Making Tax Digital for Income Tax: What Small Businesses Need to Do Before April 2027

Making Tax Digital (MTD) for Income Tax is already underway, and from April 2027 many more sole traders and landlords will be brought into the system.

For businesses with qualifying income over £30,000, the way financial records are maintained and reported to HMRC will change. Anyone currently relying on spreadsheets, manual processes, or a collection of invoices spread across various systems still has time to prepare, though getting organised early will make the transition much smoother.

What Is Making Tax Digital for Income Tax?

Making Tax Digital is HMRC’s programme to modernise tax reporting.

Businesses affected by MTD for Income Tax will need to:

• Keep digital financial records

• Use compatible software

• Submit quarterly updates to HMRC

• Complete an end-of-year declaration

The amount of tax owed is still calculated according to the same rules. The main difference is how information is recorded and submitted throughout the year.

Who Will Be Affected From April 2027?

The first phase began in April 2026 for sole traders and landlords with qualifying income above £50,000. From April 2027, the threshold drops to £30,000.

This may affect:

• Sole traders

• Self-employed consultants

• Freelancers

• Tradespeople

• Landlords

• Individuals with both rental income and self-employment income

For many self-employed people and landlords, this lower threshold means MTD will suddenly become relevant when it wasn't before. If you've only ever completed a Self Assessment once a year, you'll likely need to start thinking about quarterly reporting and digital record keeping.

What If MTD Already Applies to Me?

If your qualifying income is already above £50,000, MTD for Income Tax may already apply to you.

The good news is that if you've been meaning to get things sorted but haven't quite got around to it yet, it's not too late. HMRC has confirmed there will be no late filing penalties for quarterly updates during the first year, giving businesses some breathing room while they get used to the new system.

That doesn't mean it's something to ignore, but it does mean there's still time to put the right processes and software in place.

If you're unsure where to start, or you've delayed making the switch because it felt overwhelming, we can help you get everything set up correctly and make the transition as straightforward as possible.

What Will Businesses Need to Do?

Keep Digital Records

Income and expenses will need to be recorded digitally throughout the year.

Accounting software can help automate much of the process, making it easier to keep records accurate and up to date.

Use Compatible Software

HMRC requires businesses to use software that supports Making Tax Digital submissions.

Many popular accounting platforms already meet these requirements and provide tools for invoicing, expense tracking and reporting.

Submit Quarterly Updates

Rather than waiting until the end of the tax year, businesses will submit summary updates during the year.

These updates give HMRC a more current picture of income and expenses, while also helping business owners keep a closer eye on their finances throughout the year.

Complete the End-of-Year Process

A final declaration will still be required after the end of the tax year to confirm figures and make any necessary adjustments.

Why Preparing Early Makes Life Easier

Many small businesses already operate digitally, though records are often spread across multiple places.

A supplier invoice arrives by email. A software subscription receipt sits inside an online account. Another expense is buried in a banking app. Fast forward six months, and finding everything again can take far longer than anyone would like.

Common challenges include:

• Supplier invoices spread across different email accounts

• Missing receipts for software subscriptions

• Expenses recorded in spreadsheets but not elsewhere

• Transactions that require investigation months after they happened

• Financial information stored across several systems

A simple process for capturing information throughout the year can save a considerable amount of time when reporting deadlines arrive.

Making Tax Digital 2026 vs 2027: What's Changing?

The key difference is the income threshold.

From April 2026

Individuals with qualifying income above £50,000 are required to comply with MTD for Income Tax.

From April 2027

Individuals with qualifying income above £30,000 will also be required to comply.

That reduction may sound modest, but it brings a significant number of additional sole traders and landlords into scope. Many people who currently sit comfortably outside the rules will find themselves needing to comply from April 2027 onwards.

Common Questions About MTD

Will I Pay More Tax?

Making Tax Digital changes the reporting process. Tax liabilities continue to be calculated under the existing rules.

Do I Need an Accountant?

Some business owners choose to manage MTD themselves using accounting software.

Professional support can help ensure records remain accurate, deadlines are met, and reporting requirements are handled correctly. It can also save a lot of time if you'd rather not need to learn a new reporting system.

What Happens If My Income Changes?

Eligibility is based on qualifying income. If income moves above or below the threshold, HMRC's rules determine whether MTD applies.

Does This Affect Limited Companies?

The current rollout relates to Income Tax for sole traders and landlords. Different requirements apply to limited companies.

Practical Steps You Can Take Now

Preparation doesn't need to be complicated.

A good starting point is to:

• Review how income and expenses are currently recorded

• Identify where invoices and receipts are stored

• Move away from fragmented record keeping

• Consider suitable accounting software

• Seek advice before the April 2027 deadline approaches

Even a few small improvements now can make the move to MTD much easier later on.

Getting Ready for MTD

Making Tax Digital for Income Tax represents a significant change for many sole traders and landlords.

April 2027 may seem a long way off, but it will arrive quickly. Businesses that prepare ahead of time will have the opportunity to establish efficient systems, become familiar with the software they use, and approach the transition with confidence rather than stress.

Whether you're already affected by MTD or you're likely to be brought into scope when the threshold drops to £30,000, now is a good time to start planning.

If you're unsure whether Making Tax Digital will affect you, or you'd like support preparing for the changes ahead, Strive can help you understand your obligations, choose the right software, and put the right processes in place before the deadline arrives. Get in touch here to find out how we can help you.