Making tax digital Self-assessment

PHS Team

06 Oct, 2025

Are you self-employed in the UK? Big changes are coming to how you report your income tax. HMRC is introducing Making Tax Digital for Income Tax (MTD for ITSA), which starts from April 2026.

Instead of filing one yearly tax return, you’ll keep digital records and send updates to HMRC every three months. This new system is designed to make tax reporting easier, reduce errors, and help you stay on top of your finances.

If your income from self-employment or property rental is above a certain limit, you’ll need to use HMRC-approved software to file your digital tax returns.

Why is HMRC Changing Self Assessment?

HMRC is changing Self Assessment as part of the "Making Tax Digital for Income Tax" (MTD for ITSA) initiative. The goal is to reduce errors, improve tax accuracy, and make tax reporting easier for taxpayers. 

Currently, many HMRC self-assessment digital changes require people to submit just one tax return annually with manual bookkeeping. Under the new system, business records will be kept digitally and reported quarterly.

Who Will Need to Use Making Tax Digital Self Assessment?

From April 2026, the first wave includes sole traders and landlords with qualifying income above £50,000 from self-employment or property rental. This is the threshold for the first phase of MTD income tax changes. The government will then lower this threshold over the following years:

• April 2027: Income over £30,000
• April 2028: Income over £20,000

This phased approach gives smaller businesses and individuals more time to prepare. If you are self-employed or a landlord whose income exceeds these thresholds, you must use HMRC-recognised software and follow MTD rules soon.

What Does Making Tax Digital Self-Employed Mean?

For self-employed workers, including freelancers and contractors, this means moving away from filing one annual self-assessment tax return to submitting digital tax returns quarterly. You will need to:

• Keep digital records of all your income and expenses using compatible software
• Submit quarterly updates to HMRC with up-to-date figures on your earnings and costs
• File a final declaration after the tax year ends to settle your tax bill

This is different from the old system, where you kept paper or Excel records and submitted one big tax return once a year.

How Do Quarterly Updates Work?

Instead of reporting everything just once a year, Making Tax Digital Self-assessment requires sending four updates throughout the tax year. 

Quarterly Updates (4 times a year)

• Submit your income and expense totals for each quarter using HMRC-approved software.
• Deadlines are usually a few months after each quarter ends.
• Helps you keep HMRC updated and track your tax position throughout the year.

Final Declaration (End of tax year)

• Confirm your total income, expenses, reliefs, and allowances for the full year.
• This replaces the traditional annual Self Assessment tax return.

What Software Will You Need for MTD Income Tax?

HMRC requires the use of Making Tax Digital Self-assessment compatible software to create, store and send your tax data digitally. There are many approved HMRC software providers with tools for small business owners and landlords.

If you already use accounting software that supports MTD for VAT, the transition will be easier since you’re familiar with digital tax reporting. Otherwise, you will need to select software and set it up before your compliance start date.

Benefits of HMRC MTD for Income Tax Changes

Making tax digital Self-assessment is designed to make tax reporting easier and more accurate in the long run. Some key benefits include:

• Reduced errors through automatic record keeping and software calculations
• More frequent updates help you avoid surprises by tracking your tax liability throughout the year
• Less time spent crunching numbers from paper records at year-end
• Real-time insights into the financial health of your business via software dashboards
• Smooth digital submission means fewer manual processes and quicker communication with HMRC

How to Get Ready for Making Tax Digital Self-Assessment?

Getting ready for Making Tax Digital Self Assessment requires some simple but important steps to ensure smooth compliance with HMRC’s new digital tax reporting rules.

1. Check if MTD for Income Tax Applies to You: Use HMRC’s online resources to calculate your qualifying income and confirm if you must start using MTD software from April 2026 or later.
2. Select Suitable Software: Research HMRC-approved software options and choose one that aligns with your needs and budget.
3. Start Keeping Digital Records: Begin maintaining your business income and expenses digitally, rather than on paper or in spreadsheets, to ease the transition.
4. Sign Up for Making Tax Digital: Register your details with HMRC and link your software account for smooth data submission.
5. Submit Your Quarterly Updates on Time: Plan to gather and submit your quarterly digital tax returns well before deadlines.

Conclusion

Making Tax Digital Self-assessment is a major change designed to simplify tax reporting for self-employed and landlord taxpayers across the UK. Starting from April 2026, if you meet income thresholds, HMRC will require you to use software to file quarterly digital tax returns.

If you are self-employed or rent out property, learning about these new digital tax rules now will make things easier and help you stay in control of your money in the future. PHS Associates can help you navigate the complexities of Making Tax Digital Self Assessment by providing expert assistance with your digital record keeping, quarterly submissions, and final tax declarations.  Call us at 0208 8611685 or email info@phs-uk.co.uk. 

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