Last updated: December 2025 If you’re a sole trader or landlord earning over £50,000 a year, you’ve probably heard whispers about Making Tax Digital (MTD) and wondered what it actually means for you. I’ve been getting loads of questions about this lately, so I’ve put together this straightforward guide covering everything you need to know. […]
Last updated: December 2025
If you’re a sole trader or landlord earning over £50,000 a year, you’ve probably heard whispers about Making Tax Digital (MTD) and wondered what it actually means for you.
I’ve been getting loads of questions about this lately, so I’ve put together this straightforward guide covering everything you need to know. No jargon, no waffle – just the facts.
MTD stands for Making Tax Digital. It’s a new way of reporting your tax information to HMRC – basically, they’re dragging the tax system into the 21st century.
Instead of doing one big self-assessment return at the end of the year, you’ll be sending quarterly updates through approved accounting software.
That’s it. That’s the big scary change everyone’s been talking about.
MTD applies to all sole traders and landlords. But when it applies to you depends on your turnover (that’s your total income before expenses).
Here’s the timeline:
April 2026: Businesses with turnover of £50,000 or more per year April 2027: Businesses with turnover between £30,000 and £50,000 April 2028: Businesses with turnover between £20,000 and £30,000
Important: This is based on turnover only. Your profit doesn’t matter, your expenses don’t come into it – it’s purely your sales, your top line. If you’re bringing in £50,000 or more per year, you must register and use the MTD reporting system from April 2026.
There’s no further deadlines announced just now for anybody earning under £20,000, but I’d imagine everybody else will follow after that at some point.
Yes, you must sign up. It’s not an automatic enrolment thing.
You’ll need to use your Government Gateway ID and register for MTD through your Government Gateway account. HMRC won’t automatically move you over – you have to do it yourself.
There’s a big massive list of HMRC-approved MTD-compatible software on HMRC’s website. You can visit that and pick whichever software feels better for you.
I personally use Xero in my practice. That’s the only software I use, so I know it inside out. Xero does a nice cheap package called Xero Simple – it was designed specifically for MTD because there’s a lot of people going from spreadsheets to software. It’s quite affordable at just £7 a month and it’s MTD-compatible.
But you’re not limited to Xero. QuickBooks, FreeAgent, and loads of other options are available. Have a look at HMRC’s Find Software tool and pick what suits you best.
Yes, you can, but you need a bridging software to be able to do that.
Honestly? It’s probably more hassle trying to use a bridging software than it is just getting something like Xero or QuickBooks or whatever you fancy.
The software is easy to use, it’s more reliable, and it will make your life easier in the long run. It can be daunting at first, but it definitely will be worth it.
There’s been quite a bit of confusion around this, so let me clear it up.
You do send quarterly updates, but it’s not like quarterly self-assessment submissions – it’s cumulative updates that you send at the end of each quarter.
Here’s how it works:
Quarter 1 (April to June): Submit by end of July Quarter 2 (July to September): Submit by end of October
Quarter 3 (October to December): Submit by end of January Quarter 4 (January to March): Submit by end of April
Each update essentially just says: “This is what my income is so far. This is what my expenses are so far.”
It actually tells you roughly where you’re at tax-wise for the year to date. It’s a guesstimate – you’ll get your final amount that you’re due to pay at the end of the year like you normally do, but you do find out at each quarter roughly where you’re at.
This is actually really good for planning your cash flow and putting money away for tax.
Important: These quarterly updates are not final. If you’ve left anything out or if you notice that something’s not quite right in your first submission, you can fix that in your second submission. You’re not going to get penalised for making a mistake in the quarterly updates.
Then at the end of the year, that’s when everything has to be up to date and correct. You’ll do your final declaration at the year-end, which has to be done after the 6th of April and before the 31st of January – just like your current deadline is.
Everything else remains the same. You’ve still got to pay your tax by the 31st of January and get that final declaration in by then as well. Nothing changes on that front.
Digital record keeping can mean two things, and you can choose which works better for you.
Option 1: Digital copies of receipts You go to the petrol station, fill up with fuel, jump back in your van, snap a picture of your receipt on your phone, and then you can throw the receipt away. Your digital copy is your evidence.
This is what I personally find easiest. It means you’re not keeping piles of receipts everywhere.
Option 2: Digital record of transactions You keep physical receipts, but you reconcile your bank feeds in software like Xero. The software holds the digital record of the transaction, and your physical receipts are kept as backup evidence.
Both are fine. The first way (snapping pictures) is easier and means you’re not drowning in paperwork.
No, it does not.
As I mentioned before, you still have your final declaration to do at the end, but that is essentially your annual tax return that you currently do.
Everything else after that is the same. Your deadlines for paying tax, your deadlines for submission – it’s all exactly the same. It’s just how you submit it that’s changing.
There’s a new points-based penalty system coming into play with MTD.
If you miss any deadlines, you get points. If you get too many points, you get fixed penalties. It’s similar to the driving licence point system – more points, more penalties.
So basically, don’t miss your deadlines. Set reminders. Get your bookkeeping up to date before each quarter-end.
This is your total gross self-employment income.
So any income that you make from self-employment activities, or if you’ve got property, any property income – that combined is your income that counts towards MTD.
If you get dividends or any income from employment, those don’t count towards that. They’re kept separate.
They’re treated separately.
Say you have one sole trader business trading as ABC and another one trading as DEF. ABC needs its own Xero subscription and sends its own quarterly updates. DEF has its own Xero subscription and sends its own quarterly updates.
They should have separate bank accounts, separate bank feeds, and everything is separate. That’s how it should be anyway, and it’s the best way if you’re ever investigated by HMRC – it’s always better to have everything separate. (Even personal and business separate, but that’s a different discussion.)
So yeah, they’ll be kept separately and they’ll be reported separately.
That depends on which digital record-keeping method you’re using.
If you are snapping pictures of your receipts and you’re using the facilities that some software offers in terms of digitally storing your records, no, you don’t have to physically keep them.
If you are only doing the bank reconciliation in Xero and you’re keeping the receipts separate physically, then yes, you must keep your receipts.
No, it doesn’t change the amount of tax you owe or anything like that.
It purely changes how you tell HMRC about your income and expenses. The actual tax system isn’t changing as such – you’re just reporting more frequently.
There is basic guidance out there, but HMRC will not advise on specific software setup or day-to-day bookkeeping within that software.
Every software is so different, so they will not help you with that. That’s why having support during a transition like this is important – to make sure that you are doing it right and you’re set up correctly.
Look, I know I run my own bookkeeping business, but I’m going to be honest with you here:
If you currently do your own books and you’re doing them correctly and everything’s worked so far, don’t feel like you can’t continue doing your own books even with the MTD system.
I’ve used Xero’s MTD system with a couple of my clients who hit the threshold this year, so we’re doing quarterly submissions right now. And I have to say, using Xero to do it is so easy.
The biggest part is getting your bookkeeping done and up to date, which is always the biggest amount of work when you’re a sole trader – even at year-end. With MTD, you’re keeping on top of that quarterly, which can only be a good thing.
But in terms of the actual quarterly submissions? They are very easy to do. It’s not difficult, as long as your bookkeeping is done correctly and you’re confident that you can do it yourself.
Don’t feel you need to engage a bookkeeper if you’ve been managing fine on your own.
I’ve actually created packages for those people that maybe just need a wee bit of support at the start until they get things going.
Not everybody wants to onboard a bookkeeper for full-time support, especially if you’ve been doing your books yourself for so long. You definitely don’t need it.
I do have packages available – from very little support to a wee bit more hand-holding. If you drop me a message, I’m happy to talk through what might work for you. There’s no hard sale. I’m not here to fleece anybody. I’d literally just want to support people.
Hence why I’m telling you to do your own books if that’s what you’ve been doing. But the support is available if you want it.
📞 Book a Discovery Call (free, 30 minutes, no obligation)
💻 Xero Software Setup & Training (3 hours @ £150)
Making Tax Digital sounds scarier than it actually is.
Yes, it’s a change. Yes, you’ll need to use software. Yes, you’ll be reporting quarterly instead of annually.
But the actual work? It’s not that different. You’re still tracking income and expenses like you always have. You’re just doing it more regularly and submitting it digitally.
And honestly? The quarterly check-ins are actually helpful. You’ll know where you stand tax-wise throughout the year instead of getting a nasty surprise in January.
Get your software sorted now (Xero Simple is £7/month and does everything you need). Play around with it. Get comfortable with it. By the time April 2026 rolls around, you’ll be ready.
If you’ve got questions I haven’t covered here, drop me a message. I’m always happy to help.
📧 Email: info@accurexaccounts.co.uk
📞 Call: 07450 894045
💻 Website: www.accurexaccounts.co.uk
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About Accurex Accounting Solutions
We’re specialists in motor trade and construction accounting, helping tradespeople get their books in order without the overwhelm or jargon. Whether it’s CIS tax returns, MTD preparation, or monthly bookkeeping, we speak your language – because we’ve worked in the trades ourselves.
This guide was last updated December 2025. Tax rules and deadlines can change, so always check HMRC’s website for the most current information.
