Description

Making Tax Digital for Income Tax may sound technical, but we break it down simply. In this episode, we share what MTD for ITSA is, who needs to comply, when it starts, and how to prepare effectively. If you’re a sole trader, landlord, or small business owner, this episode is essential listening.

What You’ll Learn in This Episode

• What Making Tax Digital for Income Tax is and why it matters.
• Who must comply, who is exempt, and turnover thresholds.
• How to prepare with compatible software and proper bookkeeping.
• Practical steps to avoid fines, stress, and last-minute panic.
• Real examples of businesses affected by MTD.

Making Tax Digital Explained

MTD for Income Tax is HMRC’s plan to move tax reporting into the digital world. Instead of submitting one annual return, you’ll send four quarterly updates via approved software. It’s like switching from a paper diary to an online calendar—more visibility, fewer surprises, and closer monitoring of compliance.

Who Must Comply

If you are a sole trader or a landlord and your turnover exceeds £50,000 in 2024/25, you must join MTD from 6 April 2026. Turnover here means income before expenses. HMRC looks at the full amount coming in, not what you keep after costs.

Practical Examples from the Episode

Here are some real-life examples mentioned in the episode to show how MTD rules apply in practice:

• Deepak, a self-employed builder, has a turnover of £55,000 in 24/25. He must join MTD from April 2026.
• Sarah, a landlord renting three flats with gross rental income of £48,000 in 25/26, must join MTD from April 2027.
• Paul, a market trader with turnover of £52,000 in 24/25, is seasonal but still exceeds the threshold, so he must join in April 2026.

Exemptions and Exceptions

Not everyone needs to join immediately. If your income is below £20,000, or you qualify based on age, disability, or location, you can apply for exemption. Exemption does not remove the requirement to file a self-assessment; it only exempts you from quarterly digital updates. For example, a freelance designer earning £14,000 per year is under the threshold and does not need to join MTD.

Preparing for MTD

• Choose compatible software—Xero, QuickBooks, or FreeAgent are common options. (We recommend Xero as a Platinum partner.)
• Authorize the software to link with HMRC for quarterly updates.
• Decide who handles submissions—yourself or an accountant—and agree on fees upfront.
• Keep bookkeeping accurate and up to date; don’t wait until year-end.
• Consider joining voluntarily early to test the system and gain confidence, like Sebastian, who signed up early in 24/25 and felt stress-free by April 26.

Benefits of Preparing Early

Early preparation reduces stress, avoids penalties, and gives better control of cash flow. You can see quarterly profits building, plan tax efficiently, and identify whether incorporating or other planning is beneficial. Avoid last-minute panic and get ahead of HMRC deadlines.

Real Consequences of Delay

Leopold set up his software a week before the first submission and struggled with data import, missed the submission, and faced unnecessary fines. Don’t be like Leopold—preparing early