Making Tax Digital for Income Tax , What Small Business Owners Need to Know Before April 2026

A major change is coming to the UK tax system.

From 6 April 2026, many self-employed individuals and landlords will move onto Making Tax Digital (MTD) for Income Tax.

For many people, this will change how bookkeeping is done throughout the year. Instead of preparing one Self Assessment tax return each January, income and expenses will be reported to HMRC regularly through digital software.

At first, this can sound like more work. In practice, businesses that prepare early often find that it improves their record keeping and gives them better visibility into their finances.

This guide explains what is changing, who it affects, and how you can prepare before the deadline.

What Making Tax Digital for Income Tax Actually Means

Making Tax Digital replaces the traditional once-a-year Self Assessment process with digital record keeping and quarterly updates.

Instead of collecting receipts at the end of the year, you will:

• Keep digital records of income and expenses
• Send quarterly summaries to HMRC
• Submit a final year-end declaration

The aim is to ensure financial information is recorded throughout the year rather than reconstructed months later.

For business owners who currently rely on spreadsheets or manual records, this will require a shift towards digital bookkeeping software.

Who Will Need to Follow MTD in 2026

The first phase begins on 6 April 2026.

It will apply to:

• Self-employed individuals
• Landlords

with gross income above £50,000 per year.

Gross income means total income before expenses.

From April 2027, the threshold will drop to £30,000.

At the moment, limited companies are not included in this stage, although digital reporting may expand further in the future.

Why HMRC Is Introducing Making Tax Digital

HMRC’s goal is to modernise the tax system and reduce errors caused by manual record keeping.

Many tax returns currently rely on information reconstructed months after transactions occurred. This increases mistakes and missing data.

Digital record keeping aims to:

• Improve accuracy
• Reduce lost paperwork
• Encourage regular bookkeeping
• Give taxpayers a clearer picture of their finances

For many small business owners, the concern is the extra administration. Instead of one annual submission, there will be four quarterly updates plus a final declaration.

The key to making this manageable is preparation.

How to Prepare Before April 2026

Preparing early will make the transition far easier.

Here are the most important steps.

Move to digital bookkeeping software

MTD requires compatible accounting software.

Popular options for small businesses include:

• Xero
• QuickBooks
• Sage

These systems connect to your bank, automatically record transactions, and produce the digital reports required by HMRC.

Starting early means you can become comfortable with the software long before the deadline.

Build a regular bookkeeping routine

Instead of leaving records until year end, update your accounts regularly.

Many businesses choose either:

• monthly bookkeeping
• or quarterly reviews aligned with MTD deadlines

Small updates throughout the year prevent the January rush and keep your numbers accurate.

Understand what must be submitted

MTD requires quarterly summaries of income and expenses, not full tax calculations.

However, your records must be complete and accurate. If you work with a bookkeeper or accountant, it is helpful to decide who will manage each part of the process.

Many businesses will choose to have their accountant submit the quarterly updates on their behalf.

Use the data to run your business better

There is one major benefit to the new system.

If your records are updated regularly, you will always know:

• how profitable the business is
• how much tax may be due
• whether costs are increasing
• how cash flow is performing

Instead of reviewing finances once a year, you will have a clearer picture throughout the year.

The Key Message for Small Businesses

Making Tax Digital will change how bookkeeping works for many self-employed people and landlords.

However, businesses that adopt digital systems early often find the process far simpler than expected.

Once records are kept consistently, the quarterly updates become quick routine submissions rather than large administrative tasks.

Preparing now gives you time to build the right systems and avoid pressure as the deadline approaches.

Need Help Preparing for Making Tax Digital?

If you are unsure whether MTD will affect you, or you want help setting up digital bookkeeping, it is worth reviewing your systems before April 2026.

With the right software and processes in place, quarterly reporting can become a straightforward part of running your business.

If you would like help getting ready for Making Tax Digital, feel free to get in touch.