How making tax digital works
MTD for VAT already requires VAT-registered businesses to keep digital records and submit returns through MTD-compatible software rather than typing figures directly into HMRC's online portal by hand each quarter. MTD for Income Tax follows a phased rollout: qualifying income above £50,000 must comply from 6 April 2026, above £30,000 from April 2027, and above £20,000 from April 2028, bringing progressively smaller sole traders and landlords into scope each successive year.
Under MTD for Income Tax, a sole trader or landlord sends quarterly updates to HMRC directly from their bookkeeping software, followed by a final declaration, rather than filing one single annual self assessment return as before. This means records need to stay current through the year continuously, not reconstructed at deadline time, since each quarter's update is due on a fixed and unmoving schedule.
Example
A self-employed landscaper with qualifying income of £55,000 falls within the first MTD for Income Tax wave from 6 April 2026. Instead of one annual return, he now sends HMRC four quarterly updates from his bookkeeping software, summarising income and expenses recorded that quarter, followed by a final declaration after the tax year ends to confirm the total figures for the year as a whole rather than in isolation.
Making Tax Digital in QuickBooks Online vs Xero
QuickBooks Online is MTD-compliant for VAT and is rolling out MTD for Income Tax support for sole traders and landlords ahead of the 2026 start date. Xero offers the same, an MTD-compliant VAT return and MTD for Income Tax functionality for qualifying self-employed clients and landlords already using the platform.
Common mistakes
- A business keeps paper or spreadsheet records past the point MTD requires digital records, risking noncompliance once its qualifying income crosses the relevant threshold.
- Quarterly updates are treated as optional or skipped when there is little activity, when MTD for Income Tax actually requires a submission every quarter regardless.
- Software is not checked for MTD compatibility before the relevant threshold is reached, leaving a business without a compliant way to submit on time.
Why it matters
Making Tax Digital changes how and how often a UK sole trader, landlord or VAT-registered business reports to HMRC, shifting from an annual filing to ongoing quarterly submissions. Falling out of compliance once a threshold is crossed can mean scrambling to digitise records under deadline pressure. For business owners and their accountants, adopting MTD-compatible software ahead of each threshold keeps quarterly reporting routine rather than a last-minute rebuild.
Related terms
How LedgerBPO handles making tax digital
We keep digital records current throughout the quarter, so MTD VAT and Income Tax submissions are a review step rather than a rebuild under deadline pressure each time. You or your accountant approves each submission before it goes to HMRC through compatible software.