Preparing for Making Tax Digital (MTD) is fast becoming a priority for every small business owner. From April 2026, sole traders and landlords with gross income above £50,000 will have to keep digital records and send HMRC quarterly updates; the entry point then falls to £30,000 in 2027 and £20,000 in 2028. That timetable will pull more than 2.6m individuals into the new system over three years, replacing the familiar annual self assessment rush with a steady reporting rhythm.

Digital finance is hardly optional in 2025. Only 5.1% of UK adults say they have no internet at home, meaning 94.9% already have the basic connectivity to comply. HMRC’s own evaluation found that 67% of businesses using compatible software spotted at least one reduction in mistakes after moving to MTD. In other words, preparing for MTD is not just about compliance – it is an opportunity to tighten your bookkeeping, speed up cashflow insight and make more confident decisions.

Below we explain who must comply, what software you will need, and how to build a practical 12-month plan that keeps penalties – and stress – to a minimum. Throughout, the focus is on clear, achievable actions that fit real-world business life.

What is Making Tax Digital?

MTD is HMRC’s long-term programme to move VAT, income tax and eventually corporation tax reporting onto a digital footing. For income tax self assessment the rules require:

• digital record-keeping – income and expenses recorded in MTD-compatible software
• quarterly updates – summaries sent to HMRC within one month and seven days of each quarter-end (August, November, February, May)
• end-of-period statement – a final declaration, by the usual 31 January deadline, confirming all figures for the tax year.

The underlying goal is to reduce errors and close part of the £40bn annual tax gap. For businesses, it means swapping one large task for five smaller ones each year.

Who must comply and when?

• April 2026 start: Qualifying income above £50,000 – about 780,000 individuals.
• April 2027 start: Threshold falls to £30,000 – a further 970,000.
• April 2028 start: Threshold falls to £20,000 – around 900,000 more.

Qualifying income is the total of all self-employment and property receipts before expenses. If you run two trades or have multiple rental properties, add every pound together when checking the threshold.

Exemptions remain limited to people who cannot use digital tools due to age, disability, remoteness or certain religious grounds, and you must apply to HMRC rather than assume automatic relief. The 2025 Finance Act also replaces the concept of domicile with long-term residence, but that change does not alter the MTD thresholds – overseas income covered by the new four-year foreign income and gains regime is simply omitted from the UK digital records.

Software and record-keeping fundamentals

Choosing the right platform is the backbone of preparing for MTD. Mainstream cloud suites such as Xero, Sage, QuickBooks and FreeAgent already support MTD, while landlord-specific tools like Landlord Studio plug the gaps for property portfolios. Compare options on:

• bank feeds – automatic imports reduce typing and errors
• receipt capture – scan paperwork in seconds
• multi-business handling – crucial if you have more than one trade
• adviser access – lets us monitor and support remotely.

Our cloud accounting team can arrange a demonstration and migrate historic data for you.

Preparing for MTD: timeline and checklist

12 months out

Assessment: Confirm your gross income, check whether you will be in the first wave and set a software budget. Book an initial planning call through our contact page.

 

9 months out

Software decision: Run free trials, choose the package and complete basic training. Draft a calendar that blocks weekly bookkeeping slots and all four quarterly deadlines.

 

6 months out

Data migration: Import the current tax year to put real figures through the system. Switch on bank feeds and write coding rules for regular transactions. Decide who scans receipts and how often.

 

3 months out

Dry run: Produce a mock quarterly update and let us review the figures. Finalise written procedures for weekly, monthly and quarterly tasks so that every team member knows their role.

 

1 month out

System audit: Reconcile bank accounts, check user permissions and test that every feed still works. Set three electronic reminders for each HMRC date – two weeks before, three days before, on the day.

 

Go-live

Start recording every transaction digitally on 6 April. Submit the first quarterly update well before 7 August, review any posting errors and refine your rules.

Training your team and updating processes

People, not technology, decide whether a compliance project succeeds. Short, focused training sessions are usually more effective than one long workshop. Concentrate on:

• weekly tasks – recording sales, scanning receipts, matching bank items
• month-end tasks – reconciling balances and checking VAT codes
• quarter-end tasks – locking the period and running the MTD update.

Build a simple reference guide that sits next to each workstation or inside the software’s notes section. 

Avoiding penalties and late-payment traps

MTD introduces a points-based penalty regime. Miss any submission and you earn one point; reach four points and HMRC issues a £200 fine. Points expire after two years if you keep below the threshold, but once you trigger a fine you must achieve 12 months of perfect compliance to reset.

Separate late-payment penalties now start at 3% of tax owed on day 16, rising to 6% on day 30, with daily interest after that. The message is clear: disciplined routines and sensible diary reminders are cheaper than fines.

How we can help

We have supported businesses through every major tax reform for decades, and preparing for MTD is no exception. Our service includes:

• MTD readiness review – gap analysis of your current systems
• software setup and data migration
• staff training and helpline support
• quarterly review package – we log in after each submission to check accuracy and highlight tax-planning opportunities
• year-end final declaration preparation.

Existing clients can bolt on the quarterly package; new enquiries receive a free discovery call.

Ready to act?

Preparing for MTD is no longer a distant project. With just months until the first £50,000 cohort goes live, the simplest path to compliance is to start early, choose proven software and embed tidy weekly habits. Those steps will not only satisfy HMRC – they will give you faster visibility of profit and cashflow, making it easier to plan, invest and sleep at night.

If you would like personal guidance, hands-on training or simply a second pair of eyes on your first quarterly update, get in touch today. We will make preparing for MTD another straightforward milestone on your business journey.