Making Tax Digital (MTD) continues to transform how businesses report taxes in the UK. After the successful rollout of MTD for VAT, the next major stage of the initiative will affect self-employed individuals and landlords through Making Tax Digital for Income Tax Self Assessment (MTD ITSA).
From April 2026, many taxpayers will be required to keep digital records and submit quarterly tax updates using HMRC-approved software. Businesses that fail to prepare early may face operational disruptions or potential compliance issues.
For small businesses, sole traders, and landlords, preparing for MTD should be treated as a structured process rather than a last-minute change.
This guide provides a practical MTD compliance checklist for 2026, outlining the steps businesses should take to ensure they meet HMRC requirements.
What Is Changing in 2026?
The next phase of Making Tax Digital will apply to individuals with combined self-employment and property income above £50,000.
From April 2026, affected taxpayers will need to:
- Keep digital records of income and expenses
- Use MTD-compatible software
- Submit quarterly updates to HMRC
- complete end-of-period statements
- Submit a final tax declaration
This replaces the traditional system where most individuals submit only one Self Assessment return per year.
The change means businesses must maintain more consistent financial records throughout the year.
Step 1: Confirm Whether MTD Applies to You
The first step in preparing for MTD is determining whether your business will fall within the reporting threshold.
From April 2026, MTD will apply to:
- self-employed individuals earning over £50,000
- landlords earning rental income above the threshold
- individuals with combined qualifying income above £50,000
If your income is close to the threshold, it is still advisable to begin preparing early. HMRC has already confirmed that the threshold will reduce to £30,000 from April 2027, meaning many more taxpayers will eventually be affected.
Step 2: Choose HMRC-Compatible Software
To comply with Making Tax Digital, businesses must use accounting software that can connect directly with HMRC’s digital systems.
The software should be capable of:
- keeping digital financial records
- generating tax reports
- Submitting data directly to HMRC
- maintaining a digital audit trail
Popular MTD-compatible software includes:
- Xero
- QuickBooks
- Sage Accounting
- FreeAgent
Choosing the right software early allows businesses time to learn the system and integrate it into their financial processes.
Step 3: Transition to Digital Record Keeping
Under MTD rules, businesses must maintain digital records of financial transactions.
These records typically include:
- income received
- business expenses
- VAT information (if applicable)
- transaction dates
- supplier details
Businesses that currently rely on paper receipts or manual spreadsheets should begin transitioning to digital systems well before the 2026 deadline.
Many accounting platforms also allow users to upload receipts digitally, making record management significantly easier.
Step 4: Organise Your Financial Data
Accurate and organised financial records will be essential under the new reporting structure.
Businesses should ensure that:
- Income is properly categorised
- Expenses are recorded regularly
- Receipts and invoices are stored digitally
- Financial transactions are reconciled consistently
Well-organised records simplify quarterly reporting and reduce the likelihood of errors.
Step 5: Prepare for Quarterly Reporting
One of the biggest changes under MTD ITSA is the introduction of quarterly reporting requirements.
Instead of submitting one annual tax return, businesses will provide four updates each year summarising their financial activity.
Each quarterly update will include:
- income earned during the reporting period
- expenses incurred
- a summary of business activity
These updates are not final tax calculations but provide HMRC with a more regular overview of a taxpayer’s financial position.
Businesses should establish bookkeeping routines that ensure records remain up to date throughout the year.
Step 6: Understand the End-of-Year Process
Although quarterly reporting will become mandatory, businesses will still need to finalise their tax position at the end of the tax year.
This involves two additional submissions.
End-of-Period Statement
This confirms that all financial records are complete and accurate.
Adjustments may be made for tax reliefs, accounting corrections, or other reporting adjustments.
Final Declaration
The final declaration replaces part of the traditional Self Assessment process and confirms all income sources and the final tax liability. Understanding this process early can help businesses avoid confusion when the new system is introduced.
Step 7: Ensure Digital Links Between Systems
If a business uses multiple financial tools, these systems must be connected through digital links.
Under HMRC rules, financial data should flow between systems electronically.
For example:
- accounting software connected to spreadsheets
- bookkeeping platforms linked to VAT reporting tools
- integrated payroll and accounting systems
Manual copying or re-entering of financial data may break the digital audit trail required under MTD.
Ensuring proper digital connections between systems is therefore essential for compliance.
Step 8: Train Staff or Update Internal Processes
Businesses with internal finance teams may need to update their processes to ensure they meet MTD requirements.
This may include:
- training staff on new accounting software
- updating bookkeeping procedures
- implementing regular financial reviews
- establishing reporting deadlines
Creating clear internal processes will help businesses manage quarterly reporting efficiently.
Step 9: Review Tax Planning Strategies
The transition to more frequent reporting may encourage businesses to review their overall tax planning approach.
Maintaining regular financial data provides better visibility into business performance, allowing owners to make informed financial decisions.
Businesses may wish to review areas such as:
- allowable expenses
- capital allowances
- cash flow planning
- tax liabilities throughout the year
Regular financial reviews can help businesses manage tax obligations more effectively.
Step 10: Work With an Accountant
For many businesses, working with an accountant will make the transition to Making Tax Digital significantly easier.
Accountants can provide assistance with:
- MTD registration
- software setup
- digital bookkeeping systems
- quarterly reporting
- tax planning and compliance
Professional support ensures that businesses remain aligned with HMRC requirements and avoid potential penalties.
Common Signs Your Business Is Not Ready for MTD
Businesses that are not yet prepared for MTD often show several warning signs.
For example:
- Financial records are still kept on paper
- Income and expenses are updated only once per year
- Spreadsheets are used without digital integration
- Accounting software is not MTD compatible
If any of these apply, businesses should begin transitioning to digital systems as soon as possible.
Benefits of Preparing Early
Businesses that begin preparing for Making Tax Digital ahead of the deadline can gain several advantages.
These include:
- smoother transition to digital reporting
- fewer compliance risks
- improved financial visibility
- Reduced administrative pressure near deadlines
Early preparation allows businesses to implement systems gradually rather than making rushed changes.
MTD Compliance Checklist Summary
To prepare for Making Tax Digital in 2026, businesses should ensure they complete the following steps:
✔ Confirm whether their income meets the MTD threshold
✔ Select HMRC-approved accounting software
✔ Transition to digital record keeping
✔ Organise financial data properly
✔ prepare for quarterly reporting requirements
✔ understand the end-of-year reporting process
✔ ensure digital links between financial systems
✔ update internal accounting processes
✔ review tax planning strategies
✔ seek professional accounting support where needed
Following this checklist can help businesses ensure they are fully prepared for the upcoming changes.
About the Author
Anwar is an ACCA certified UK accountant and the lead advisor at TaxGuru, a Manchester based accountancy firm with more than 15 years of in house experience.
He oversees all compliance, reporting, and advisory work to ensure every client receives accurate, structured, and fully UK compliant accounting support.
Speak With a Manchester Accountant
Preparing for Making Tax Digital can be challenging for many businesses, especially those transitioning from traditional bookkeeping methods.
Professional support can ensure that your business remains fully compliant with HMRC requirements.
For guidance or to discuss your accounting needs, fill the form on our website or visit our Manchester office to speak with our team.
TaxGuru provides structured accounting support, compliance services, and expert advice to businesses across Manchester and the UK.
