Making Tax Digital: What It Means for Your Business and Property Investments

Making Tax Digital (MTD) is transforming how businesses, self-employed individuals, and property investors manage and report their taxes in the UK.

If you run a business or earn income from property, understanding how MTD applies to you is essential to stay compliant and avoid unnecessary penalties. The changes may seem technical, but once you understand the rules and prepare in advance, digital tax can actually make record-keeping easier, more accurate, and more efficient.

What Is Making Tax Digital?

Making Tax Digital is a UK government initiative by HMRC that aims to make the tax system more efficient and transparent through the use of digital technology.

Key changes under MTD include:

• Digital record-keeping: Businesses must store financial data (income, expenses, VAT) in a digital format.
• Software-based submissions: Tax returns must be filed using MTD-compatible software such as Xero, QuickBooks, or FreeAgent.
• Real-time accuracy: Instead of annual summaries, digital records provide quarterly insights into your tax position.

This approach reduces human error, saves time, and gives business owners and landlords a clearer picture of their finances throughout the year.

Who Needs to Comply with MTD?

MTD has been rolled out gradually since 2019, and each phase affects different groups of taxpayers.

Current Requirements

• VAT-registered businesses with turnover above £90,000: MTD compliance has been mandatory since April 2019.
• All VAT-registered businesses, regardless of turnover: Since April 2022, every VAT-registered business must keep digital records and submit VAT returns via MTD-compatible software.

Upcoming Rollouts

The next phases of MTD will affect individuals and landlords under the Income Tax Self-Assessment (ITSA) system.

• From April 2026: Self-employed individuals and landlords earning over £50,000 annually must follow MTD for ITSA.
• From April 2027: Those earning between £30,000 and £50,000 will also be required to join.
• Below £30,000: These taxpayers can continue using Self-Assessment for now, but the rules are likely to expand later.

Future: MTD for Corporation Tax

A future phase will bring corporation tax into the MTD system, though HMRC has not yet confirmed a date.

MTD for Property Investors

If you earn rental income from UK or overseas properties, MTD will soon change how you manage and report your property accounts.

Who Must Enrol

• Landlords with annual rental income above £50,000 → MTD for ITSA from April 2026.
• Landlords earning £30,000 – £50,000 → Must join from April 2027.
• Landlords below £30,000 → Can continue filing under Self-Assessment for now.

What You’ll Need to Do

1. Keep Digital Records of Income and Expenses

All property income (rent, management fees, repairs, mortgage interest) must be logged digitally.

2. Use MTD-Compatible Software

Record transactions using approved platforms such as Xero, QuickBooks, or landlord-focused tools that integrate with HMRC’s system.

3. Submit Quarterly Updates

Instead of one annual tax return, you’ll send quarterly updates showing total income and expenses.

4. Submit an End-of-Period Statement (EOPS)

At year-end, confirm your totals, apply adjustments, and submit the final declaration through your software.

Example: How This Works in Practice

Let’s take an example.

Sarah is a landlord earning £40,000 per year from her three rental properties. From April 2027, she will need to maintain her accounts digitally. She uses Xero to record rent payments, repairs, and agent fees. Each quarter, her bookkeeper submits the data directly to HMRC via the MTD link. At year-end, Sarah confirms the totals in her End-of-Period Statement and approves the submission.

This streamlined process helps her stay compliant while avoiding the year-end rush to find receipts and calculate totals.

Benefits of MTD for Property Investors

Although MTD means changing your routine, it comes with several long-term advantages:

• Accurate record-keeping: Every transaction is logged digitally, reducing missed expenses or reporting errors.
• Better cash-flow management: Real-time data gives insight into profit and upcoming liabilities.
• Reduced penalties: Staying up-to-date helps avoid fines for late or inaccurate submissions.
• Improved organisation: Centralised records make it easier to share data with accountants or bookkeepers.

For landlords juggling multiple properties or mortgages, digital systems create transparency across all income streams.

How to Get Ready for MTD

Preparing early will save time and reduce stress later. Here’s how to start transitioning now:

1. Assess Your Income

Determine whether your property or business income exceeds the £30,000 or £50,000 thresholds. Combine income from all rental properties if you own more than one.

2. Choose the Right Software

Select an MTD-compatible system that suits your needs. Cloud-based options like Xero, QuickBooks, and FreeAgent are popular because they integrate easily with HMRC and handle multiple income types.

If you manage several properties, consider landlord-specific software such as Landlord Vision or Arthur, both of which link directly with HMRC.

3. Organise Your Digital Records

Start saving receipts, invoices, and expense details in digital form. Scanning or photographing paper documents is acceptable as long as they’re clearly legible and securely stored.

4. Train Your Team

If someone else helps with bookkeeping, ensure they know how to use the software. Hill Bookkeepers provides training and ongoing support for small businesses and landlords adopting MTD.

5. Seek Professional Support

Working with an experienced bookkeeper can save time and reduce the risk of non-compliance. We can help you choose the right tools, set up digital records, and manage quarterly submissions. Learn more on our services page.

Common Mistakes to Avoid

Even with digital systems, it’s easy to make simple errors. Avoid these common pitfalls:

• Leaving preparation too late: Waiting until 2026 will make the transition more stressful.
• Using non-compatible software: Check that your system is officially MTD-approved.
• Mixing business and personal expenses: Keep separate records for each.
• Failing to review quarterly reports: Always verify accuracy before submission.
• Not backing up digital data: Use cloud storage or secure backups to prevent data loss.

Avoiding these mistakes will help you maintain compliance and reduce unnecessary penalties.

How We Can Help

At Hill Bookkeepers, we specialise in helping small businesses and landlords transition smoothly to Making Tax Digital.

We can:

• Set up and configure MTD-compliant software such as Xero or QuickBooks.
• Train you or your staff on digital record-keeping.
• Manage quarterly submissions directly to HMRC.
• Handle both business and property income for MTD for ITSA.

Get in touch today to prepare your business or property portfolio for the future of digital tax.

Frequently Asked Questions

1. What happens if I don’t register for MTD on time?

HMRC can impose penalties for late registration or missed submissions. Preparing early avoids last-minute issues.

2. Can I still use spreadsheets under MTD?

Yes, but only if they link to HMRC via approved bridging software. Most small businesses find cloud-based systems easier.

3. Does MTD apply to landlords with overseas properties?

Yes. If you earn income from overseas property, it still counts towards your total for MTD for ITSA.

4. What software can I use for MTD?

Approved options include Xero, QuickBooks, FreeAgent, Sage, and Landlord Vision. Always check HMRC’s list of compatible providers.

5. Can Hill Bookkeepers manage my MTD submissions?

Absolutely. We handle setup, training, and quarterly submissions so you stay compliant and stress-free.

Final Thoughts

Making Tax Digital marks a significant shift for UK businesses and property investors. While it may seem complex at first, adopting the right software and habits early will make your tax process smoother and more transparent.

At Hill Bookkeepers, we help clients adapt to MTD with ease by combining digital tools with expert advice. Whether you need help setting up software, managing quarterly updates, or understanding how MTD affects your property income, we’re here to guide you.

Start preparing now, embracing digital tax will save you time, improve accuracy, and give you greater control over your finances.