Does Making Tax Digital apply to me?
If MTD ITSA applies to you, the way you manage tax changes in a few practical ways. It is not just a different form at the end of the year - it is a new rhythm of record-keeping and reporting throughout the year.
You will need to keep all your business records digitally - income, expenses, invoices and receipts - in an MTD-compatible accounting tool. Manual re-keying between systems (cut and paste) is not allowed; your submissions must link directly to those digital records.
That means recording every payment in and out: sales invoices, bank transfers, card payments, PayPal or Stripe receipts, and allowable expenses with date, amount, description and category. Keep digital copies of invoices and receipts too - photograph paper receipts, save PDFs from email.
Most tools can link to your business bank account to pull in transactions automatically. Keeping business banking separate makes this much easier, even though it is not legally required.
Under MTD ITSA you will submit four quarterly updates each tax year on fixed dates (7 August, 7 November, 7 February and 7 May), plus a final declaration.
These updates are not full tax returns - they are cumulative summaries of your income and expenses so you and HMRC build a clearer picture of your tax position as the year goes on.
You will still submit your end-of-year tax assessment and pay any tax due by 31 January - but through your software, not the old HMRC forms.
See our MTD quarterly update deadlines calendar entry for the full list.
You will most likely need MTD-compatible accounting software. Options range from free tiers to paid subscriptions (often around £10/month), and some business bank accounts include software as a perk.
Find software that works with Making Tax Digital for Income Tax.
If you rely on spreadsheets, bridging software may be an option - but check it meets HMRC's digital linking requirements before you commit.
In practice, this means a little more administration throughout the year, not just a rush before 31 January. Many freelancers find that keeping on top of records every month reduces end-of-year stress and gives a better sense of what they owe.
Miss a quarterly deadline and you could face penalties under HMRC's points-based system.