Making Tax Digital for Income Tax: A Practical Guide
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The UK’s tax system is changing. Paper tax returns are being phased out and replaced by a new online system: Making Tax Digital (MTD). With MTD, you’ll need to digitise your reporting, record income and expenses using approved software, and submit quarterly updates to HMRC.
For most self-employed people and landlords, it’s a whole new way of managing tax returns, and it requires a different approach to accounting.
At Mollan & Co, we understand that changing tax requirements can feel overwhelming. This guide explains the essentials, shows what a typical year looks like, and sets out how to prepare in good time.
What is Making Tax Digital for Income Tax?
Making Tax Digital for Income Tax is HMRC’s move to digital reporting.
Instead of completing one large tax return at the end of the year, you’ll keep digital records and send regular updates using approved software. The aim is simple: fewer errors, better visibility of your figures, and a clearer view of what you might owe.
You will need to:
- Keep digital records of all business and rental income and costs.
- Send quarterly submissions to HMRC using compatible software.
- Complete an End of Year finalisation to confirm your tax position.
Key Requirements for MTD
Digital record-keepingTry cloud-based accounting software such as Xero, FreeAgent, or Coconut. Paper files and standalone spreadsheets are not permitted unless they link directly to compliant software. In practice, you should record invoices, rent received, and expenses as you go. Good digital bookkeeping keeps your numbers accurate and ensures you are not missing valuable tax relief.
Software compliance
Only HMRC-approved software can be used. Choosing the right software for your business, setting it up, and linking your bank accounts can take time, so we suggest starting the process early. We’ll handle the setup and provide training, so you start on the right foot.
Quarterly submissions
Every three months, your software sends HMRC a summary of income and expenses for that period. These submissions do not trigger a tax payment, but they do provide a running picture of your estimated liability.
Deadlines:
- 7 August for April to June
- 7 November for July to September
- 7 February for October to December
- 7 May for January to March
End of Year finalisation
This step replaces the single annual return. You’ll confirm total profits and include any other income, such as employment, pensions, or dividends. You’ll also include adjustments such as capital allowances or losses.
The filing deadline remains 31 January following the tax year.
Paying the tax
The payment timetable does not change.
- Payments on account are due on 31 January and 31 July.
- Any balancing payment is due on 31 January after the tax year.
Regular updates make forecasting easier, and most clients find that budgeting becomes simpler when figures are up to date.
Note: MTD changes how you report your tax, not how it is calculated. Your reliefs and rates still apply.
Who will be affected by MTD?
MTD will apply if:
- You are a sole trader or landlord registered for Self Assessment,
- And you receive income from self-employment, property, or both,
- And your qualifying income is more than the threshold.
Exemptions exist if you cannot reasonably use digital tools because of disability, location, or other valid circumstances. If you run more than one business or share rental income, you must keep separate digital records and make the required submissions for each income source.
Read more about Making Tax Digital for Landlords and for Sole Traders.
Get ready now: simple steps
MTD is part of HMRC’s wider shift to digital services. Moving to a compliant cloud setup now gives you a smoother process today and will best prepare you for what comes next.
You should:
- Review your bookkeeping. Move fully to digital if you haven’t already.
- Test compatible software. Try Xero or FreeAgent and connect your bank accounts.
- Separate your finances. Keep business and personal finances apart to make reporting easier.
- Decide who does what. You can log transactions yourself or ask us to process statements and receipts.
How Mollan & Co helps
We make MTD straightforward, compliant, and stress free.
- Software setup and training. We recommend the right platform, configure it, and connect it to your business bank account.
- Digital bookkeeping support. Do it yourself with our guidance, or let us handle the processing.
- Quarterly update management. We prepare, review, and file on schedule, and explain what the numbers mean.
- End of Year submission. We complete final calculations, apply allowances, and ensure accuracy.
- Tax planning. With live data, we help you budget, plan payments, and identify legitimate savings.
Can I link my bank account to any accounting software?
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Linking your bank account to reputable cloud-based accounting software such as Xero is completely safe because it uses the same industry-standard encryption and security protocols as online banking. Your login credentials are never shared with the software provider, and the connection is read-only — meaning transactions can be imported automatically, but no money can ever be moved or payments made. Xero is also subject to strict data-protection laws and continuous security monitoring, ensuring your financial information remains private, secure, and accessible only to you and authorised users.
Visit our Making Tax Digital services page for package options and expert support.
Contact Us
Change is easier with a plan and a steady hand. Our Yorkshire-based team supports clients locally and across the UK, and our systems work wherever you are.
If you’d like help getting ready for 2026, speak to the team at Mollan & Co. We can set up the software, guide your first quarterly submissions, and keep everything on track.
Contact us today to get started.
Author ProfileI'm the owner and Managing Director of Mollan & Co Accountants. I'm a skilled and efficient accountant with more than 20 years of experience in the industry.
I developed valuable skills in business and commercialisation through my work in the science and technology departments within the Scottish University sector. Then, in 2001, I formed my own internet-based marketing company, producing and distributing 360° virtual reality tours for the Scottish tourism sector.
I now use my commercial skills, expert tax knowledge and first-hand experience to help other businesses grow and flourish through strong accounting practice.
Our success at Mollan & Co is directly related to the success of our clients.
