Making Tax Digital: the next phase of UK tax reporting

Few major changes to the tax system arrive with much enthusiasm, and Making Tax Digital is no exception. For many taxpayers, it feels less like progress and more like another administrative hurdle, one more demand on time, software and patience. Nevertheless, it is happening, and for those affected, understanding it early will make a material difference.

Making Tax Digital (MTD) is the government’s long-term programme to digitise tax reporting, overseen by HM Revenue & Customs. The stated aim is to reduce errors and improve accuracy by replacing annual, retrospective reporting with more frequent digital updates. Whether it succeeds in simplifying life for taxpayers remains to be seen, but the obligations themselves are now clear.

Who will need to comply?

MTD is already familiar to VAT-registered businesses, many of whom would say it has been more work, not less. The next phase Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) will affect a much broader group.

From April 2026, self-employed individuals and landlords with combined annual business and property income over £50,000 will fall within the regime. From April 2027, this threshold drops to £30,000. Partnerships and limited companies are expected to follow at a later stage.

For a significant number of people who have managed their tax affairs with paper records or basic spreadsheets, this represents a fundamental shift.

What does MTD actually require?

Despite the name, MTD is not simply about submitting tax returns online, that has been possible for years. Instead, it changes how and how often information is reported.

Those within scope will need to:

• Keep digital records of income and expenses

• Submit quarterly updates using MTD-compatible software

• Complete an end-of-period statement to finalise figures

• File a final declaration confirming their overall tax position, summarizing the year.

The traditional annual tax return still exists, but it is no longer the sole interaction with HMRC. Overall a lot more work.

Software, systems and reality

One of the most common misconceptions is that “digital” means simple. In practice, MTD requires approved software that maintains digital links from records to submissions. For some taxpayers, this will be a straightforward transition. For others, particularly landlords with modest portfolios or sole traders with simple affairs, it may feel disproportionate.

That said, there is an upside. Regular reporting can improve visibility over income and expenses, highlight issues earlier, and reduce last-minute surprises. Used well, it can support better financial decision-making, even if it was not introduced with that aim in mind.

Preparing pragmatically

MTD is unlikely to be reversed. The sensible approach is not enthusiasm or resistance, but preparation. Reviewing record keeping practices now, understanding what quarterly updates actually involve, and choosing suitable software early can prevent unnecessary disruption later.

Professional advice plays an important role here. MTD is not four tax returns a year, and treating it as such creates avoidable stress. With the right structure, it can be managed efficiently, even if few would claim it was asked for.

Making Tax Digital may not feel like a welcome reform. But with measured preparation, it does not need to become a painful one either.