Making Tax Digital (MTD): What you need to know in 2025

In the coming weeks, HMRC will take the next step in its tax digitisation journey, requiring more people to maintain digital records and submit quarterly updates through compatible software.

These updates will affect sole traders and individuals with self-employed income, including landlords and those who are employed, but have additional self-employed earnings (such as locums).

We’ll help you navigate these changes with expert advice, practical solutions and hands-on support.

What is Making Tax Digital?

Making Tax Digital (MTD) is part of HMRC’s ongoing initiative to modernise and simplify the tax system. By moving to digital record-keeping and automated reporting, the government aims to make tax administration more efficient, reduce errors and ensure accurate reporting.

For many businesses and sole traders, this will be a significant change. If they haven’t already done so, they’ll need to adopt new digital practices and adjust how they handle their tax obligations.

This isn’t just about compliance; it’s about helping people and businesses embrace more efficient ways of managing their finances.

What are digital records?

Digital records refer to the electronic maintenance of your financial information—including income, expenses and other key transactions—in a format that is accurate, complete, and up-to-date. HMRC is finalising its official definition, which will be published on its website soon.

What’s happening and when?

HMRC will soon start communicating with affected taxpayers about the upcoming changes. Here’s what you need to know:

April 2025: Sole traders and those with self-employed income can voluntarily start providing updates and implementing digital processes ahead of the mandatory deadline.
April 2026: MTD becomes mandatory for sole traders with an annual income of £50,000 or more.
April 2027: The threshold lowers to £30,000.

For businesses that start trading during the 2024/25 tax year, the income is time apportioned. For example, if a company has traded or generated rental income for only six months, but has earned over £25,000, then they will be eligible for MTD from April 2026. On the other hand, if a business begins trading post 6 April 2026, it will only need to register for MTD once it has submitted its first tax return.

It is expected that around 780,000 people with business or property income over £50,000 will join the MTD for ITSA service from April 2026, with a further 970,000 joining from April 2027.

How will this affect you?

If you’re a business owner or sole trader with income from property or other business activities, MTD could change the way you manage your tax.

Key requirements include:

Keeping digital records of your business income and expenses
Sending quarterly updates to HMRC using MTD-compatible software
Filing your tax return digitally (remember: You’ll be making a total of five submissions each tax year – four quarterly updates plus your end-of-year tax return).

If your combined income from self-employment and property exceeds £50,000 for the 2024/25 tax year, you’ll need to comply from April 2026.

What do you need to do now?

The earlier you act, the better positioned you’ll be to stay compliant and in control of your tax obligations. Here’s how to start preparing:

Understand your income threshold:

Look at your combined income from self-employment and property for the 2024/25 tax year. If it exceeds £50,000, you’ll need to comply with MTD by April 2026.

Choose the right software:

You’ll need HMRC-approved software that can handle digital record-keeping, quarterly updates and tax return submissions. We can help you find the right solution.

Get expert support:

We’re here to guide you through every step of the process, from assessing your eligibility to setting up and using the right tools.

How we can help

We understand that tax changes can be daunting. That’s why we’re here to make the transition as seamless as possible.

We’ll help you:

Assess whether MTD applies to you
Recommend and implement suitable software
Handle ongoing record-keeping and quarterly updates on your behalf
Ensure full compliance with HMRC’s requirements

Our deep expertise across sectors like property, agriculture and healthcare means we know the specific challenges you face.

Making Tax Digital FAQs

Who needs to sign up?

You must register for MTD for Income Tax Self Assessment (ITSA) by April 2026 if:

You are required to file a Self Assessment tax return.
Your combined income from self-employment and property for the 2024/25 tax year exceeds the HMRC threshold (currently £50,000 – lowering to £30,000 from April 2027).
You are a UK resident with a valid National Insurance number and up-to-date records.

Some less common income types and circumstances, such as trusts, charities, pension schemes and non-resident landlords, aren’t required to participate yet.

How will I know if I qualify for MTD?

Look at your combined income from self-employment and property for the 2024/25 tax year. If it exceeds £50,000, you’ll need to comply with MTD by April 2026.

The government will send you a letter in April after reviewing your 2023/24 tax return, if they think you might be legally required to sign up. They’ll also send you a letter after reviewing your 2024/25 tax return.

What if I don’t meet the income threshold now but might in the future?

HMRC will notify taxpayers based on their 2023/24 and 2024/25 tax returns. Keep an eye on your income trends and plan accordingly.

What software do I need?

To meet MTD requirements, you’ll need HMRC-approved software capable of handling:

Digital record-keeping
Quarterly updates
Tax return submissions

We’ll guide you through the options to select software that fits your needs and budget.

Do I need to buy expensive software?

Not necessarily. There are a range of affordable, HMRC-approved software solutions available. We can help you find one that fits your needs.

Will this change how I interact with Price Bailey?

No. We’ll continue to provide the same expert advice and hands-on support, helping you manage your tax confidently.

I’m worried about the complexity of digital reporting. Can you help?

Absolutely. We’ll walk you through the process, from software setup to ongoing support, keeping you compliant with minimal stress.

The first deadline isn’t until next year. Why should I act now?

The mandatory deadline may seem distant, but acting early has its benefits:

Avoid the last-minute rush: Transitioning early allows you to get comfortable with the new system before it becomes a requirement.
Access HMRC support: Early adopters gain access to dedicated support and guidance from HMRC during the testing phase.
No penalties during the trial: You can participate without facing penalties for quarterly updates.

Do I have to use the same software for my final tax return as I do for the quarterly updates?

No, you can use different HMRC-approved software for your quarterly updates and your end-of-year submission if you prefer.

Can I use simplified "3-line accounts" for my quarterly updates?

Yes, simplified “3-line accounts” will be acceptable for quarterly updates—provided they meet the required standards for digital records.

What happens if I switch software during the year?

Switching software mid-year can complicate your reporting process. If you do need to switch, ensure that the new software is HMRC-approved and that your records remain consistent and accurate.

How are charities affected?

As of April 2022, all VAT registered organisations must comply with Making Tax Digital (MTD) for VAT regardless of turnover – this includes VAT registered charities. Exempted charities can make the decision to still report via MTD.

Are VAT-registered businesses affected?

From April 2022, all VAT-registered businesses are required to be compliant with MTD, regardless of turnover. They must therefore keep and maintain certain records digitally, which include details such as:

The tax point or the time of supply
The value of each supply (net excluding VAT)
The rate of VAT charged for each transaction

Your digital records should also contain essential business information, such as your business name, principal business address, VAT Registration Number and details of any VAT accounting schemes you use.

We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.

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