As the rollout of Making Tax Digital (MTD) for Income Tax approaches, many sole traders and landlords are still unsure about what’s required of them. At G W Dick & Co we want to take the stress out of tax and help you through this change to the tax system.
In this article we will break down some of the common myths and misunderstandings our clients may have about MTD for Income Tax and look at what you need to do now to be prepared.
What is Making Tax Digital?
Making Tax Digital (MTD) is a government initiative aimed at modernising the UK tax system. It’s designed to reduce human error, improve record-keeping, and make tax more efficient for everyone.
It is already mandatory for VAT-registered businesses under MTD for VAT and the rules are now expanding to cover self-employed individuals and landlords for 6 April 2026.
What Will You Need to Do?
Under the new rules, you’ll need to;
- Keep digital records of your income and expenses using MTD-compatible software. Relying on paper records is no longer enough and spreadsheets can only be used if you connect them to bridging software that meets MTD regulations.
- Submit quarterly updates to HMRC using compatible software.
- Complete a final declaration (MTD Tax Return) at the end of the year (this replaces the Self-Assessment tax return) to finalise your tax position, including income, expenses and reliefs.
MTD Compliance Checklist
In order to stay compliant with HMRC’s Making Tax Digital (MTD) initiative, every business must take the following key steps to manage tax records digitally;
- Use MTD-compatible accounting software (or bridging software if you use spreadsheets) to record and submit quarterly tax updates.
- Use your Government Gateway account to access HMRC services.
- Clear, up-to-date records of all your income sources.
- Dedicated bank accounts for business use. This ensures every income source is tracked separately.
- Separate credit cards for your business and personal spending to make financial reporting cleaner and more accurate.
Five Common Myths About MTD
Although the rules are clear, there are still many myths circulating regarding MTD, so let’s take a look at the most common myths and set the record straight:
Myth 1: “MTD for Income Tax is already mandatory for everyone.”
The facts: MTD will be introduced in phases, depending on your income level:
- From 6 April 2026 – MTD applies to sole traders and landlords with gross income (before expenses) over £50,000 (combined income from self-employment and/or property).
- From April 2027 – Those with gross income over £30,000 will be included.
- From April 2028 – Those with gross income over £20,000 will be required to join.
Myth 2: “I’ll have to submit my tax return four times a year.”
The facts: You’ll send quarterly updates of your income and expenses, but that doesn’t mean quarterly tax payments. You’ll still only submit one final declaration (MTD Tax Return) each year (similar to the current annual Self-Assessment tax return).
Myth 3: “I can continue to use spreadsheets or paper records.”
The facts: All records of income and expenses must be kept digitally. Spreadsheets are only acceptable if linked to bridging software. Here at G W Dick & Co, we can advise you on the best digital solutions for you.
Myth 4: “This will make my tax affairs more complicated.”
The facts: Although, at first, it may seem like there is more admin, MTD is designed to improve accuracy of record keeping which also contributes to better informed financial decisions. With the right software and support, the process should become more straightforward.
Myth 5: “I don’t need to do anything until 2026.”
The facts:. Although technically this is correct – it might not affect you until 2026, using digital bookkeeping now will make the transition much smoother when the time comes. Early preparation gives you time to get used to digital tools and avoid last-minute stress. We strongly recommend that you begin using a separate bank account for your income and expenditure related to your rental or sole trade now.
Frequently Asked Questions
Q. Can my accountant manage MTD for me?
A. Yes, absolutely! We can handle all MTD submissions and help you set up compliant software.
Q. Will HMRC provide free software?
A. No. You’ll need to use third-party software, but there are plenty of affordable and easy-to-use options out there. We can help you find the one that works for you.
Q. What if I only have a small side hustle?
A. MTD only applies if your total income from self-employment and/or property exceeds the threshold. (See Myth 1)
Q. What if I can’t use digital tools?
A. If you’re digitally excluded (due to age, disability, or no internet access), you can apply for an exemption through HMRC.
Your Next Steps
Although the rules may not apply to you just yet, now is the perfect time to prepare:
- Start using MTD-compatible bookkeeping software.
- Use separate bank accounts and credit cards for business transactions.
- Speak with your accountant about setting up your system now.
Need Support? We’re Here to Help
At G W Dick & Co Chartered Accountants, we’re already helping clients prepare for MTD with expert advice and practical support. Let us take the stress out of tax and make the move to digital, simple and straightforward. Contact us for more information and advice.