Last updated: January 2026 | Reading time: 8 minutes
A jargon-free guide to understanding what MTD means for you
| Don’t Panic! Making Tax Digital sounds complicated, but it’s really just a new way of keeping track of your business money and telling HMRC about it. If you can use a smartphone app, you can do this. This guide explains everything in plain English. |
What Is Making Tax Digital?
Making Tax Digital (MTD) is a change to how you report your income to HMRC. Instead of doing one big tax return at the end of the year, you’ll send smaller updates every three months.
Think of it like this: Instead of saving all your receipts in a shoebox and sorting them out once a year, you’ll use an app or software to keep track as you go. Then, every few months, that software sends a summary to HMRC for you.
The Old Way vs The New Way
| Old Way (Self Assessment) | New Way (MTD) |
|---|---|
| Keep paper receipts and records | Use software to store everything digitally |
| Add everything up once a year | Software adds it up automatically |
| Fill in a tax return form in January | Send 4 small updates throughout the year |
| Often a last-minute panic | Little and often — less stress |
Does This Apply to Me?
MTD applies to you if:
- You’re self-employed (you work for yourself, not as an employee)
- OR you’re a landlord who rents out property
- AND you earn above a certain amount
How Much Do You Need to Earn?
MTD is being introduced in stages based on how much you earn:
| When | Who It Affects | In Plain English |
|---|---|---|
| April 2026 | Earning over £50,000 | Higher earners go first |
| April 2027 | Earning over £30,000 | More people join |
| April 2028 | Earning over £20,000 | Most self-employed people |
| Important: It’s Your Total Income, Not ProfitThese amounts are based on your total income before you take off expenses. So if you earn £35,000 from your work but spend £10,000 on business costs, HMRC looks at the £35,000 figure, not the £25,000 profit. |
Who Doesn’t Need MTD?
MTD does NOT apply to you if:
- You’re an employee — your employer handles your tax through PAYE
- You run a limited company — that’s a different tax system
- You earn under the threshold — you can carry on with normal Self Assessment
- You’re in a partnership — partnerships aren’t included yet
What Do I Actually Need to Do?
If MTD applies to you, here’s what changes:
1. Get Some Software
You’ll need to use accounting software or an app that works with HMRC. Don’t worry — there are lots of options, from free to paid, simple to advanced.
The software needs to be able to:
- Store your income and expenses digitally
- Connect to HMRC to send your updates
- Be on HMRC’s approved list
| Some Popular Options QuickFile — free, good for basics FreeAgent — free if you have a NatWest/RBS business account Sage — from £18/month, very popular and comprehensive (also HMRC verified) QuickBooks — from £12/month, easy to use Hammock — designed specifically for landlords |
2. Keep Digital Records
Instead of keeping paper receipts, you’ll record your income and expenses in your software. Most apps let you:
- Take photos of receipts with your phone
- Connect your bank account so transactions appear automatically
- Categorise expenses easily with a few taps
3. Send Updates Every 3 Months
Four times a year, your software will send a summary to HMRC. This is usually just a few clicks — the software does the hard work.
The deadlines are:
| For This Period… | Send Update By… |
|---|---|
| April to June | 7 August |
| July to September | 7 November |
| October to December | 7 February |
| January to March | 7 May |
4. Do a Final Check at Year End
After the tax year ends (5 April), you’ll do a final check of everything and confirm your figures. This replaces the old Self Assessment tax return. You still pay any tax owed by 31 January, same as before.
What Does a Quarterly Update Look Like?
It’s simpler than you might think. Here’s an example:
| Example: Sarah’s Q1 Update (April–June) Sarah is a freelance photographer. Her software shows: Income this quarter: £8,500 Expenses this quarter: £2,100 Sarah clicks ‘Submit to HMRC’ in her app. Done. It takes about 30 seconds.She doesn’t have to pay any tax yet — that still happens in January. |
That’s it. The quarterly updates are just summaries. They don’t have to be perfect — you can correct things later. The main purpose is to keep HMRC (and you) roughly up to date.
Is There Any Good News?
Yes! While MTD might seem like extra hassle, many people actually prefer it once they get going:
No More January Panic
Instead of spending your Christmas holidays digging through a year’s worth of receipts, you’re already up to date. The year-end check becomes much easier.
You Know Where You Stand
With regular updates, you can see how much money you’re making (and roughly how much tax you’ll owe) throughout the year. No nasty surprises.
Less Paperwork
Take a photo of a receipt and bin the paper. Connect your bank and transactions appear automatically. It’s actually less work than the old way once you’re set up.
Fewer Mistakes
Software does the adding up for you. No more calculator errors or missed receipts because they fell behind the sofa.
Common Worries (And Why They’re OK)
| The Worry | The Reality |
|---|---|
| “I’m not good with computers” | If you can use a smartphone, you can do this. The apps are designed to be simple. |
| “It sounds expensive” | There are free options. Even paid software is often £10-20/month — less than one dinner out. |
| “I’ll make mistakes” | Quarterly updates don’t have to be perfect. You can correct things in the next update or at year end. |
| “It’s more work” | Little and often is actually easier than one big annual job. Most updates take 10 minutes. |
| “My accountant does everything” | Your accountant can still help! They can access your software and submit updates for you. |
| “I prefer paper” | You can apply for an exemption if you genuinely can’t use digital tools. But most people adapt quickly. |
Getting Started: A Simple Checklist
If MTD applies to you, here’s how to prepare:
- Work out if you need MTD — check your income against the thresholds above
- Choose some software — try free trials to find one you like
- Open a separate bank account — keeps business and personal money apart (makes everything easier)
- Connect your bank to the software — transactions will appear automatically
- Start recording income and expenses — even before MTD officially starts for you
- Sign up for MTD with HMRC — do this before your start date
- Talk to your accountant — if you have one, discuss how you’ll work together
When Should I Start Preparing?
There’s no such thing as too early! The sooner you start using software, the easier the transition will be.
| If MTD starts for You… | Start Preparing… |
|---|---|
| April 2026 | Now! Get software set up and practice for a few months |
| April 2027 | By summer 2026 — gives you 6+ months to get comfortable |
| April 2028 | By early 2027 — plenty of time, but don’t leave it to the last minute |
Quick Answers to Common Questions
Do I have to pay for software?
Not necessarily. There are free options like QuickFile. Some banks offer free accounting software too (like FreeAgent with NatWest). Paid options typically cost £10-25 per month.
Can I still use my accountant?
Yes! Your accountant can access your software, check your records, and even submit updates for you. Many people find they need their accountant less for basic bookkeeping but still value their advice.
What if I miss a deadline?
You get penalty points. Miss four deadlines and you’ll pay a £200 fine. But the system is more forgiving than the old Self Assessment — one late submission isn’t the end of the world.
Do I pay tax every quarter now?
No. You’re just reporting your figures every quarter. You still pay your actual tax bill in January (and July if you make payments on account), same as before.
What if I can’t use computers at all?
You can apply for an exemption if you’re ‘digitally excluded’ — for example, due to disability, age, location, or religious beliefs. HMRC will consider each case individually.
Can I still use spreadsheets?
You can keep records in a spreadsheet, but you’ll need ‘bridging software’ to send the data to HMRC. Most people find it easier to use full accounting software instead.
| The Bottom Line Making Tax Digital sounds scarier than it is. At its heart, it’s just using an app to track your money and sending HMRC a summary every few months. Millions of people already do something similar with personal banking apps. You’ll get the hang of it faster than you think. |
| Disclaimer: This guide is for general information only. Tax rules can change, and everyone’s situation is different. Check GOV.UK for official guidance, and speak to an accountant if you’re unsure about anything. |