What is Making Tax Digital (MTD)?
Making Tax Digital (MTD) is an HMRC initiative requiring businesses to keep digital records and submit tax returns using compatible software, rather than manual or paper-based methods.
Making Tax Digital (MTD) is HMRC's programme to modernise the UK tax system by requiring businesses to maintain digital records and file returns using MTD-compatible software.
MTD is being rolled out in phases:
- MTD for VAT: Already mandatory for all VAT-registered businesses. VAT returns must be submitted digitally using compatible software
- MTD for Income Tax Self-Assessment (ITSA): Starting April 2026 for self-employed individuals and landlords with income over £50,000, and April 2027 for those with income over £30,000
Under MTD for Income Tax, affected freelancers and sole traders will need to:
- Keep digital records of all income and expenses
- Submit quarterly updates to HMRC through compatible software
- Submit an End of Period Statement (EOPS) after the tax year ends
- Submit a Final Declaration (replacing the current self-assessment tax return)
Compatible software must be able to connect directly to HMRC's systems via their API. Spreadsheets alone are not sufficient — you need bridging software or a dedicated MTD-compatible tool.
While MTD means more frequent reporting, it also encourages better record-keeping throughout the year. Freelancers who already use invoicing and accounting software will find the transition relatively straightforward.
OwnedWork helps freelancers maintain the digital records needed for MTD compliance, with clean invoicing data that feeds directly into accounting workflows.
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Frequently Asked Questions
Does Making Tax Digital apply to me as a freelancer?
If you are VAT-registered, MTD for VAT already applies to you. MTD for Income Tax will apply from April 2026 if your self-employed income exceeds £50,000, or from April 2027 if it exceeds £30,000.
What software do I need for Making Tax Digital?
You need HMRC-recognised MTD-compatible software that can submit returns digitally. This includes tools like Xero, QuickBooks, FreeAgent, and others on HMRC's approved list. Basic spreadsheets are not sufficient on their own.
Will MTD replace self-assessment?
MTD for Income Tax will effectively replace the annual self-assessment tax return with quarterly digital updates and a Final Declaration. The overall obligation to report income and pay tax remains the same, but the process becomes more frequent and digital.
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