Making Tax Digital

Making Tax Digital for Income Tax: What You Need to Know and How Adena Accountancy Can Help

Many self-employed individuals and small business owners may have heard of Making Tax Digital (MTD) since it was first introduced by the Government in the 2015 Spring Budget, but those who are not VAT-registered might still be unclear on what it actually means and how it could affect their business.

In this article, we’ll break down what Making Tax Digital is, focus specifically on the MTD for Income Tax, and explain why it’s more of an opportunity than a burden. We’ll also share how Adena Accountancy can help you stay compliant with MTD requirements using FreeAgent, the award-winning accounting software we provide to all our clients—completely free of charge.

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What is Making Tax Digital (MTD)?

Making Tax Digital is the UK Government’s ongoing initiative to modernise the tax system by transitioning it to a fully digital format. The goal is to eliminate manual processes, improve efficiency and accuracy, and ultimately close the tax gap.

MTD requires taxpayers to:

• Maintain digital records
• Use HMRC-approved software for calculating and submitting tax returns
• Submit more frequent updates to HMRC on income and expenses

This marks a major transformation in how taxes are reported and paid, and the rollout is being phased in to make the transition more manageable.

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What’s Already in Place?

Making Tax Digital for VAT is already mandatory. Since April 2022, all VAT-registered businesses must:

• Keep digital records
• Use MTD-compatible software to prepare and submit VAT returns
• Avoid manually entering data directly into the HMRC portal

While nearly half of UK private sector businesses are VAT-registered and already comply, many smaller businesses and sole traders have yet to encounter MTD. If you’re not yet using compliant software or digital record-keeping practices, it’s wise to prepare now before MTD for income tax takes effect.

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MTD for Income Tax: What’s Coming?

The next stage of the rollout is Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA):

• From April 2026: Sole traders and landlords with income over £50,000 must comply
• From April 2027: The threshold drops to £30,000

To comply with MTD for ITSA, you’ll need to:

• Use HMRC-approved software for keeping records
• File quarterly updates with HMRC instead of a single annual return
• Submit an End of Period Statement (EOPS) and a Final Declaration

Based on this data, HMRC will calculate your tax bill and inform you of any amounts owed.

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What’s Next?

While the Government hasn’t yet announced firm dates for MTD beyond 2027, it’s widely expected that:

• All income taxpayers will eventually fall under MTD rules
• Corporation Tax will be brought into MTD in a future phase

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Why Use Accounting Software for MTD?

Accounting software makes complying with MTD simple—but its benefits extend far beyond just ticking compliance boxes.

✅ Digital Record-Keeping

With FreeAgent’s mobile app, you can log receipts and expenses on the go. Scanned documents are digitally stored, categorised, and backed up, helping you stay organised and avoid the January scramble.

✅ Automatic Tax Calculations

Your tax return is automatically calculated in the background as you go about your bookkeeping. Once ready, it can be digitally filed with HMRC—accurate, efficient, and fully MTD-compliant.

✅ Time-Saving Automation

Recurring tasks like invoice generation, payment reminders, and transaction categorisation are handled automatically, saving you hours each month.

✅ Insightful Financial Reports

FreeAgent generates real-time financial reports—profit & loss, balance sheets, and cash flow statements—so you always know where your business stands.

✅ Bank Integration & Reconciliation

FreeAgent integrates with your bank, importing transactions automatically and categorising them to streamline your bookkeeping.

✅ Professional Invoicing & Payments

Send branded invoices, track payments, and enable secure online payment options for your clients. You’ll improve cash flow without lifting a finger.

✅ Accountant Collaboration

You can grant your accountant access to your software, allowing them to monitor your finances, offer guidance, and handle your accounts more efficiently—no more forwarding paperwork.

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How Adena Accountancy Supports Your MTD Journey

Although MTD for Income Tax doesn’t come into effect until 2026 for many, it pays to get ahead now. Adena Accountancy offers future-ready support with:

• Free access to FreeAgent software (worth up to £330/year)
• A dedicated accountant to manage your business and personal tax affairs
• Unlimited support and advice to help you stay compliant and maximise tax efficiency

We’re proud FreeAgent Platinum Partners, and our focus on technology ensures our clients are well-prepared for the future of digital tax.

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Get Ready Today
If you’re a self-employed professional, landlord, or small business owner, don’t wait until the deadline to get MTD-ready. With Adena Accountancy and FreeAgent, digital tax doesn’t have to be daunting—it can be a smarter, simpler way to manage your finances.

Get in touch with Adena Accountancy today to start your MTD journey with confidence.