Article by Coconut
Making Tax Digital (MTD) for Income Tax is no longer something on the horizon – it’s here.
If you’re self-employed or a landlord, you may already be affected, or you could be next in line as HMRC expands the programme over the next two years.
The good news? If you’ve already started keeping digital records, you’re ahead of the game. If you haven’t, there’s still time to get organised before MTD applies to you.
What is Making Tax Digital?
Making Tax Digital for Income Tax is HMRC’s new way of managing tax for self-employed people and landlords.
Rather than keeping paper records or relying on spreadsheets before completing a single annual tax return, those within MTD will need to:
- Keep digital records of their income and expenses
- Use compatible software to maintain those records
- Send quarterly updates to HMRC
- Submit a Final Declaration at the end of the tax year
The aim is to reduce errors, improve record keeping and help people stay on top of their tax throughout the year instead of facing one large annual task.
Who does MTD apply to?
Making Tax Digital is being introduced in stages.
From April 2026
If your combined self-employed and/or property income is more than £50,000, you should now be complying with MTD for Income Tax.
From April 2027
The threshold reduces to £30,000.
From April 2028
The threshold reduces again to £20,000, bringing millions more taxpayers into the scheme.
If your income is below these thresholds, you don’t need to follow the new rules yet – but moving to digital record keeping now can make the transition much easier.
Already over £50,000?
One important point catches many people out.
Even if you meet the income threshold, MTD isn’t automatic. Eligible taxpayers need to register with HMRC before they can start submitting quarterly updates using compatible software.
If you think MTD applies to you but you’re unsure whether you’ve registered, it’s worth checking sooner rather than later.
Why switch to digital before you have to?
Preparing early isn’t just about meeting HMRC’s requirements.
Digital bookkeeping can genuinely make running your business easier.
| Without digital records | With digital records |
| Lost receipts | Receipts safely stored |
| Guessing expenses | Accurate records |
| Uncertain tax bill | Real-time tax estimates |
| January panic | Tax managed throughout the year |
| Hours spent searching paperwork | Everything in one place |
Keeping records digitally also gives you a clearer picture of how your business is performing throughout the year, helping you make better financial decisions.
What do digital records actually look like?
You don’t need accounting experience or complicated software.
Using HMRC-recognised software like Coconut means you can:
- Automatically import transactions from your bank account
- Categorise business income and expenses
- Store receipts digitally
- See an estimate of your tax as you go
- Prepare and submit MTD updates when required
Instead of chasing paperwork, your records are kept up to date throughout the year.
Who benefits most?
Digital record keeping is useful for any self-employed person, but it’s particularly valuable if you:
- Work under CIS and need to track deductions
- Use one bank account for both personal and business spending
- Have multiple clients or income sources
- Regularly claim expenses such as mileage, tools, travel or phone costs
- Need proof of income for mortgages, renting or finance applications
Don’t wait until MTD reaches you
Even if you don’t need to comply just yet, building good habits now will save time and reduce stress later.
Making Tax Digital is gradually becoming the new normal for millions of self-employed people. Starting with digital records today means you’ll be ready when your turn comes, while also gaining a better understanding of your business finances along the way.
Running your own business is rewarding, but the paperwork isn’t. Coconut is the simple app that helps self-employed people stay on top of their finances, keep accurate records and prepare for Making Tax Digital – giving you one less thing to worry about.
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