Making Tax Digital: What UK Small Businesses Need to Know (2026)

Aug 30

3 min read

Making Tax Digital (MTD) is changing how HMRC expects businesses to keep records and report tax — and the rules now go well beyond VAT. If you're a sole trader, landlord, wholesaler, agency or private practice, here's what actually applies to you and when.

What Is Making Tax Digital?

MTD is HMRC's move to replace paper records and annual return filing with digital record-keeping and regular online submissions, made through HMRC-compatible software rather than manual entry on the HMRC website.

It's being rolled out in phases, covering different taxes at different times:

MTD for VAT — already in effect for all VAT-registered businesses since April 2022, regardless of turnover.
MTD for Income Tax Self Assessment (ITSA) — being phased in for sole traders and landlords based on income, starting April 2026.
MTD for Corporation Tax — no longer proceeding; limited companies remain on the existing Corporation Tax filing process.

MTD for VAT: The Settled Part

If your business is VAT-registered, MTD already applies to you. You must:

Keep VAT records digitally, not on paper or in a standalone spreadsheet without bridging software
Submit VAT returns using MTD-compatible software (Xero, FreeAgent, QuickBooks and similar)

This has applied since 2019 for businesses above the VAT threshold, and since 2022 for voluntarily VAT-registered businesses below it. If you're VAT-registered and already filing through compatible software, you're compliant — this part of MTD isn't changing.

MTD for Income Tax: What's New From April 2026

This is the phase that affects sole traders and landlords directly, and it's a bigger change than VAT was.

Who it applies to and when:

From 6 April 2026 — mandatory for sole traders and landlords with combined qualifying income over £50,000
From 6 April 2027 — threshold drops to £30,000
From 6 April 2028 — threshold drops to £20,000

"Qualifying income" means your combined gross income from self-employment and property, before expenses — employment income, dividends and savings interest don't count toward it.

What changes practically:

Instead of one Self Assessment return a year, you'll need to:

Keep digital records of income and expenses throughout the year
Submit quarterly updates to HMRC summarising income and expenses
Submit a final end-of-year declaration to finalise your tax position

This applies per business — if you have both self-employment and rental income, both count toward the threshold, and both need to be tracked digitally.

Who it doesn't apply to (yet):

Limited company directors — company profits fall under Corporation Tax, not Income Tax Self Assessment, so MTD ITSA doesn't apply to the company itself. If a director also has personal self-employment or rental income above the threshold, that personal income is still in scope.
Partnerships — HMRC has postponed MTD for partnerships indefinitely; partnerships continue filing the standard SA800 return. Individual partners with separate self-employment or property income above the threshold still need to comply for that income.

Getting Ready Before Your Threshold Date

Check your qualifying income against the 2024/25 tax year — this determines whether you're in scope from April 2026.
Move to MTD-compatible software now rather than waiting for your mandatory date — running a full quarter through the new system before you're required to is the easiest way to catch issues early.
Separate income sources clearly if you have both self-employment and property income, since HMRC will want them reported distinctly.
Don't assume being under the VAT threshold exempts you — MTD ITSA is based on income, not VAT registration, so a landlord or sole trader well below the £90,000 VAT threshold can still be well within scope.

Making Tax Digital Checklist

Are you VAT-registered? If so, MTD for VAT already applies — confirm your software is compliant.
Is your combined self-employment and property income over £50,000? If so, you're in scope from April 2026.
Do you have both self-employment and rental income? Both need separate, accurate digital records.
Is your bookkeeping software actually MTD-compatible, or are you relying on a spreadsheet with no bridging software?

What This Means for Your Business

MTD isn't going away, and the thresholds are only going to bring more businesses into scope over the next two years. Moving to proper digital record-keeping ahead of your mandatory date — rather than in the final weeks before it — is the difference between a smooth transition and a rushed one.

Vau Consult helps small businesses, sole traders and landlords get set up for Making Tax Digital, from software selection to ongoing quarterly submissions.

Book a free consultation to check where you stand on Making Tax Digital.