What Is Making Tax Digital — And Why Do You Need It? | ArcTax Blog

By an accountant and bookkeeper who has helped sole traders and landlords get MTD-ready · 1 June 2026 · 8 min read

If you are self-employed or earn income from renting out property, you have probably heard the phrase “Making Tax Digital” by now. Maybe your accountant mentioned it. Maybe HMRC wrote to you. Maybe you just came across it online and thought, “I will worry about that later.”

This post is for you — and “later” is arriving faster than you think.

So, What Actually Is Making Tax Digital?

Making Tax Digital (MTD) is HMRC's plan to move the UK tax system online. The goal is simple: instead of filling in one big tax return at the end of the year, you keep digital records throughout the year and send HMRC quarterly updates using approved software.

Think of it less like a new tax — and more like a new way of reporting the tax you already owe.

For sole traders and landlords, this applies to MTD for Income Tax Self Assessment (MTD ITSA).

The Biggest Misconception I Hear From Clients

In my years as an accountant and bookkeeper, the number one thing people say when Making Tax Digital comes up is: “Tax is complicated.”

And I understand why. HMRC communications are not exactly written to put you at ease. But here is the truth: MTD, for most people, actually makes tax less complicated — not more.

The complexity of the old system came from trying to remember everything that happened over 12 months, scrambling for receipts, and submitting everything in a panic before the January deadline. MTD breaks that into manageable quarterly chunks. You always know roughly where you stand.

Does MTD Apply to You?

MTD for Income Tax is triggered by your gross income (before expenses) from self-employment, UK rental income, or a combination of both:

From	Income Threshold	Who It Applies To
April 2026	Over £50,000	Sole traders and landlords
April 2027	Over £30,000	Sole traders and landlords
April 2028	Over £20,000	Sole traders and landlords

This is important: even if you are not affected today, the threshold is coming down. Anyone earning over £20,000 from self-employment or property will eventually be required to comply. That covers a huge number of people.

What Does the Process Actually Look Like?

This is where a lot of people are surprised. It is much simpler than they expected.

Check if MTD applies to you

Add up your gross self-employment income and rental income. If the combined total is above the threshold for your year, MTD applies.

Choose compatible software

You will need software approved for MTD, such as ArcTax — a simple, affordable option designed specifically for this. The software handles communication with HMRC so you do not have to.

Connect your bank account

Most software lets you link your business bank account. Transactions flow in automatically. A payment comes in — it is recorded. You buy supplies — it is recorded.

Keep digital records throughout the year

This means logging income and expenses as you go. Invoices, receipts, costs — all captured digitally rather than in a drawer.

Submit quarterly updates

Every three months, your software sends a summary to HMRC. You are not paying tax quarterly — you are simply reporting figures more regularly. That is a crucial distinction.

Complete the Final Declaration at year end

At the end of the tax year, you review everything, make any adjustments, and submit your Final Declaration. This replaces the traditional Self Assessment return.

A Real Client Story

I had a client — a sole trader — who had been submitting his tax return on paper for years. He was always late. The fines were piling up, and the whole process left him stressed and confused.

When he came to us, we gave him a simple Excel file to capture his income and expenses. We showed him how quickly we could upload that information into our software and submit it to HMRC. The look on his face said it all. He could not believe how straightforward it was.

That transformation — from paper chaos and late penalties to organised, on-time submissions — is what MTD done properly looks like.

The Single Biggest Benefit: No More Surprises

In my view, the most underrated benefit of Making Tax Digital is this: no more shock at the end of the year.

Under the old system, sole traders and landlords would do their tax return in January and sometimes discover they owed far more than they had saved. That is a horrible position to be in.

With quarterly updates, your software builds a running picture of your tax position throughout the year. You always have a sense of what is coming. You can plan, save, and avoid those nasty surprises.

What Happens If You Ignore It?

Some people assume HMRC will not notice, or that they can deal with it when a letter arrives. That is a risky approach.

HMRC operates a points-based penalty system for MTD. Every missed quarterly submission earns you a penalty point:

Missed Deadlines	Result
1st	1 penalty point
2nd	2 penalty points
3rd	3 penalty points
4th	£200 penalty
Each one after	Additional £200

On top of that, late payment of tax attracts daily interest and percentage-based penalties that can add up quickly.

And the biggest penalty of all? The scramble. When people leave it too late, the issue is not just submitting quarterly updates — it is the panic of trying to get years of paper records into a digital format overnight. That is genuinely painful.

My Honest Advice: Do Not Wait

I tell every client the same thing. Spend five minutes checking whether MTD applies to you now — rather than waiting for HMRC to contact you.

Many sole traders and landlords assume one of three things:

"My income is not high enough."
"My accountant will sort it out."
"I will worry about it when HMRC writes to me."

The challenge is not the quarterly submissions themselves. It is getting your records organised and moving away from paper or spreadsheets. That takes time to do properly.

Income over £50,000

You should already be preparing. April 2026 is here.

Income between £30,000 and £50,000

You have until April 2027 — but the time to start building good habits is now, not in March 2027.

Ready to Get Started?

At ArcTax, we have built a simple, affordable MTD solution designed specifically for sole traders and landlords. It connects to HMRC directly, captures your income and expenses, and submits your quarterly updates — without the complexity of bigger accounting platforms.

Making Tax Digital does not have to be complicated. It just has to be done.

ArcTax connects directly to HMRC via OAuth — no middleware. Submit quarterly updates for self-employment and property income, track obligations, and file your Final Declaration.

Get started free

Have questions about MTD? Visit arctax.co.uk to find out more, or explore our Making Tax Digital guides.