Making Tax Digital (MTD) is HMRC's programme to move the UK tax system online and require digital record-keeping for businesses and individuals. If you are a sole trader, landlord or small business owner, MTD affects how you report your income and pay tax — and the requirements are expanding over the coming years.
Here is a plain-English breakdown of what it means, who it applies to and what you need to do.
What is Making Tax Digital?
At its core, MTD requires businesses and individuals to keep digital financial records and submit returns to HMRC using compatible software — rather than paper records or HMRC's older online portals. The aim is to reduce errors, make tax administration more efficient and give HMRC a more real-time view of tax liabilities.
MTD has been rolled out in phases. It started with VAT-registered businesses and is now being extended to income tax for sole traders and landlords.
MTD for VAT — already in force
All VAT-registered businesses, regardless of turnover, must use MTD-compatible software to keep their VAT records and submit their VAT returns. If you are registered for VAT, you must already be doing this — there is no opt-out.
If you are not yet using MTD-compatible software for your VAT returns, this needs to be addressed immediately. HMRC can issue penalties for non-compliance. At BDH we handle MTD-compliant VAT returns as standard for all our clients, using Xero, QuickBooks, Sage or FreeAgent depending on what suits your business best.
MTD for Income Tax Self Assessment (MTD ITSA)
The next major phase is MTD for Income Tax Self Assessment (ITSA). Under MTD ITSA, sole traders and landlords with qualifying income above the threshold will be required to:
- Keep digital records of their income and expenses
- Submit quarterly updates to HMRC (four times per year, not just at the January deadline)
- Submit an end-of-year declaration confirming the figures
The current planned rollout dates are:
- April 2026 — sole traders and landlords with income over £50,000
- April 2027 — those with income over £30,000
- April 2028 — those with income over £20,000
These dates have shifted before, so check HMRC's guidance for the latest confirmed position. However, the direction of travel is clear — MTD ITSA is coming, and preparing now is far less stressful than rushing to comply at the deadline.
What software do I need?
You need HMRC-recognised MTD-compatible accounting software. The most widely used options for small businesses and sole traders are Xero, QuickBooks, Sage and FreeAgent. Each has a range of plans — your accountant can help you choose the right one for your business size and needs.
Spreadsheets can be used for record-keeping under MTD, but only if they are connected to HMRC via bridging software. For most sole traders, a dedicated cloud accounting package is simpler and more reliable.
What does quarterly reporting actually mean?
Under MTD ITSA, instead of filing one tax return per year, you will submit a summary of income and expenses to HMRC four times per year — roughly every three months. This is not the same as paying tax four times per year; your tax liability is still calculated and paid annually. The quarterly submissions are updates, not tax bills.
For clients who use BDH, we handle MTD quarterly submissions as part of the standard monthly fee. There is no extra charge.
What should I do now?
If you are not already using cloud accounting software, now is the time to get set up. Starting early means you have time to learn the system, build good bookkeeping habits and iron out any issues before quarterly reporting becomes mandatory.
If you are unsure what applies to you, or you want to check whether your current set-up is MTD-ready, book a free consultation with BDH. We serve sole traders across Erith, Bexley, Dartford, Sidcup, Bexleyheath, Welling and the wider area — and getting MTD-ready is something we handle for all our clients as standard.
You can also read about our landlord accounting service which includes full MTD ITSA support, or our sole trader accounting packages.