As the digital age continues to reshape the way we live and work, the UK government is taking another step forward with its flagship initiative Making Tax Digital (MTD). Designed to simplify and modernise the tax system, MTD aims to make it easier for individuals and businesses to get their tax rights. With the next phase rolling out in April 2026 for Income Tax Self-Assessment for most, and some pilots starting in 2025, now is the time for UK businesses to prepare.
Whether you are a sole trader, landlord, or run a small business, the changes on the horizon could impact how you handle your finances, file your taxes, and interact with HMRC. Let’s break down what MTD is, what’s changing in 2025, and what you can start doing right now to get ahead of the curve.
What is Making Tax Digital?
Making Tax Digital is a UK government initiative that’s been gradually introduced since 2019. The core aim is to digitise tax administration, reducing errors and streamlining the process for taxpayers and HMRC alike.
Here’s what it means in practice:
- Digital Record-Keeping: Businesses and individuals must keep digital records of their income and expenses using compatible software.
- Quarterly Reporting: Rather than filing a tax return once a year, you’ll be providing updates to HMRC every quarter..
- Final Declaration: At the end of the tax year, you will submit a final declaration to confirm your income and tax due.
MTD is currently implemented for VAT-registered companies whose revenue exceeds the VAT threshold, and starting in April 2022, it became compulsory for all VAT-registered businesses, irrespective of their turnover. Next up is MTD for Income Tax.
What’s Changing in 2025?
While the full roll-out of MTD for Income Tax Self-Assessment is scheduled for April 2026, 2025, it is a pivotal year. Why? Because HMRC is expanding its pilot programme for MTD for ITSA.
This means that from April 2025, more businesses and landlords will be invited to join the pilot scheme. If you are eligible, volunteering to join early could help you understand the new system before it becomes mandatory. It’s also a great way to identify any challenges early on and get support as needed.
Beginning in April 2026, Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) will be compulsory for sole traders and landlords who earn more than £50,000. Starting in April 2027, individuals with incomes exceeding £30,000 will also be required to comply. General partnerships and lower income categories may eventually be included, but an official date has yet to be announced.
Who Will Be Affected?
From 2026, the following groups will be required to comply with MTD for ITSA:
- Sole traders with business income over £50,000
- Landlords earning more than £50,000 from property
- Sole traders and landlords with income between £30,000 and £50,000 (from April 2027)
Partnerships and other businesses will be brought in at a later stage. But whether you’re included in the first wave or not, it’s wise to prepare now.
What Should Businesses Do Now?
In 2025, UK businesses can take several proactive measures to get ready for MTD.
- Check if You will Be Affected
Start by calculating your total income from self-employment and property. If your total income is over £50,000, you’ll need to start following the Making Tax Digital (MTD) rules for Income Tax Self-Assessment by April 2026. Should your income be between £30,000 and £50,000, you’ll have an extra year to comply with the deadline set for 2027.
- Go Digital with Your Record-Keeping
If you are still using spreadsheets or paper records, now’s the time to upgrade. To comply with HMRC regulations, you need to use software that is compatible with Making Tax Digital (MTD). This will help you keep your records in digital format and easily submit updates. Look for cloud-based solutions like QuickBooks, Xero, or FreeAgent, which are already working with HMRC on MTD compliance.
- Join the MTD for ITSA Pilot
If you are eligible, consider joining the pilot programmed in 2025. This gives you early access to the system and the chance to get familiar with quarterly reporting before it becomes mandatory.
- Speak to Your Accountant or Tax Advisor
MTD brings more frequent reporting, and that might change how you work with your accountant. Book a meeting with them now to discuss what changes you need to make. They can help you find the right software and set up a reporting process that works for you.
- Train Yourself and Your Team
Even if you outsource your tax work, you’ll still need to understand the basics of digital record-keeping. Make sure you and your team are trained on the new software and understand when reports need to be filed.
Why It Pays to Prepare Early
Adapting to a new system can be daunting, especially when tax is involved. But getting ahead of MTD has several benefits:
- Avoid penalties for late or incorrect submissions
- Gain visibility into your business finances year-round
- Streamline your processes with automated software
- Reduce errors and save time during tax season
Plus, HMRC has indicated that digital tax systems will eventually become the norm. By switching early, you’ll position your business to thrive in a more digital-first economy.
Final Thoughts
Making Tax Digital isn’t just about meeting compliance requirements; it’s an opportunity to revamp your business operations. Though 2025 may seem like a year of transition, it’s actually an ideal moment to get ahead of the curve.
Start by understanding your obligations, choose the right tools, and build good habits now. That way, when MTD for ITSA becomes mandatory in 2026 or 2027, you’ll be ready not rushing.
