Making Tax Digital for Self-Assessment by Sole Traders, Landlords, and Limited Companies – What It Means for Business Management

Making Tax Digital (MTD) is HMRC’s initiative to digitise the tax reporting system. The aim is to improve accuracy and make tax simpler and more efficient.
Ultimately, most businesses and individuals will need to:

• keep digital records of their income and expenses
• use MTD-compatible software
• submit updates electronically every three months

Understanding Making Tax Digital for Self Assessment and property income

The way you manage your business finances will be affected by the shift to digital systems.

HMRC’s existing system for submitting tax returns will be phased out. Instead of filling out your tax return all at once, you’ll spread the admin in chunks throughout the year.

As a self-employed landlord or sole trader, you will need to create and submit digital records, using accounting software. This might be an app on your phone or laptop.

Limited companies are not required currently to report quarterly under MTD for self-assessment. However, all VAT-registered limited companies must already comply with MTD for VAT. HSBC is helping businesses to prepare for the new system and to stay organised with accounting tools that support digital record keeping.

What Making Tax Digital means for landlords and self-employment

You (or your agent, if you have one) will need to use software that works with MTD to:

• create, store and correct digital records of your self-employment and property income and expenses
• send your quarterly updates to HMRC
• submit your tax return, and pay tax due by 31 January of the following year.

Connecting all your records digitally and logging information as you go along allows you to make your quarterly updates at the touch of a button.

After you send each update, you’ll be able to see an estimate of your tax bill, helping you to plan ahead.

When does Making Tax Digital start?

MTD is being rolled out in phases. Your timetable depends on your ‘qualifying income’. This is the gross income (before expenses) in your self assessment return for the previous tax year.

For example, if you earned £40,000 from rental income and £25,000 through self employment, your total qualifying income would be £65,000.

If your qualifying income as a sole trader or landlord is over:

• £50,000 for the 2024/25 tax year, you will need to use MTD from 6 April 2026
• £30,000 for the 2025/26 tax year, you will need to use MTD from 6 April 2027.

The government also plans to extend MTD to sole traders and landlords with income over £20,000 in the 2026/27 financial year.

How accounting software helps you stay Making Tax Digital-ready

Using accounting software for MTD can reduce form-filling and relieve common tax admin headaches:

• You can review and send accurate updates
• HMRC then provides up-to-date tax estimates, so you always know what you’ll owe
• Your January tax return is already complete – all you need to do is check it before submitting

Linking your business banking to your accounting software makes the process even simpler and more efficient.

My Business Finances¹, powered by Sage, automatically captures all your transactions and categorises them as they come in. This cuts your admin burden and gives you complete financial control.

With full embedded software within your business account, you can:

• avoid missed transactions, receipts, or manual entry
• get digital records, ready for MTD updates and to inform your business planning
• submit your final tax return with confidence, direct to HMRC from HSBC supported by accurate, real-time updates

Digital record keeping: How HSBC plays a role

This section we can discuss transaction history and avoiding spreadsheets. It also allows us to educate about financial hygiene.

Preparing for Making Tax Digital

HMRC will notify you if your income exceeds the relevant threshold, but it is your responsibility to sign up. You can sign up early if you prefer.

Make sure you’re ready for MTD in good time before your deadline.

If you already use accounting software, check whether it’s MTD-compatible. If not, it makes sense to get into the routine of using software as early as possible.

HMRC has a list of all the software options that are fit for purpose.

FAQ

How does Making Tax Digital affect the way I manage my business finances?

As a sole trader or landlord, you will need to keep digital records of your financial transactions. The software you use must be compatible with MTD, in order to submit regular reports to HMRC.

Do landlords need digital accounting software for Making Tax Digital?

Yes, landlords will need to use accounting software to report rental income to HMRC. MTD for landlords is being rolled out in phases, depending on qualifying income.

How can I become MTD compliant with HSBC?

You can use My Business Finances, powered by Sage, to ensure your transactions are captured and recorded automatically. This provides you with at-a-glance financial reports and insight as well as MTD-ready updates.

What records should I keep digitally for Making Tax Digital?

You need to record details of:

• details of sale and income transactions
• purchases and allowable expenses
• any adjustments or corrections you make to your accounts
• VAT details, if applicable

HMRC requires you to keep records for six years.

Do banks provide tax advice about Making Tax Digital?

No, HSBC does not provide tax advice.