Making Tax Digital (MTD): What it is, who it affects and how to prepare

If you’re self-employed, run a small business, or earn money outside of PAYE, you’ve probably started hearing more about Making Tax Digital. 

For a lot of people, they’re now worrying about tighter deadlines, more admin, increased pressure to get things right. 

The good news is that once you understand how it works, it becomes much more manageable. That is exactly why we’ve written this guide to break it down clearly, so you know what’s changing and what it means for you. 

What is Making Tax Digital?

Making Tax Digital, or MTD, is a big part of HMRC’s plan to move the UK tax system fully online. 

Instead of keeping paper records and submitting one tax return each year, MTD means: 

• keeping digital records of your income and expenses 
• using compatible software 
• sending updates to HMRC throughout the year  

The aim is to reduce errors and give people a clearer view of their tax position as they go, rather than leaving everything to the end of the year.  

Who does Making Tax Digital apply to?

MTD for Income Tax is being introduced in stages, based on your income. 

From April 2026, it applies if your gross income from self-employment and property is over £50,000. 

From April 2027, the threshold drops to £30,000. 

From April 2028, it drops again to £20,000. 

This is based on your total income before expenses or deductions.  

If you’re in construction and working under CIS, this is particularly important. It’s your full earnings before deductions that count, not what lands in your account. 

If you’re employed through PAYE only, MTD won’t apply to you unless you have additional income on the side. 

What actually changes under MTD?

The biggest shift is how often you report your income. 

Instead of one annual tax return, you’ll have: 

• 4 quarterly updates 
• 1 final declaration  

Quarterly updates 

Each quarter, you send HMRC a summary of: 

• income 
• expenses 
• deductions (including CIS where relevant)  

These aren’t full tax returns, they’re simple snapshots based on your digital records. 

Final declaration 

At the end of the tax year, you’ll submit a final declaration by 31 January. 

This is where everything is confirmed, any additional income is included, and your final tax position is worked out. 

It’s still familiar in principle, just built up throughout the year rather than all at once. 

How MTD works with CIS 

For construction workers, this is often the biggest area of uncertainty. 

CIS doesn’t go anywhere under MTD. 

• contractors still deduct tax at source 
• you still receive CIS statements 
• those deductions still count towards your final tax bill  

Under MTD, your software helps track this as you go, so you can see whether you’re likely to owe tax or receive a refund by the end of the year.  

For a lot of people, this can actually make things clearer than the current system.

What software do you need? 

MTD requires you to use software that connects directly to HMRC. 

You won’t be able to: 

• keep paper records alone 
• manually submit figures through HMRC’s website  

The software: 

• stores your records 
• calculates totals 
• submits updates automatically  

Costs vary, but many options are available depending on how simple or detailed your setup is. 

The key thing is finding something that fits how you work day-to-day. For many people, especially those working on-site or across different locations, mobile-friendly tools make a big difference. 

What are the benefits? 

While MTD does mean changing how things are done, there are some clear upsides once you’re into the rhythm. 

• you get a clearer view of your tax throughout the year 
• there’s less risk of missing expenses 
• you avoid large surprises at the end of the year 
• everything is more organised and easier to track  

For people with variable income, like construction workers, this kind of visibility can be particularly useful.  

What are the challenges? 

Like many things in business, it’s not completely frictionless. Some of the main challenges people run into are: 

• getting used to new systems 
• keeping records up to date regularly 
• managing multiple deadlines instead of one  

If you’ve always done things a certain way, the shift can feel like a lot at first. 

Reassuringly, most people find that once it’s set up properly, it becomes part of the routine rather than something to worry about. 

What happens if you miss a deadline? 

MTD uses a points-based penalty system. 

• each missed deadline = 1 point 
• reaching the threshold (usually 4 points) = £200 fine 
• further missed deadlines = additional fines  

There are also penalties for late payment, plus interest.  The key is staying consistent rather than leaving things until the last minute. 

How to prepare for Making Tax Digital 

If MTD is going to apply to you, the best approach is to get ahead of it. 

Start by: 

• Registering 
• Checking your income against the thresholds 
• Moving your records into a digital format 
• Exploring software options early 
• Getting comfortable with tracking income and expenses regularly  

A lot of the pressure comes from leaving things too late, so giving yourself time to adjust makes a big difference. 

A steady approach makes this much easier 

Most of the concern around Making Tax Digital comes from not knowing what to expect. 

Once you understand how it works, it’s less about big, stressful moments and more about staying on top of things little and often. 

And that’s something that becomes much more manageable with the right setup and a bit of guidance along the way. 

If you’re unsure where to start 

If you’re not completely clear on whether MTD applies to you, or how it fits with your situation, it’s worth taking the time to understand it properly now. 

Getting clarity early gives you options. It means you can put the right systems in place and avoid unnecessary stress further down the line. 

The RIFT team are here to help! Our tax experts can help you to understand if the scheme applies to you, and support you in taking the next steps.