Small business owners across the UK need to prepare for a significant change in the Making Tax Digital (MTD) legislation from April 2026.
The MTD legislation is a key part of the UK government’s Tax Administration Strategy. It aims to digitalise the tax system, making it more efficient for them and easier for individuals and businesses to get their tax right.
MTD for Income Tax Self-Assessment (ITSA) was due to come into force for self-employed individuals and landlords in April this year but HMRC delayed the transition to ease the pressure on businesses facing a challenging economic environment. That said, it is important that business owners start to prepare and familiarise themselves with the new process.
Key changes for self-employed and landlords
Digital Records: The era of paper receipts and manual record-keeping is coming to an end. Under the MTD legislation, businesses and individuals will be required to keep digital records, so you will need to find software that works with MTD.
Software Usage: The use of software that works with MTD will be mandatory. This software will allow you to create and store digital records of each of your business transactions.
Quarterly Updates: Gone are the days of annual tax returns. Businesses will need to submit updates every quarter, bringing the tax system closer to real-time. An End of Year declaration will still be required – this will be similar to your normal self-assessment tax return.
Income Thresholds: From April 2026, self-employed individuals and landlords with an income of more than £50,000 will be required to comply with MTD. Those with an income of between £30,000 and £50,000 will need to do this from April 2027.
The introduction of MTD represents a significant shift in the way businesses manage their taxes. By understanding these changes and preparing in advance, you can ensure a smooth transition to the new system.
Although the goal of MTD is to make it easier for individuals and businesses to get their tax right, this poses a challenge for businesses with increased administration, new systems and the risk of actually submitting incorrect information to HMRC in real-time.
If you are unsure whether you’re ready for MTD or would like advice and support, please get in touch. 0808 144 5575 or email help@armstrongwatson.co.uk.
