Making Tax Digital for Self Assessment – Complete Guide 2026–2027.pdf

1. Making Tax Digital for Self Assessment The biggest change to Self Assessment in 30 years. From April 2026, eligible businesses must maintain electronic records and submit quarterly updates to HMRC.

2. What is MTD for Self Assessment? Digital Record Keeping Quarterly Reporting MTD requires sole traders and landlords to keep digital business records using HMRC-recognised software. Record income and expenses throughout the year instead of annual paper-based bookkeeping. Submit four quarterly digital updates to HMRC plus an annual declaration. This replaces the traditional annual Self Assessment return with spread-out reporting.

3. Who Must Comply? April 2026 Under Review Sole traders and landlords with income over £50,000 must comply Below £30,000 remains voluntary until further notice 2 1 3 April 2027 Threshold lowers to £30,000 - second wave expansion Exempt: Limited companies, partnerships (until 2027+), trusts, deceased estates, digitally excluded individuals, foster carers, and those without National Insurance numbers.

4. Digital Record Requirements Income Records Expense Records Supporting Documents Sales, takings, fees, rent Stock costs, travel, office expenses Keep original receipts Property premiums Maintain for 5 years after 31 January Financial charges Transaction amount and date Created close to transaction date Cannot manually copy between software Appropriate category Stored electronically

5. Compatible Software Options Free Solutions Paid Packages Bridging Software Sage Individual Xero TaxCalc FreeAgent (some users) QuickBooks Online 123 Sheets Self Assessment Direct Clear Books (limited) Kashflow Hammock (landlords) Check HMRC's software list for all compatible products. Choose software that meets your business needs and connects to HMRC's system.

6. Step-by-Step Compliance Guide Check Your Income Calculate total qualifying income from self-employment and property to determine your mandation date Choose Software Select compatible software that meets your needs. Sign up through your software provider, not HMRC Set Up Records Decide accounting method (cash or traditional). Create separate records for each business and property type Submit Updates Record transactions digitally and submit quarterly updates by deadlines: 5 Aug, 5 Nov, 5 Feb, 5 May Final Declaration Complete final declaration including all taxable income by 31 January deadline

7. Key Benefits of MTD Reduced Errors Time Savings Better Financial Visibility Software automatically calculates totals and digital linking eliminates manual entry mistakes. Quarterly updates catch errors early rather than at year-end. Spreading admin across the year makes tax preparation less overwhelming. Software automates calculations and cloud access enables recording anywhere. Quarterly updates provide clearer view of tax liability throughout year. Real-time records help with cash flow management and business planning. HMRC estimates the tax gap for Self Assessment businesses at £5 billion annually. MTD aims to reduce this through improved accuracy.

8. Quarterly Updates & Final Declaration 5 August Q1 Update 5 November Q2 Update 5 February Q3 Update 5 May Q4 Update Each quarterly update shows cumulative income and expenses from the start of the tax year. Submit your final declaration by 31 January including all other taxable income sources like employment, savings, dividends, capital gains, and pension contributions.

9. Implementation Costs & Timeline £320 Average Setup Cost £110 Annual Compliance 780K First Wave 2026 970K Second Wave 2027 Per business transitional cost for initial setup and software Average yearly additional cost per business for ongoing compliance Businesses joining from April 2026 with income over £50,000 Additional businesses joining from April 2027 with income over £30,000 Good news: Software and agent costs for business purposes are tax deductible expenses. HMRC IT costs expected around £500 million to end of March 2028.

10. Prepare for Your Digital Transition 1 Calculate Your Income Determine total qualifying income from self-employment and property to identify your mandation date 2 Research Software Compare features, costs and user reviews. Consider voluntary early adoption to familiarize yourself 3 Get Support Discuss requirements with your accountant or bookkeeper. Attend HMRC webinars and training sessions 4 Start Early Sign up well before your mandation date. Practice creating records and test submissions during voluntary period Visit Making Tax Digital campaign website for comprehensive guidance and updates. Preparing early ensures smooth transition to digital record keeping.