Making Tax Digital for Income Tax: What’s the point?
Introduction
Making Tax Digital (MTD) is a new way for sole traders and landlords to report their income and expenses to HMRC. Anyone who had business turnover and/or rental income of £50,000 or more in the 2024-25 tax year, before allowing for any expenses, will need to use MTD from 6th April 2026.
MTD will require taxpayers to report details of their income and expenses to HMRC every quarter using software that works with HMRC’s “Making Tax Digital for Income Tax” system. Anyone who’s not required to use MTD can continue to use Self Assessment.
What’s the point of Making Tax Digital?
The stated aims of MTD, according to HMRC, are to modernise the UK tax system; to help reduce taxpayer errors; and to simplify tax administration by making it easier for taxpayers to submit their tax returns.
Will Making Tax Digital help to reduce errors?
Encouraging people to update their business records more frequently should reduce errors. It’s easier for people to remember what happened when queries and anomalies are addressed within 3-4 months of the transaction date, rather than 12-21 months later as it would be if they only updated their bookkeeping records once a year.
However, there will be people who won’t want to pay a bookkeeper or accountant to handle their MTD submissions and will be looking to do the quarterly updates themselves. The accuracy of the quarterly updates is therefore going to depend on them having access to the guidance, resources, bookkeeping training and support they need.
Reassuringly, HMRC have said they don’t expect the quarterly submissions to be perfect. The figures submitted must come directly from the bookkeeping records, but adjustments and corrections can be made when the end of year tax return is completed.
Will Making Tax Digital make it easier to do your Tax Return?
I believe that MTD will make it easier for taxpayers to submit their tax returns at the end of the year, because the “difficult bits” will already have been done. It’s far quicker to find out how much bank interest you’ve received or how much you earnt from your job, than it is to calculate your profits from self-employment or letting out property.
In March 2025, HMRC carried out a consultation on “Better use of new and improved third-party data”. The consultation included several questions relating to the idea of pre-populating tax returns with any investment income details that HMRC are already aware of. If implemented, this would simplify the end of year tax return process even further.
So what happens after you submit a quarterly update?
HMRC is currently running an MTD trial, which I signed up for voluntarily. If you missed my blog on what it was like to make an MTD quarterly submission for real, you can read it here: https://springreach.co.uk/making-tax-digital-for-real/
Once I’d sent in my quarterly update, I was able to view an estimate of my tax liability for the tax year so far. The estimate was based on self-employed income only, because the system isn’t yet able to include sources of income that aren’t included in the Making Tax Digital. The estimate would have included rental income, if I had any.
I was also given a projection of what my tax and National Insurance liability for the whole tax year would be, if my self-employed income were to remain at its current level.
The “in-year” and projected tax estimates will help me decide how much money to put to one side for tax, to avoid any nasty surprises in January.
Do you have to pay your tax quarterly too?
Making Tax Digital doesn’t change when you have to pay tax. The deadline for payment will still be 31 January as normal, with an interim instalment on 31 July if HMRC require you to make payments on account.
You don’t have to pay tax four times a year.
What to do if you want to submit your own quarterly updates to HMRC?
If you’re planning on doing your own quarterly updates, make sure the software you’re using is going to be compatible with Making Tax Digital for Income Tax by the time you need to sign up. Some software packages have been approved by HMRC already; and there are others which are still under development but are likely to be ready before April.
HMRC has plenty of online guidance to help people transition to the new system.
Remember, if you’re self-employed, the cost of any training that helps you develop new skills and knowledge to support your business can be claimed against tax. This includes administrative skills like bookkeeping.
About Springreach Training and Coaching
I’m Jill. I’m a qualified accountant and licensed bookkeeper. I created Springreach Training & Coaching to provide practical, down-to-earth training and resources to empower people like you to take control of your bookkeeping and business finances. It’s a vision that’s been inspired by all the clients I’ve worked with who are keen to do as much as possible themselves and just needed someone to show them how.
At Springreach, we’re creating a range of practical courses, resources, software demos, videos and blogs designed especially for self-employed individuals and small businesses in the UK.
If you’re looking to build up your digital bookkeeping and tax skills – whether for the existing Self Assessment tax system or in preparation for Making Tax Digital for Income Tax – sign up to the Springreach newsletter for topics of interest to self-employed individuals and small business owners, and for information about Springreach Training & Coaching products and services as they’re released.
© Springreach Training & Coaching – November 2025