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Why is the way tax returns are submitted changing?
HMRC's main goal with Making Tax Digital (for Income Tax Self Assessment) is to make it easier for sole traders, those who are self employed and landlords to get their tax right. By digitising the system HMRC hopes to reduce human error and create a modern 21st century tax system.
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How do I know if I'm affected by the changes?
If your total turnover as a sole trader, from UK or overseas property, or through self-employment is more than £50,000 you should have already submitted your first quarterly report on 7th August 2026. From April 2027 those with a total turnover of £30,000 or more must also comply with Making Tax Digital will need to comply or risk fines. HMRC have written to everyone who will need to comply and we've checked our records and will be contacting all of our clients who are likely to be affected. However, it's important to remember that it is your responsibility to sign up to Making Tax Digital as their forecast for your turnover may not be accurate.
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Can I still submit a paper tax return?
All affected individuals/businesses will need to submit their records 4 times every year using HMRC recognised software. There will no longer be the option to submit a paper tax return and failure to comply with the new system will lead to fines.
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What happens if I don't submit my records using HMRC recognised software
The changes coming with Making Tax Digital are mandatory, there will no longer be another way to submit your records and tax return. Failure to comply will lead to fines being applied. With 4 submissions now required each year it's easy to see how fines will build up quickly.
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Do the quarterly updates really matter – can’t I just sort everything out through the end-of-year tax return?
HMRC requires that all those affected by Making Tax Digital (for Income Tax Self Assessment) keep what they deem 'adequate records.' These quarterly updates are simply a log of your business income and expenses. Completing these accurately will make the final tax return (still required by 31st January each year) a much more straightforward process. If your records are not in a complete state each quarter HMRC will begin to apply fines accordingly.
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Are there any changes to the way I pay my tax bill?
The good news is there are no changes to the way you pay your tax bill. By submitting your records each quarter you should have greater visibility of what you tax bill might be - so there'll be no nasty surprises!
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What are the key dates for Making Tax Digital?
From April 2026 if your total turnover is more than £50,000 you must add all of your income and expenses to a HMRC recognised software. The first submission should have been completed on 7th August 2026. If your total turnover is more than £30,000 you'll be required to keep records from April 2027 with the first submission on 7th August 2027. Our Making Tax Digital Page has full details of the dates for the 2026-2027 and 2027-2028 tax years.
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My total turnover is between £20,000 and £30,000, what happens if I reach £30,000 during the 2027-2028 tax year?
Should you reach the £30,000 minimum threshold at any point during the 2027-2028 tax year you would not be required to register for Making Tax Digital until the following tax year. You will only be required to make quarterly submissions using approved software based on the information from your previous year's tax return.
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My total turnover is less than £20,000 do I need to think about Making Tax Digital?
Whilst you won't be affected for this tax year it's important to remember that in April 2028 HMRC Making Tax Digital (MTD) will be mandatory if your total turnover as a sole trader, from UK or overseas property, or through self-employment exceeds £20,000.
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What does 'total turnover' mean?
HMRC defines total turnover in relation to Making Tax Digital as 'income from self-employment and property.' This includes those classified as 'sole traders' and also covers income from property both in the UK and overseas.
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Who doesn't need to think about changes to the way tax returns are submitted?
If your total turnover is less than £20,000 as a sole trader or from property or self employment you don't currently need to think about Making Tax Digital and you can continue to submit your tax return as you have in previous years. However, with a drive to digitisation it seems unlikely that HMRC will continue with the current process for submitting tax returns in the long term.
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How do I know if the software I am using is compliant with Making Tax Digital?
Our Personal Tax team here at Gooding Accounts can advise on whether any current software you may be using is HMRC compliant. However, with the changes it may be that there is a more efficient or cost-effective solution available to ease the transition.
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Is there anything else I need to do to be ready for Making Tax Digital (for Income Tax)?
There may be additional work you need to complete to make the move to the new process more seamless. For example, having a single bank account for all of your business expenses may be required to increase efficiency. If you have income from a number of different sources (e.g. property and self employment) you'll need a bank account for each. You'll also need to remember to submit any records for bookkeeping every 3 months in line with the new submission dates. Our Making Tax Digital specialists here at Gooding Accounts will be here to help guide you every step of the way to ensure you keep up to date with the new requirements.
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Will I need to sign up for MTD for Income Tax if I'm already signed up for MTD for VAT?
If you are already signed up for Making Tax Digital for VAT it should be relatively straightforward to complete your Income Tax Self Assessment to comply with the new process. Your Gooding Accounts' client manager will be in touch if there's anything further you need to do prior to the deadline.
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It seems like there is a lot more work to do - will my fees be increasing?
Initially there will be more work associated with Making Tax Digital, especially if you don't already have HMRC approved software in place. At Gooding Accounts we've been planning for the changes and have restructured the way our personal tax team will help those clients affected by Making Tax Digital. These changes will ensure that any additional costs associated with the changes should be minimised. (As per our current process we will still review your fees annually and provide an estimate based on work required.)
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If I have income from property and I'm self employed how does this work?
If you have income from self employment and property and exceed the £30,000 total turnover you'll need to submit quarterly updates for each income stream. You'll need to set up a separate bank account for each income stream (one for self employment and one for property) to ensure records can be submitted for each.
