Making Tax Digital for Income Tax: Next steps for the self-employed
HMRC’s Making Tax Digital for Income Tax (MTD IT) is being phased in from April 2026 and will eventually replace the traditional Self Assessment system for millions of people.
While it might sound like just another bit of tax admin, MTD IT is a significant shift. The earlier you understand what's involved, the better prepared you'll be to manage the transition smoothly (and avoid penalties).
What is Making Tax Digital for Income Tax (MTD IT)?
MTD IT is part of HMRC’s wider digital strategy to modernise the UK tax system. The goal is to make tax administration more efficient, accurate, and easier for individuals and businesses. Under MTD IT, you’ll be required to use MTD-recognised software to:
- Keep digital records of your trade and property income and expenses
- Send updates four times a year of your year-to-date trade and property income and expenses to HMRC
- Submit a final declaration at the end of the tax year including your personal items such as pension etc.
It will replace the annual Self Assessment return with a more frequent reporting system designed to reduce errors and give you a clearer picture of your tax position throughout the year.
What are the benefits for sole traders?
MTD IT isn’t just about meeting new rules; HMRC hopes it will help you manage your business finances more easily. Some of the key benefits for sole traders include:
- A clearer view of your tax position – with year-to-date updates four times a year, you’ll know how much tax you owe throughout the year, not just at the end.
- Fewer surprises – regular reporting makes it easier to budget and plan ahead.
- Less to do at year-end – by keeping records up to date as you go, you avoid the last-minute stress of sorting paperwork.
- Reduced errors – using compatible software helps cut down on mistakes, missed claims and manual inputting.
- Better control of your finances – many people find digital record-keeping helps them stay organised and make quicker decisions.
Over time, MTD IT can help you feel more in control and confident when managing tax, giving you more time to focus on your work and customers.
Who will be affected and when?
The new rules, which take effect from April 2026, will apply to self-employed individuals and landlords whose combined gross income from these sources exceeds £50,000 per year.
This includes sole traders across a wide range of sectors – such as those in the building trade, property owners, psychiatrists, physiotherapists, product makers, personal coaches, consultants, IT contractors, and those providing outsourced services like HR, marketing or finance. These are just a few examples, if you're self-employed and earning above the threshold then the new rules will apply to you.
There’s a phased rollout of the MTD IT.
- April 2026 – MTD IT becomes mandatory for individuals earning over £50,000 from self-employment and/or property
- April 2027 – The threshold lowers to £30,000
- April 2028 – It's expected the threshold will be reduced to £20,000
What you'll need to do to comply
Once you're within the scope of MTD IT, you’ll need to adjust how you manage and report your income tax.
You must use MTD-recognised software to keep digital records of your income and expenses. This software will also be used to send updates four times a year to HMRC. These updates will summarise your business income and costs to date (i.e., the cumulative year-to-date figures).
At the end of the tax year, you’ll need to make any adjustments or relief claims. You’ll then submit a final declaration by the following 31 January to confirm your total tax liability.
These steps will replace the traditional Self Assessment process, making it more regular but also potentially more manageable if records are kept up to date. Be aware though that HMRC will be invoking a penalty system for any missed submissions leading to a fine.
How to prepare
While 2026 might seem a long way off, there’s a lot to be said for getting ready now. Here’s how:
- Understand your income threshold – know whether MTD IT will apply to you and when.
- Review your current record-keeping – now’s the time to explore software options that meet HMRC’s MTD requirements.
- Test-drive digital tools – get familiar with the process of recording and categorising income and expenses digitally.
Starting early will reduce the pressure as the deadline approaches and help you avoid disruption to your business.
What's the MTD IT pilot, and can I still join?
HMRC is running a pilot scheme for MTD IT, which allows eligible self-employed individuals and landlords to try out the system ahead of the official rollout. This is an opportunity to test MTD IT-recognised software and become familiar with the new way of working. This is all with the support of HMRC and your software provider.
Joining the pilot isn’t mandatory, but it can be a smart move if you want to spread the learning curve over time rather than all at once. We are delighted to be part of HMRC’s beta phase, and you can find out more about TaxNav's involvement in the MTD IT pilot here.
How TaxNav can help
At TaxNav, we’re working with self-employed people across many professions to help them get ready for MTD IT. Our MTD-recognised software is designed to simplify the process, offering:
• Easy digital record-keeping from your phone or laptop
• Excel template spreadsheets helping you manage your income and expenses
• Compliance with the updates to HMRC, which are required four times a year
• Helpful reminders and prompts to keep you on track and avoid penalties from HMRC
• Expert support if you get stuck
Remember, we’re also part of the MTD IT pilot programme and can guide you through the early stages if you're interested in joining. Whether you’re tech-savvy or not, TaxNav is here to make MTD IT simpler.