Does "Making Tax Digital" Affect Me?

Along with the usual reset of tax allowances, the end of this tax year on 5th April will also herald a fundamental change to how some of us will have to report tax to our HMRC overlords.

“Making Tax Digital” is the UK government's long-term plan to modernise how tax is recorded and reported. Instead of reporting figures to the Revenue once a year via Self Assessment, the new system will require certain folks to maintain electronic records as they go and send updates to HMRC every quarter.

Who will be affected by this?

Self-employed individuals, such as taxi drivers, freelance designers, tradespeople, or landlords who own property investments in their personal names are included in the initial Making Tax Digital rollout if their gross income from their trade or rent meets the thresholds.

Gross income (turnover or rent received) from all self-employment sources and property rental businesses (in the UK and overseas) are both included in determining whether an individual has breached the threshold.

Wages from PAYE (Pay As You Earn) employment, investment income, dividends and pension income do not count towards your Making Tax Digital threshold.

The new regime is going to be introduced in three stages.

From 6 April 2026, Making Tax Digital for Income Tax Self Assessment will apply to sole traders and landlords whose total annual gross income from self-employment and/or property exceeds £50,000. These are the folks who particularly need to keep reading.

In April 2027, the threshold drops to £30,000.

In April 2028 the threshold drops again to £20,000.

There are some exemptions, primarily for those who are "digitally excluded" (for example, due to disability, age, or lack of internet access). Exemptions need to be actively applied for from HMRC.

I’m not affected. Why am I still reading this?

I really don’t know. Is everything ok?

I am affected by this. What do I do?

My commiserations.

The first step is to register with HMRC. The Revenue are expected to contact affected individuals (who they will have initially identified through the 2024/25 Self Assessment process) but you can also sign up yourself here.

You will need a Government Gateway account to do so, if you don’t have one you can set this up as part of the registration process.

Once you are registered, the next step is either to a) download one of HMRC’s approved pieces of software, which you can use to submit the quarterly returns; or b) approach an accountant to handle all of this for you.

Now, don’t ask me how the software providers who are on HMRC’s list, got on that list. Presumably there was some lobbying involved.

You can continue to use simple spreadsheets, but will still need to use HMRC approved kit to interpret this data into a format the Revenue will accept.

The first quarterly deadline for submission is the 7th August 2026, and updates will be required every three months from then. Any affected individual will get a “bye ball” on the first late submission, but there will be penalties thereafter.

An end of year full tax return will still be required, but it will be pre populated on the basis of the information provided to date in the quarterly “mini” returns.

What are the implications of “Making Tax Digital”?

It is another kick in the shins for the private landlord. Additional administrative hassle to absorb on top of the worsening tax regime and regulatory changes. The golden age of “buy to let” is well past us.

You could make an argument that these changes could push the odd person from self employment into using a limited company structure. But the “Making Tax Digital” changes have been designed to mirror the regime for VAT reporting, so the administrative burden for sole traders earning over £50k and limited companies who are VAT registered, will be much of a muchness.

Taking a longer term view - this is all part of a drive to improve enforcement. HMRC estimate that tax evasion costs the Revenue £5 billion each year, and digitising and standardising tax reporting should, in theory, make it more difficult for miscreants to avoid detection.

And in theory, if enforcement improves materially - then one of the happy consequences could even be a reduction in tax rates. Imagine that.

Have a great weekend.

None of the above is intended to represent advice to any individual. I am not an accountant. If you have any questions regarding your individual position, please consult with a qualified accountant.