Get that sinking feeling in your stomach every time you see the words, Making Tax Digital? We get it. You’re thinking more rules, more paperwork and more time you don’t have.
But here’s the good news: you’re not being forced into anything yet and you don’t need to start submitting quarterly tax returns just yet.
What you can do though is get prepared – and that preparation will make the changes later much easier.
What is Making Tax Digital (in plain English)?
Making Tax Digital is HMRC’s plan to modernise the tax system. Instead of doing everything in one stressful rush once a year, self-employed people will gradually move to:
- Keeping records digitally
- Sending income and expense summaries to HMRC throughout the year
- Submitting a final tax position online
In doing so, it’s believed that mistakes will be reduced and tax more predictable. Plus, it removes any nasty end-of-year surprises.
When does this affect you?
An estimated 2.9 million self-employed and landlord taxpayers will be brought into Making Tax Digital for Income Tax between 2026 and 2028. This is roughly 42% of all those filing Self Assessment returns.
It’s being phased in but will first apply to those earning over £50,000 per year, thought to be about 864,000 people. This threshold then drops to £30,000 in April 2027 and £20,000 in April 2028, bringing even more self-employed people into the digital system.
Whether or not the first threshold applies to you, right now, HMRC is encouraging people to move away from paper and spreadsheets and start using digital recordkeeping software.
In fact, by building better habits now you should find the official switch much less painful. And that’s not the only benefit of getting ahead.
Why getting ready now is such a big advantage
Preparing now isn’t about compliance. It’s about finding ways to make your life easier.
Reports suggest many sole traders are still unprepared for digital tax changes. A large portion still use pen and paper or spreadsheets, and nearly 70% aren’t aware of the upcoming digital filing requirements.
Digital records aren’t just being enforced to help HMRC but also help you run your business better. Here’s what happens when you don’t prepare:
| Last-minute scramble | Early digital prep |
| Lost receipts | Receipts safely stored |
| Guessing expenses | Accurate numbers |
| Big unexpected tax bill | Real-time tax estimates |
| Stressful Januarys | Calm, controlled finances |
| Expensive accountant fixes | Cleaner records |
Plus, you won’t panic when Making Tax Digital does officially arrive and with an understanding of what to do and what’s required, you’ll likely feel more in control of your business finances.
What do digital records look like?
You don’t need technical skills or accounting knowledge. But you do need compliant software recognised by HMRC. Software like Coconut that will ensure:
- Every payment you receive is logged automatically
- Every business expense is categorised
- Receipts are stored safely
- Your tax position updates in real-time
Less paperwork, no complicated formulas and no more confusing spreadsheets.
Who will benefit most?
The truth is, Making Tax Digital will benefit everyone who it applies to. But digital records are especially helpful if you:
- Work under CIS and need to track deductions
- Use your personal account for business money
- Work across multiple clients
- Claim mileage, tools, materials, travel, phone bills, etc.
- Want proof of income for mortgages, rentals or loans