Making Tax Digital: What Small Businesses Need to Know

Making Tax Digital (MTD) is changing how UK businesses report to HMRC. Here's what you need to know.

If you're self-employed, a landlord, or run a small business, MTD will likely affect you from April 2026.

This guide explains the requirements, deadlines, and what you need to do to stay compliant.

What is Making Tax Digital?

Making Tax Digital (MTD) requires businesses to:

• Keep digital records using HMRC-approved software
• Submit quarterly updates throughout the year
• File a final declaration after the tax year ends

MTD replaces the traditional Self Assessment process for many taxpayers.

When Does MTD Apply?

From 6 April 2026, MTD for Income Tax applies to:

• Self-employed individuals
• Landlords with property income

MTD applies if your combined gross income (turnover before any expenses) exceeds £50,000, based on your 2024/25 tax return.

If you have multiple income sources (e.g. self-employment + rental income), HMRC combines them.

Example: £45k trade + £6k rental = £51k → MTD applies.

The threshold reduces to £30,000 from April 2027.

Old System vs MTD System

Quarterly Updates

Under MTD, you must submit four quarterly updates showing:

• Income received
• Expenses paid
• Any changes to your business

Key Dates:

• 7 August 2026 – First MTD submission (first mandatory filing under the new system)
• 7 November 2026
• 7 February 2027
• 7 May 2027

HMRC allows calendar quarter reporting (ending 30 June, 30 Sept, 31 Dec, 31 March), which often aligns better with VAT and bank records.

We help clients choose the most practical reporting cycle.

If using calendar quarters, a small adjustment may be required for the April transition — we handle this for our clients.

Final Declaration

After submitting four quarterly updates, you must file a Final Declaration by:

31 January 2028 (for the 2026/27 tax year)

This replaces your Self Assessment tax return.

Multiple Income Streams

If you have both business and property income, you must submit separate MTD updates for each.

Example: A plumber with rental property submits:

• Quarterly updates for plumbing business
• Quarterly updates for rental income
• One Final Declaration combining both

Software Requirements

You need HMRC-approved software to:

• Keep digital records
• Submit quarterly updates
• File your Final Declaration

Popular options include:

• Xero
• QuickBooks
• FreeAgent
• Sage

We support businesses across Wolverhampton, Birmingham and the West Midlands and are experienced with Xero and QuickBooks setup.

Penalties and Compliance

For the first year (2026/27), HMRC has introduced a "soft landing" approach:

• No penalties for late quarterly updates
• Penalties still apply for late tax payments

Important: While quarterly updates are penalty-free in 2026/27, the Final Declaration (31 January 2028) and tax payments remain fully subject to penalties and interest if missed.

How to Prepare

Steps to get MTD-ready:

• Check if MTD applies to you (£50,000+ turnover in 2024/25)
• Choose software that suits your business
• Digitise your records (receipts, invoices, bank statements)
• Learn the software or work with an accountant
• Set reminders for quarterly deadlines

Quick Tips for 2026

• Check your 2024/25 turnover (not profit)
• Move to digital software early
• Plan for more frequent reporting
• Set aside tax throughout the year

How Brightson Accounting Helps

We support small businesses and landlords with:

• MTD software setup (Xero, QuickBooks)
• Quarterly submission management (we file on your behalf)
• Final Declaration preparation
• Tax planning (spreading liabilities across the year)
• Training (helping you use software confidently)

All with clear communication and fixed pricing.