Making Tax Digital —
What You Need to Know
HMRC is replacing the annual self assessment with quarterly digital reporting. It's not optional — and the deadlines are closer than most people think.
Clever Accounts gets you MTD-ready from day one. Free FreeAgent software included. Dedicated accountant managing every submission.
MTD Status at a Glance
FreeAgent is HMRC-recognised MTD-compatible software — included free with every Clever Accounts package
The Basics
What is Making Tax Digital?
Making Tax Digital (MTD) is HMRC's multi-year programme to digitise the UK tax system. The core idea is simple: instead of filing everything in one annual return, businesses must keep digital records throughout the year and report to HMRC more frequently using approved software.
For most sole traders, this means replacing the traditional self assessment tax return with four quarterly updates plus a final declaration at year end. The quarterly updates summarise your income and expenses for each three-month period — HMRC can then see your tax position in real time rather than waiting until January.
The goal, according to HMRC, is to reduce errors, make tax easier to manage, and help businesses avoid unexpected year-end tax bills. In practice, it means you need HMRC-approved software and — ideally — a good accountant to manage it.
- One annual return, filed by 31 January
- Entire year's records compiled at year end
- Easy to forget expenses or miss deductions
- Year-end tax bill is often a surprise
- Penalties for late filing by 31 January deadline
- Four quarterly updates + final declaration
- Digital records kept continuously throughout year
- Real-time tax estimate — no year-end surprises
- Easier to keep on top of expenses
- HMRC-approved software handles submissions automatically
MTD for VAT is already mandatory. MTD for Income Tax is the next major wave — affecting most sole traders and landlords from April 2026.
Quarterly Reporting
Four Updates a Year — Here's What That Looks Like
Under MTD for ITSA, your tax year is split into four quarters. Each quarter you submit a summary of income and expenses. At the end of the year, a final declaration confirms everything.
After the fourth quarter, you submit a final declaration (replacing the old SA return) by 31 January. This confirms your total income, claims any allowances or reliefs, and finalises your tax liability for the year. With FreeAgent and your accountant managing the quarterly submissions, the final declaration becomes a formality.
Deadlines
The Full MTD Timeline
MTD is being rolled out in stages. Here's the full picture — what's already live, what's coming, and when.
MTD for VAT
All VAT-registered businesses (turnover above then below £85k threshold)
MTD for VAT is fully mandated. Every VAT-registered business must keep digital records and file VAT returns using HMRC-recognised software. Paper VAT returns are no longer accepted. If you're VAT-registered and not yet using MTD-compatible software, you're already non-compliant.
MTD for Income Tax — £50,000+
Self-employed individuals & landlords with combined income over £50,000
From April 2026, sole traders and landlords with combined income from self-employment and property exceeding £50,000 must use MTD-compatible software to keep digital records and submit quarterly updates to HMRC. The annual self assessment tax return is replaced with four quarterly submissions plus a final declaration.
MTD for Income Tax — £30,000+
Self-employed individuals & landlords with combined income over £30,000
MTD for ITSA extends to those earning over £30,000. This brings a significantly larger group of sole traders and landlords into the quarterly reporting regime. With Clever Accounts, you'll be prepared well in advance — FreeAgent handles all quarterly submissions automatically.
MTD for Income Tax — Under £30,000
Smaller sole traders and landlords — consultation ongoing
HMRC has indicated MTD for ITSA will eventually extend to those earning below £30,000, but the timeline is subject to ongoing consultation. Partnerships and other business structures may also be brought in. We'll keep all clients informed as dates are confirmed.
MTD for Corporation Tax
Limited companies
HMRC has confirmed MTD will be extended to corporation tax, though the exact timeline is still under consultation. Limited companies will need to keep digital records and submit quarterly updates for corporation tax purposes. FreeAgent is expected to be fully compliant ahead of the deadline.
Our Approach
How Clever Accounts Gets You
MTD-Ready
We don't just tell you about MTD — we handle it for you. Here's exactly what you get.
Free FreeAgent Software
FreeAgent is HMRC-recognised MTD-compatible software, included free with every Clever Accounts package. It keeps your digital records automatically and submits your quarterly updates directly to HMRC — no bridging software, no manual uploads.
Dedicated Accountant
Your accountant manages your MTD compliance end-to-end. They'll review your quarterly figures before submission, flag anything unusual, and make sure your final declaration is accurate and optimised for tax.
Deadline Management
We track every quarterly submission deadline and your final declaration. You'll never receive a late filing penalty because we missed a date — that's our job, not yours.
Quarterly Tax Estimates
FreeAgent calculates your estimated tax liability in real time as you record income and expenses. No year-end shock — you'll know what you owe each quarter and can plan accordingly.
Seamless Record-Keeping
Open banking pulls transactions directly from your bank into FreeAgent and categorises them automatically. Snap receipts on your phone. Mileage tracked in the app. Digital records kept without you thinking about it.
Migration & Set-Up
If you're currently doing self assessment manually or through a different accountant, we handle the full migration — transferring your records, setting up FreeAgent, and getting you compliant from day one.
We're one of FreeAgent's highest-tier partners. FreeAgent is HMRC-recognised for MTD for VAT and MTD for Income Tax — and it's included free with every Clever Accounts package. No extra cost, no bridging software, no manual uploads.
MTD for CIS
Subcontractors
If you work in construction under the Construction Industry Scheme (CIS), you're classed as self-employed — which means MTD for ITSA applies to you just as it does to any other sole trader, once your income exceeds the threshold.
CIS adds a layer of complexity that makes good digital record-keeping even more important. Your contractor deducts tax at source (20% standard rate, 30% if you're not registered), and you need to track those deductions carefully to reclaim any overpayment at year end.
- CIS subcontractors are classed as self-employed — MTD for ITSA applies to you if your income exceeds the threshold
- CIS deductions suffer at source (20% standard or 30% unverified) — quarterly MTD submissions let you track your deductions and tax position in real time
- At year end, CIS subcontractors can reclaim overpaid tax — with FreeAgent tracking all deductions, this process is straightforward
- Gross payment status applications benefit from clean digital records — MTD compliance supports your case
- CIS contractors must also ensure their subcontractors are MTD-ready where applicable
FreeAgent tracks your CIS deductions suffered automatically. Your quarterly submissions will include the correct deduction figures, making your final declaration — and any tax refund — quick and accurate.
Most CIS subcontractors overpay tax during the year — contractors deduct at source but the actual tax owed is often less. With clean digital records through FreeAgent, your year-end reclaim is handled efficiently by your dedicated accountant.
Applying for gross payment status (so you receive payments without deduction) requires demonstrating good tax compliance. MTD-compliant digital records strengthen your application and make the process straightforward.
Don't Leave MTD
Until the Last Minute
Businesses that switch to digital record-keeping early are better prepared, less stressed, and in a stronger tax position. Get set up now and let FreeAgent do the heavy lifting.
Client Stories
What Our Clients Say
FAQ
MTD Questions Answered
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