All about Making Tax Digital (MTD) for Sole Traders and Landlords
Making Tax Digital (MTD) is a major shift in the UK tax system. It may seem complex, but many sole traders and landlords can adapt with the right tools. This post explores how Making Tax Digital works, why it matters, and how it may affect your business.
Many sole traders and landlords may find Making Tax Digital initially confusing. However, understanding its steps early can reduce stress and improve financial control.
By adopting simple digital tools, you may keep accurate records and submit returns more efficiently. Over time, Making Tax Digital may help track income and expenses clearly, making tax planning easier.
What Is Making Tax Digital?
Making Tax Digital, often called MTD, is a plan by HMRC. It can require you to keep digital records and send tax data online.
Under Making Tax Digital, you may need to use compatible software to report your income and expenses. The aim of Making Tax Digital is to make tax more reliable, more accurate, and easier to manage.
Rather than rely on paper, digital records may cut mistakes and improve visibility.
Why Making Tax Digital is Important for Sole Traders
- As a sole trader, Making Tax Digital may change how you track your income.
- With MTD, you can link your bank data to your tax system easily.
- Digital records under Making Tax Digital may save time when you file.
- MTD may help avoid manual entry errors through software.
- Under Making Tax Digital, your cash flow may become clearer.
- Because of MTD, you may get early warnings for tax liabilities.
- Making Tax Digital can support better planning and forecasting for your business.
Why Making Tax Digital Is Important for Landlords
- For landlords, Making Tax Digital may apply if your rental income is large.
- Using digital tools under MTD may help manage multiple properties.
- Making Tax Digital may let you track rent, expenses, and repairs easily.
- You can use MTD‑compliant software to log tenant payments.
- Through Making Tax Digital, you may submit data as you go.
- MTD may reduce the risk of missing allowable costs or tax reliefs.
- Making Tax Digital can help you avoid a last‑minute scramble before tax deadlines.
Who Must Comply with Making Tax Digital
Under current UK rules, not all sole traders or landlords must join MTD yet. Here is who may need to comply:
Turnover threshold for VAT
Businesses with VAT‑liable turnover above the VAT threshold may need MTD for VAT.
Income tax and National Insurance
As of now, MTD for Income Tax (MTD ITSA) is being rolled out in phases.
Landlords with business classification
If your letting is a property business, MTD may apply when your profits cross a certain amount.
Self‑employed sole traders
Many sole traders will be required to use MTD when they reach the right date.
Existing digital record requirement
Even if you do not yet fall under MTD, using digital records may benefit you.
Key Dates and Timeline for Making Tax Digital
- MTD for VAT has already started for many businesses.
- The full roll‑out for Making Tax Digital for Income Tax may vary by business size.
- Some sole traders may be required to join MTD by a future deadline.
- Landlords may also need MTD for their rental income when ready.
- HMRC may publish further guidance on how and when to join Making Tax Digital.
- It is wise to watch HMRC updates to plan ahead for MTD compliance.
How to Prepare for Making Tax Digital
Preparing early for Making Tax Digital may save you stress later. Here are the key steps:
Analyse your current records
Check how you record income and costs now.
Choose MTD‑compatible software
Pick software that supports MTD nicely.
Digitise your paper records
Use scanning or digital photos for old invoices.
Train yourself or staff
You may need to learn new systems to fulfill MTD.
Test your system
Run some trial submissions or practice entries.
Speak to an accountant
A professional can guide MTD adoption effectively.
Monitor your cash flow
With new digital tracking, you may spot timing issues early.
Software Options for Making Tax Digital
To comply with Making Tax Digital, you need to pick good software. Here are some options:
- Cloud‑based software that links with bank accounts may help a lot.
- Bridging tools let you use spreadsheets yet keep things MTD‑ready.
- Some free or low-cost software may work for small sole traders.
- Paid plans may offer more advanced reports and insights for landlords.
- You may check that the software is HMRC‑approved for Making Tax Digital.
- Good software may also back up your data and keep records safe.
Record Keeping Under Making Tax Digital
Your digital record-keeping for MTD must follow some rules:
- You must keep separate digital records for income and expenditure.
- Each invoice, receipt, or payment record should be stored digitally.
- Under Making Tax Digital, details must include date, description, and amount.
- If you use a spreadsheet, you may need a bridging tool to upload.
- Landlords under MTD must record rent income and repair costs carefully.
- You should keep digital records for the time period required by HMRC.
Submitting Tax Returns Via Making Tax Digital
When you submit tax data under Making Tax Digital, these are the key steps:
Gather your digital records
Income, costs, rent, repairs, and other items.
Use your MTD‑compliant software
It will generate your tax summary.
Check your figures
Make sure your totals match your digital records.
Submit to HMRC
Use the software to send data directly.
Pay any tax due
Once your Making Tax Digital submission is accepted.
Keep a copy
Save your submission confirmation for future review.
Benefits of Making Tax Digital
There are many gains you can get when you use Making Tax Digital well:
- More real‑time insight into your business cash flow may follow.
- Fewer mistakes because you rely less on manual entry.
- Early warnings on tax gaps may help you budget better.
- Better audit trail since your data is digital and traceable.
- Less push and pull at tax time with steady submissions.
- Increased compliance confidence when you know you are up to date.
Challenges and Risks of Making Tax Digital
Making Tax Digital may bring some pain points as well. Consider these:
- The cost of MTD‑compliant software may be a burden.
- Learning new digital tools can take extra time and effort.
- Poor internet or slow devices may hamper your MTD work.
- Mistakes in digital input may create incorrect tax returns.
- For landlords, complex property costs may be hard to log.
- There may be fear of data loss or system failures with digital tools.
Support and Help for Making Tax Digital
If you feel uneasy about Making Tax Digital, help is out there:
- HMRC offers guidance and support on its website.
- An accountant or tax advisor can walk you through MTD compliance.
- Software providers often give training and support for their tools.
- Local business groups or forums may share MTD tips.
- Webinars and online tutorials can help you learn MTD fast.
- Peer networks of other sole traders or landlords may help you adapt.
Cost Considerations for MTD
When you plan for Making Tax Digital, costs may arise:
- Software cost: Some MTD‑ready tools require a monthly fee.
- Training cost: You may pay to learn how to use digital tools.
- Time cost: The time you spend setting up new record systems.
- Data storage cost: You may pay for cloud storage or backups.
- Accountant cost: Professional help for MTD may come at a price.
- Upgrade cost: If your current laptop or device is too old for reliable use.
Digital Security and Data Protection
With Making Tax Digital, you must also think about security:
- Use strong passwords for your MTD software accounts.
- Enable two‑step verification if the software supports it.
- Back up your digital data regularly to avoid loss.
- Be cautious about sharing your tax login credentials.
- Use secure internet connections when you upload data.
- Make sure your software provider follows data protection laws.
Making Tax Digital for VAT-Registered Businesses
While our focus is on sole traders and landlords, VAT‑registered businesses also have MTD rules. Many such companies need to submit VAT returns via digital software under Making Tax Digital. If you are VAT-registered, you may already be using MTD for VAT even before MTD for Income Tax begins. This prior experience can help you when MTD for Income Tax also applies.
Bridging Software and Spreadsheets
If you are not ready to switch to full accounting software, bridging tools may help:
- A bridging tool may convert spreadsheet data into MTD format.
- You can keep using Excel or Google Sheets and still meet MTD rules.
- Bridging software may cost less than full cloud accounting tools.
- It allows a gradual move, first digitise, then adopt robust software.
- With a bridge, you avoid a big upfront cost or a major system change.
- This option may suit part‑time sole traders or micro landlords.
Making Tax Digital and Cash Flow Planning
Under MTD, your cash flow planning may improve significantly:
- With regular data upload, you see tax liabilities earlier.
- You can forecast tax payments based on your income trend.
- With digital record keeping, you may catch cost spikes fast.
- Making Tax Digital may prompt you to set aside tax money.
- Better planning helps you avoid big tax shocks at year’s end.
- You can incorporate tax planning into your weekly or monthly review.
When Landlords Have Multiple Properties
If you let out more than one property, Making Tax Digital may really help you:
- You can track rent from each property separately in a digital tool.
- Expenses for each house or flat may be logged with clarity.
- Repair and maintenance costs per property may be accounted for precisely.
- Mortgage interest or insurance costs for each house may be separated.
- MTD may help you see which property makes more profit.
- You may also plan for tax on each rental unit with ease.
Common Mistakes to Avoid with Making Tax Digital
When you start with MTD, you may fall into some traps. Avoid these:
- Do not neglect to back up your digital records regularly.
- Avoid entering data carelessly — match receipts to entries.
- Do not forget to reconcile bank data monthly for MTD.
- Try not to delay your submissions till the last minute.
- Do not assume software always works; check for glitches regularly.
- Do not ignore training or help when you feel stuck.
Making Tax Digital can reshape how sole traders and landlords handle their tax affairs. It may bring clarity, efficiency, and fewer errors, but also some costs and change. Preparing early, choosing the right software, and getting support can help you succeed.
For many UK sole traders and landlords, Making Tax Digital may well be a chance to modernise and strengthen their tax practices.
Meru Accounting gives accounting and bookkeeping services for sole traders and landlords under Making Tax Digital. We have certified experts who keep digital records, track income, and make sure tax reports meet HMRC rules.
With clear records and correct reporting, your business can stay organised and on track all year. Partner with us to manage your finances well and make smart business choices.
FAQs
- What is Making Tax Digital?
It is a UK tax system that mandates digital record-keeping. - Who must do Making Tax Digital?
Sole traders and landlords above certain income levels may join. - When did Making Tax Digital start?
It began for VAT‑registered firms but phased out for income tax. - Does Making Tax Digital apply to all landlords?
Not all; only those classified as business may be required. - Do I need special software for MTD?
Yes, you need HMRC‑approved software that supports digital submissions. - Can I use Excel for Making Tax Digital?
Yes, via a bridging tool to convert data for HMRC upload. - Must I keep digital receipts for MTD?
Yes, digital or scanned receipts help maintain compliant records. - Will Making Tax Digital reduce errors?
It can be automated by automating entries and reconciling data better. - Is Making Tax Digital costly to adopt?
It may be due to software, training, and the time needed. - Can MTD improve cash flow planning?
Yes, you can better forecast tax bills and set aside savings. - Is there help for Making Tax Digital issues?
Yes, HMRC, accountants, and software vendors can support you. - How secure is Making Tax Digital data?
It can be secure if you use password protection and backups. - Will I need MTD in the future if not now?
Possibly, HMRC may require more businesses to join later. - What if my internet is slow for MTD?
Try batch uploads or use software that works offline. - Can I revert to paper records after using MTD?
Likely no, once on MTD, you should continue digital compliance. - Is Making Tax Digital just for VAT?
No, it applies to income tax, too, in a phased way. - Will MTD change how I pay taxes?
It may, your reporting becomes more regular and digital. - Are there penalties for not doing Making Tax Digital?
Possibly, HMRC may issue fines for non‑compliance if required. - Does Making Tax Digital save time overall?
It can, though the initial setup may take more effort. - Should I hire an accountant for MTD?
It may help, a professional can guide your setup and reduce risk.
