How to Prepare for Making Tax Digital: A Practical Guide for UK Business Owners

Making Tax Digital for Income Tax comes into effect from April 2026 for self-employed individuals and landlords earning over £50,000. If that includes you, the time to prepare is now, and not in April 2026 when every accountant in the country will be overrun with last-minute requests.

This guide walks you through exactly what needs to be in place before your MTD start date, so you can get set up properly and get on with running your business.

Step 1: Confirm Whether You Are Affected

Before doing anything else, establish whether MTD applies to you. The key question is, did your combined gross income from self-employment and property exceed £50,000 in the 2024/25 tax year?

If yes, you will need to comply from 6 April 2026. If you are unsure, perhaps because you have multiple income streams, recently became a landlord, or your income fluctuates year on year, it’s worth getting a clear answer now rather than assuming.

Step 2: Choose the Right Accounting Software

MTD requires HMRC-compatible software. You cannot submit quarterly updates through the HMRC website directly, so this is not optional. The main options used by UK small businesses and landlords include:

• Xero - well-suited to businesses with employees or more complex finances

• QuickBooks - flexible and widely used across a range of business types

• Sage - particularly popular with more established businesses

The right choice depends on the size and nature of your business, how comfortable you are with technology, and whether you already use any bookkeeping tools. Getting this decision right from the outset saves time and avoids the disruption of switching platforms later.

Step 3: Set Up Your Digital Records

One of the most common causes of stress under MTD is leaving records in poor shape. Before your start date, you should be recording all income and expenses digitally as a matter of course. This means:

• Logging sales and income as they occur, not in one annual batch

• Recording business expenses with appropriate detail and categories

• Keeping digital evidence for your transactions — receipts do not need to be physical, but they do need to exist

• Separating personal and business finances clearly, if you have not already done so

Good record-keeping habits are the foundation of a smooth MTD experience. If you are currently managing everything in a spreadsheet or, worse, a carrier bag of receipts, now is the time to change that.

Step 4: Register for MTD With HMRC

MTD registration does not happen automatically. You need to sign up through your HMRC online account before your start date. This process links your Self Assessment record to the MTD system and confirms which software you will be using.

Do not leave registration until April 2026. Sign-up periods can be blocked for taxpayers who have recently filed or have payments pending, and HMRC's systems can experience delays when large numbers of taxpayers register at once.

Step 5: Understand What Quarterly Updates Involve

A quarterly update is not a tax return. It is a structured summary of your income and expenses for that three-month period, submitted to HMRC via your software.

You do not need to calculate your tax liability as part of the submission, and no payment is triggered by a quarterly update alone.

The four standard quarterly periods run from 06 April, 06 July, 06 October and 06 January, with submissions due approximately one month after each period ends. Your final year-end declaration, which consolidates everything and accounts for any additional income, is still due by 31 January.

For most business owners, once the software is set up and records are being maintained properly, quarterly updates take a matter of minutes rather than hours.

Step 6: Consider Using an Accountant

MTD does not require you to use an accountant, but many business owners find the transition easier with professional support. An accountant can set up your software correctly, review your quarterly submissions before they go to HMRC, identify allowable expenses you may be missing, and ensure your year-end declaration is accurate and complete.

For sole traders and landlords juggling the demands of a business, having someone handle the compliance side is often the most efficient use of time and money.

What Happens If You Miss a Deadline?

HMRC is introducing a new penalty points system for MTD. Under this system, each missed quarterly deadline earns a penalty point. Once you accumulate enough points, the threshold is four for quarterly filers, and a financial penalty is charged. Points expire after a period of compliance, so the system is designed to penalise persistent late filing rather than isolated mistakes.

Keeping on top of quarterly deadlines is therefore important from the outset, even in the first year.

The Benefits of Getting Ahead

MTD is often framed as an additional burden, and the transition does require some effort up front. But business owners who are properly set up frequently find that the discipline of regular digital record-keeping gives them a clearer picture of their finances throughout the year.

Knowing where you stand on income, expenses and likely tax liability on an ongoing basis rather than finding out once a year makes it easier to plan, invest and make informed decisions in your business.

Ready to Get Started? Talk to AccountingBliss

We work with self-employed clients and landlords across Derby, Coventry and the Midlands to get MTD-ready without fuss. Whether you need help choosing software, setting up your records, or want us to handle your quarterly submissions entirely, we can take this off your plate.

Get in touch for a free 30-minute consultation, and we will confirm exactly what you need to do and when.

Derby: 01332 577 289

Coventry: 02475 098 680

AccountingBliss — Derby and Coventry accountants helping small business owners and landlords navigate tax with clarity and confidence.