MTD for self-employed individuals: What you need to know
MTD, or Making Tax Digital, is a new initiative by the UK government to modernize the tax system and make it easier for taxpayers to keep track of their tax affairs. MTD will affect self-employed individuals and landlords who have an annual turnover above £50,000 from April 2026 & turnover above £ 30,000 from April 2027. This means that they will have to use compatible software to keep digital records of their income and expenses, and to submit their tax returns online to HMRC. In this article, we will explain what MTD is, how it compares to the previous tax reporting system, what are the benefits and potential drawbacks of MTD for self-employed individuals, and how they can prepare for MTD.
What is MTD?
MTD is a new way of reporting and paying tax online, using software that can link to HMRC’s systems and send and receive information. MTD aims to provide a more accurate, efficient, and transparent tax system, by reducing errors, simplifying the process, and giving taxpayers a clearer view of their tax position. MTD is being rolled out gradually, starting with VAT-registered businesses in April 2019, and was due to extend to self-employed individuals and landlords from April 2023. The second phase was delayed and is now set to go.
How does MTD compare to the previous tax reporting system?
The table below summarises some of the main differences between the previous tax reporting system and the new MTD system for self-employed individuals.
| Previous system | MTD system |
| Self-employed individuals had to file a self-assessment tax return once a year, by 31 January following the end of the tax year. | Self-employed individuals will have to submit quarterly updates of their income and expenses to HMRC, using compatible software, within one month of the end of each quarter. They will also have to file a final declaration at the end of the tax year, by 31 January. |
| Self-employed individuals could keep their records in any format, such as paper, spreadsheets, or software. | Self-employed individuals will have to keep their records digitally, using software that can link to HMRC’s systems and send and receive information. |
| Self-employed individuals could choose whether to use cash or accrual accounting, depending on their turnover and preference. | Self-employed individuals will have to use cash accounting, unless they are already using accrual accounting for other purposes, such as VAT or loan covenants. |
| Self-employed individuals could claim simplified expenses for some costs, such as vehicle mileage, home office, and flat rate adjustments. | Self-employed individuals will still be able to claim simplified expenses for some costs, but they will have to record them digitally and report them separately to HMRC. |
What are the benefits of MTD for self-employed individuals?
MTD aims to provide several benefits for self-employed individuals, such as:
- Reducing errors and mistakes in tax reporting, by eliminating manual data entry and calculations.
- Providing a clearer and more timely view of their tax position, by showing how much tax they owe or are owed throughout the year.
- Simplifying the tax compliance process, by enabling them to use software that can integrate with their bank accounts, invoicing systems, and other sources of data.
- Aligning their tax reporting with their business cycles, by allowing them to report quarterly rather than annually.
How can self-employed individuals prepare for MTD?
Self-employed individuals who will be affected by MTD from April 2026 should start preparing as soon as possible, by taking the following steps at Outsourced ACC we work with a range of affordable software and are ready to roll this out to our clients starting from April 2024:
- Checking their eligibility and obligations for MTD, by visiting the HMRC website or consulting a tax adviser.
- Choosing and setting up a compatible software that meets their needs and preferences, by comparing different options and features.
- Updating and transferring their records to the software, by ensuring that they have accurate and complete information on their income and expenses.
- Signing up and testing the software, by registering with HMRC and submitting a test update.
- Monitoring and reviewing their tax position, by checking their online account and adjusting if needed.
To take advantage and get ready for MTD give us a ring today. Our All-inclusive package will ensure we take all the burden off you and get you set up and ready for the change.