MTD for the Self-Employed: What You Need to Know in 2025

Making Tax Digital (MTD) is transforming the way self-employed individuals and landlords manage their taxes in the UK. If you haven’t already adapted to the new rules, now’s the time to get up to speed. Whether you’re a sole trader, a property owner, or both, MTD will likely affect how you record, report, and submit your tax information.

Who Needs to Follow MTD Rules?

MTD for VAT

• All VAT-registered businesses, regardless of turnover, must already comply with MTD.

• You must keep digital records and submit VAT returns using MTD-compatible software.

• Bridging software is acceptable if you prefer using spreadsheets, but it must be able to communicate with HMRC’s systems.

  
  

MTD for Income Tax Self Assessment (MTD ITSA)

• MTD ITSA will be mandatory from April 2026 for sole traders and landlords with annual business or property income over £50,000.

• From April 2027, the threshold drops to £30,000.

• Threshold will then decrease to £20,000 in April 2028

  
  

What Does MTD Mean for You?

Once you’re required to follow MTD, your tax responsibilities will shift in several key ways:

1. Digital Record Keeping

You must maintain digital records of all income and expenses. This includes:

• Sales and turnover

• Business expenses

• Property income and costs (if applicable)

• VAT transactions (if registered)

Records must be stored in a digital format using MTD-compatible software. Manual record-keeping or handwritten ledgers are no longer compliant.

2. Quarterly Submissions

Instead of filing one annual Self Assessment return, you’ll submit quarterly updates to HMRC. These updates include:

• Summary of income and expenses for the quarter

• Submitted via your chosen software

• Due one month after the end of each quarter

This gives HMRC a more real-time view of your tax position and helps you stay on top of your obligations.

3. End-of-Period Statement (EOPS)

At the end of the tax year, you’ll submit an EOPS to confirm your income and make any necessary adjustments (e.g., accounting for capital allowances or reliefs).

4. Final Declaration

This replaces the traditional Self Assessment return. It includes:

• All income sources (business, property, employment, dividends, etc.)

• Final tax calculation

• Submission deadline: 31 January following the end of the tax year

Choosing the Right Software

You can find a list of MTD-compatible software on HMRC’s website: Find software for MTD.

Some software is free, especially for basic VAT returns. For MTD ITSA, most providers offer paid plans, but many include features like:

• Automated bank feeds

• Expense tracking

• Invoice generation

• Tax forecasting

• Accountant collaboration tools

  
  

Is It Worth Paying for Software?

While it might feel unfair to pay for something you used to do manually, the benefits are real:

• Fewer errors thanks to automation

• Time saved on admin tasks

• Better visibility into your finances

• Peace of mind knowing you’re compliant

Final Thoughts

MTD is here to stay, and the sooner you adapt, the smoother your transition will be. Whether you’re already VAT-registered or preparing for MTD ITSA in 2026, now is the time to explore your software options, digitize your records, and embrace the future of tax reporting.

Useful Link: Stay Ahead of MTD Deadlines

To help you stay on top of your obligations, HMRC has published a comprehensive list of important dates for MTD for Income Tax. This includes rollout phases, quarterly submission deadlines, and final declaration timelines. You can find it here: MTD for Income Tax dates you need to know - Making Tax Digital