Best Software For Making Tax Digital

What Is Making Tax Digital? A Quick Guide

Making Tax Digital (MTD) is one of the most significant changes to the UK tax system in a generation. Rather than filing a single annual Self Assessment return, sole traders and landlords will be required to keep digital records throughout the year and submit regular updates to HMRC using compatible software. The ambition is a tax system that is more accurate, more transparent, and far less likely to produce unwelcome surprises when the bill arrives. This guide explains what MTD means for you, when it applies, and what you need to do to stay on the right side of HMRC.

MTD for Income Tax Self Assessment (MTD ITSA) is the part of the Making Tax Digital programme that affects sole traders and landlords who currently report income through Self Assessment. It is being phased in from April 2026, with different start dates depending on the level of qualifying income. Understanding which rules apply to you — and from when — is the essential first step.

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What Is Making Tax Digital?

Making Tax Digital is HMRC’s initiative to modernise the UK tax system. Rather than filing one annual Self Assessment return, sole traders and landlords will keep digital records throughout the year and submit regular updates to HMRC using compatible software. The goal is to make tax reporting more accurate, reduce errors, and help you avoid nasty surprises when your tax bill arrives.

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Who Does MTD for Income Tax Apply To?

MTD for Income Tax Self Assessment (MTD ITSA) affects sole traders and landlords who report income through Self Assessment. It is being rolled out in stages based on your total gross qualifying income — that is your combined self-employment and/or property income before expenses.

Your PAYE salary, dividends, pensions, and partnership income do not count toward the MTD threshold — only self-employment and rental income do.

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How Does MTD Work in Practice?

Once you are within scope, there are three things you will need to do.

1. Keep Digital Records

All income and expenses must be recorded digitally using HMRC-recognised software. Paper records and disconnected spreadsheets no longer cut it. Your software must be capable of sending information directly to HMRC — a manual spreadsheet that you then re-enter elsewhere does not qualify.

2. Submit Quarterly Updates

Every three months, your software sends a summary of your income and expenses to HMRC. These are not full tax returns — they are lightweight updates to keep HMRC informed throughout the year. There are four quarterly submission periods per tax year, and missing them may result in penalty points under HMRC’s new points-based system.

3. Submit a Final Declaration

At the end of the tax year, you will confirm your final figures, include any other income sources, and claim any reliefs. This replaces the traditional Self Assessment return, with the same 31 January deadline. The final declaration is your opportunity to add income that falls outside the quarterly updates — such as dividends, savings interest, or capital gains — and to apply any tax reliefs or deductions you are entitled to claim.

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Do You Need Special Software?

Yes — HMRC does not provide its own MTD software. You will need to use a recognised third-party tool that can keep digital records and submit updates directly to HMRC. There are both free and paid options available, ranging from simple apps for straightforward tax affairs to full accounting platforms with invoicing, expense tracking, and bank feeds built in.

When choosing, it is worth thinking about how many income sources you have, whether you also need invoicing or VAT tools, and whether you would prefer something you manage yourself or something more automated. The right tool for a freelancer with a single income stream is likely to look very different from the right tool for a landlord with multiple properties and complex expense categories.