From April 2026, the way Self-Employed individuals report their income to HM Revenue & Customs (HMRC) will change significantly. This is due to the Making Tax Digital (MTD) for Income Tax initiative, which will apply to you as a Self-Employed person, so it’s crucial to understand both what this means for you and how to prepare.
What is Making Tax Digital for Income Tax?
Making Tax Digital (MTD) is a Government initiative designed to modernise the tax system. It requires businesses and Self-Employed individuals to keep digital records and report their income online.
Under MTD for Income Tax, Self-Employed individuals and Landlords will need to:
- Maintain digital records of their income and expenses.
- Use MTD-compatible software to submit quarterly updates to HMRC.
- File an End-of-Period Statement (EOPS) and a Final Declaration each year to confirm their tax liability.
Who Needs to Comply and When?
MTD for Income Tax will be rolled out in phases:
- From 6 April 2026: If your gross income from Self-Employment or Property is over £50,000, you must comply with MTD.
- From 6 April 2027: If your gross income is over £30,000, you’ll need to follow the same process.
If your income is below £30,000, you’re not currently required to sign up. However, the Government is encouraging voluntary participation.
What Will Change for Self-Employed Individuals?
- Quarterly Reporting: Instead of filing one Tax Return per year, you’ll need to submit income and expenses every three months, using MTD-compliant software.
- Use of Digital Software: HMRC will no longer accept manual record-keeping and paper Tax Returns.
- More Frequent Tax Estimations: Since you’ll be submitting updates quarterly, it will give you a better idea of your tax liability throughout the year.
- Final Tax Submission: At the end of the tax year, you’ll submit an End-of-Period Statement (EOPS) and a Final Declaration to confirm your total taxable income.
Steps to Prepare
- Check Your Income Level: You’ll need to determine whether you exceed the £50,000 threshold (£30,000 from 2027).
- Find MTD-Compatible Software: HMRC provides a list of software that meets MTD requirements.
- Start Keeping Digital Records: If you’re not already using an accounting system, now is the time to start the transition.
- Stay Updated: HMRC may provide further guidance and updates, so you’ll need to keep an eye open for new developments.
Benefits of Making Tax Digital
- Fewer Errors: Digital record-keeping reduces the mistakes that can occur with manual data entry.
- Better Financial Planning: Knowing your tax liability in real time helps with budgeting and cash-flow management.
- Simplified Tax Process: Digital submissions make tax reporting easier and more efficient.
Potential Challenges of Making Tax Digital
- Adapting to New Software: You may need an adjustment period for learning to use digital tools.
- Additional Costs: You’ll need to invest in MTD-compliant software, if you don’t already use it.
- Quarterly Reporting: Some Self-Employed individuals may find quarterly updates more demanding than the annual Tax Return process.
Are You Ready for Making Tax Digital?
Making Tax Digital for Income Tax is a significant change, but with proper preparation, you as a Self-Employed individual can comply smoothly. The key is to start transitioning early, choose the right software and embrace the benefits of a more modern tax system.
If you need guidance on how to prepare for MTD, feel free to reach out to me here at Grace Certified Accountants, on info@gracecertifiedaccountants.co.uk, for expert advice.