your quarterly deadlines** Your first quarterly update is due by 7 August 2026, covering 6 April to 5 July. Put all five deadlines in your calendar now: 7 Aug, 7 Nov, 7 Feb, 7 May, 31 Jan.

Your first obligation under MTD will be to submit a quarterly update for Q1 (6 April to 5 July 2026) by 7 August 2026. This update will contain your total income and expenses by category for the first three months of the tax year. You are not sending individual transactions — just category totals. To make this as painless as possible: - **Start recording from day one** (6 April). Do not wait until July to try and reconstruct three months of records. - **Set up bank feeds** if your software supports them. This means transactions are imported automatically. - **Photograph receipts** as you get them. Most software has a mobile app or email forwarding for this. - **Categorise as you go**. Spending 2 minutes categorising a transaction when it happens is far easier than trying to remember what 200 transactions were for three months later. The soft landing year means no penalty points if you submit late, but building good habits from Q1 will make the rest of the year much smoother.

HMRC has confirmed that the 2026/27 tax year is a soft landing year. This means: - **No penalty points** for late quarterly updates - **No £200 fines** even if you miss all four quarterly submissions - **Reminders will still be sent** but no financial consequences for quarterly submissions The soft landing does NOT cover: - **The Final Declaration** (due 31 January 2028) — standard Self Assessment late filing penalties apply - **Late payment of tax** — interest and late payment penalties still apply as normal - **Failure to keep digital records** — you must still keep digital records from 6 April 2026 The soft landing is HMRC acknowledging that the first year will have teething problems. Use it as a safety net, not an excuse. Getting comfortable with quarterly reporting in 2026/27 means you are ready when penalty points start counting in 2027/28.

There is no hard sign-up deadline published by HMRC — sign-up is available from October 2025 and you are expected to have signed up before 6 April 2026. If you have not signed up by 6 April 2026, you are still legally required to comply. HMRC may contact you to prompt sign-up. During the soft landing year, failure to sign up will not result in immediate penalties, but you will be behind on your digital record-keeping obligation. The practical risk of late sign-up is that you then have to retrospectively create digital records for the period between 6 April and whenever you eventually sign up. This is much harder than keeping records as you go. Advice: sign up as early as possible. There is no advantage to delaying.

"Digital records" sounds more complicated than it is. In practice, it means: - **Your income and expenses are recorded in MTD-compatible software** (not in a paper notebook, not in a basic spreadsheet without bridging software) - **Each transaction has a date, amount, and category** recorded digitally - **Receipts and invoices are stored digitally** — photographs, scans, or email copies are fine - **Data flows digitally** from entry to submission — no manual re-keying between systems What it does not mean: - You do not need to stop using paper receipts — just photograph them and upload - You do not need to be online 24/7 — most software works offline and syncs later - You do not need to categorise everything perfectly in real-time — batch categorisation is fine - You do not need to understand double-entry bookkeeping The simplest workflow: connect your bank account to your MTD software, photograph receipts when you get them, and spend 15 minutes a week categorising any uncategorised transactions. That is digital record-keeping.

The cost of MTD compliance depends on your current setup and the software you choose. **If you already use accounting software**: The cost may be zero — check that your current plan includes MTD for ITSA. Some providers may require an upgrade. **If you currently DIY with spreadsheets**: You need MTD-compatible software. Free options exist (AccountsOS, QuickFile), so the software cost can be zero. You may spend time setting up and learning the new system. **If you use an accountant**: Your accountant will likely increase their fee to cover the additional quarterly submissions. Expect an increase of £200-500 per year on top of your current fee, depending on your accountant. **HMRC's estimate**: HMRC estimated the average compliance cost at £100-150 per year for sole traders. This is likely conservative for those currently using paper records, and overestimated for those already using digital software. **The real cost**: For most people, the biggest cost is time, not money. If you are not currently keeping digital records, the transition requires effort. Once set up, the ongoing time commitment is roughly 15-30 minutes per quarter for the submission itself, plus whatever time you spend on regular bookkeeping.