If you run your own business, HMRC is changing how you tell them what you earn. It’s called Making Tax Digital for Income Tax, and for some of our founders, it’s already started. This is your plain-English guide to what’s changing, whether it affects you yet, and what to do about it.

What’s actually changing

Right now, most self-employed people fill in one Self Assessment tax return a year. Under the new system, that annual return is being replaced. Instead, you’ll send HMRC a digital update every three months, using approved software, and then finish the year with a Final Declaration that pulls everything together.

The quarterly updates aren’t a new tax bill every three months. They’re a running summary of your income and expenses. You still pay your tax once a year, in January, just as before. What’s changed is how often you report, and how you keep your records.

Does this affect you yet

It depends on how much you earn from self-employment or property, added together, before expenses come off. HMRC calls this your qualifying income. The rollout is happening in stages, set out on HMRC’s Making Tax Digital guidance page.

From	You need to use it if your qualifying income is over
6 April 2026	£50,000 (based on your 2024 to 2025 tax return)
6 April 2027	£30,000 (based on your 2025 to 2026 tax return)
Under review	A lower threshold, possibly £20,000, is expected from 2028

If your income is below £50,000 right now, nothing changes for you yet, though it’s worth keeping an eye on your numbers as the thresholds come down over the next couple of years. If you’re already over £50,000, this applies to you from this tax year, and your first quarterly update was due by 7 August 2026.

Qualifying income is your turnover, not your profit. So if you’re totting up whether you’re over or under the line, use the figure before you take off costs and expenses.

What you’ll need to do

• Keep digital records of every bit of business income and every expense, as you go, rather than gathering receipts at year end.
• Use software that’s compatible with HMRC’s system. Spreadsheets alone won’t cut it unless they’re linked through bridging software.
• Send a quarterly update to HMRC summarising your income and expenses for that period.
• Submit a Final Declaration at the end of the year, replacing the old Self Assessment return, to confirm your total income and finalise your tax.

The key dates for this tax year

If you’re in the first group, your four quarterly updates for the 2026 to 2027 tax year are due by 7 August 2026, 7 November 2026, 7 February 2027 and 7 May 2027. Your Final Declaration for the year is due by 31 January 2028, the same date Self Assessment has always been due.

The good news

HMRC knows this is a big change, so there’s a soft landing for this first year. If you’re in the 2026 to 2027 cohort and you miss a quarterly update deadline, you won’t get a penalty point for it this year. That grace period doesn’t stretch to your Final Declaration though, so 31 January 2028 still matters, and it doesn’t cover late payment of tax either, which runs on its own set of rules.

From April 2027, the grace period ends and the normal penalty points system applies. Miss a quarterly deadline and you pick up a point. Once you’ve built up four points, a £200 fine follows, with another £200 for each deadline you miss after that. Points drop off after a period of on-time filing, so staying on top of things now saves a headache later.

What software will you need

This is the bit that catches most founders out. You can’t report through the post or by typing figures into your Self Assessment account any more. Everything has to go through software that’s built to talk to HMRC directly.

There are two broad types, and which one suits you depends on how you already keep your records.

• Full accounting software. This creates your digital records for you, often by linking to your business bank account, letting you photograph receipts, or by manual entry. Most also send your quarterly updates and your Final Declaration in one place.
• Bridging software. If you already keep a spreadsheet and don’t want to give it up, bridging software connects that spreadsheet to HMRC’s system and submits the figures for you. It’s usually the cheapest route if your records are already in good shape.

On cost: genuinely free options do exist, usually aimed at straightforward affairs with one income source and a modest number of transactions, so they’re worth checking if your business is simple. Beyond that, paid packages tend to run from under £5 a month for basic bridging software up to £15 to £30 a month for fuller accounting packages with bank feeds and receipt scanning built in. It’s a real cost to budget for, not a one-off fee, since most of these run as a monthly or annual subscription.

HMRC does not recommend or endorse any particular product. What matters is that whatever you choose appears on HMRC’s list of recognised software, and that it covers everything you need: creating digital records, sending quarterly updates, and submitting your Final Declaration. HMRC also has a free software finder tool that asks a few questions about your business and gives you a personalised shortlist, which is a good place to start rather than picking the first app you come across.

Some providers to look at

This isn’t an endorsement, and it isn’t the full market. HMRC’s own list changes regularly as new products pass testing, so always check a provider is still on it before you sign up. It’s a starting point for your own comparison, not a recommendation from Tree Shepherd.

Full accounting software (does most of the work for you)

• Xero
• QuickBooks
• Sage Business Cloud Accounting
• FreeAgent
• FreshBooks

Built for sole traders and freelancers with simpler affairs

• Coconut
• Untied
• QuickBooks Self-Employed
• FreeAgent (free if you bank with NatWest, Royal Bank of Scotland or Mettle)

Bridging software (keeps your spreadsheet, connects it to HMRC)

• GoSimpleTax
• VitalTax
• 123 Sheets
• QuickFile

Landlords and property income

• Hammock
• Landlord Studio

Genuinely free tiers are usually aimed at a single trade with a modest number of transactions, so check the small print on limits before relying on one long term. If you’re not sure where to start, HMRC’s software finder tool will ask a few questions about your business and suggest recognised options that fit.

How to get ready

• Work out your qualifying income for the last full tax year, so you know which group you’re in.
• If you’re already over £50,000, check you’re signed up and that your software is talking to HMRC.
• Use HMRC’s software finder tool to get a shortlist of recognised products that match your business, rather than guessing.
• Start logging income and expenses digitally now, even if your quarterly obligation hasn’t started yet. It makes the eventual switch much easier.
• Factor the software cost into your budgeting. Even the cheaper end is an ongoing expense, not a one-off purchase.
• If you use an accountant or bookkeeper, ask them how they’re handling MTD for their clients, and whether they have a preferred product that fits with how they work.
• If you’re not sure whether this applies to you, HMRC has a free online checker that only takes a few minutes.

This is a genuine shift in how self-employed people deal with tax, and it’s arriving at different times for different founders. The earlier you get your record-keeping sorted, the less it will feel like a shock when your turn comes.

Not sure where you stand, or want to talk through what digital record-keeping actually looks like day to day? Get your name on the list for our next  Start Your Own Enterprise or register to speak to one of our Tree Shepherd mentors. We’re happy to point you in the right direction.