A simple guide for self-employed people and small businesses
If you’re self-employed or run a small business, you may already be familiar with Self Assessment or VAT. Now, with Making Tax Digital (MTD) for Income Tax being introduced, there is another change to understand.
If you’re already VAT registered, some aspects of MTD for Income Tax may sound familiar. However, Self Assessment, VAT and MTD for Income Tax are not the same thing.
So, what is changing and what do you need to know?
What is Self Assessment?
Self Assessment is HMRC’s system for collecting Income Tax from people whose tax is not fully collected through PAYE.
Depending on your circumstances, you may need to complete a Self Assessment tax return if you are self-employed, have certain rental income, savings or investment income, or have other income that needs to be reported to HMRC.
Self Assessment has not disappeared because of Making Tax Digital.
You will still need to complete and submit your tax return and pay any tax due by the relevant deadline. For example, the online deadline for a 2025/26 Self Assessment tax return is 31 January 2027.
What is VAT?
VAT is a tax charged on certain goods and services.
A business may need to register for VAT when its taxable turnover goes above the VAT registration threshold, or it may choose to register voluntarily if eligible.
VAT-registered businesses generally need to keep certain records digitally and submit their VAT Returns using software compatible with Making Tax Digital for VAT, unless an exemption applies.
This is why some businesses are already familiar with digital record keeping and submitting information to HMRC using accounting software.
So, where does Making Tax Digital for Income Tax fit in?
Making Tax Digital for Income Tax is being introduced for sole traders and landlords who meet the qualifying income requirements.
The first group came into MTD for Income Tax from 6 April 2026.
For the 2026/27 tax year, you generally need to use MTD for Income Tax if your qualifying income was more than £50,000, based on the relevant previous tax return.
The threshold then reduces:
- More than £50,000 — MTD from 6 April 2026
- More than £30,000 — MTD from 6 April 2027
- More than £20,000 — MTD from 6 April 2028
Qualifying income is the total gross income from self-employment and property before expenses and tax.
What changes under MTD for Income Tax?
If you are required to use MTD for Income Tax, you will need to use compatible software to:
- keep digital records of your self-employment and property income and expenses
- send quarterly updates to HMRC
- complete and submit your tax return
- pay any tax due
The important point is that quarterly updates are not tax returns.
They are summaries of the income and expenses recorded during the relevant period. You will still need to complete your tax return and make any necessary adjustments before submitting it.
How is this similar to VAT?
If you’re already VAT registered, the move to digital record keeping may feel less unfamiliar.
VAT-registered businesses generally use compatible software to maintain their digital VAT records and submit VAT Returns.
With MTD for Income Tax, eligible sole traders and landlords will also use compatible software and send information to HMRC regularly.
However, the two systems remain separate.
Being VAT registered does not mean you automatically fall within MTD for Income Tax, and being within MTD for Income Tax does not mean you are automatically VAT registered.
Your obligations depend on your own circumstances.
What are the quarterly deadlines?
For someone using the standard tax-year update periods, the first MTD for Income Tax quarterly update covers 6 April to 5 July and is due by 7 August.
The following standard deadlines are:
| Update period | Deadline |
|---|---|
| 6 April – 5 July | 7 August |
| 6 April – 5 October | 7 November |
| 6 April – 5 January | 7 February |
| 6 April – 5 April | 7 May |
These quarterly updates are cumulative summaries of the income and expenses recorded from the start of the tax year to the end of each update period.
For the 2026/27 tax year, HMRC has confirmed that penalty points will not apply for late quarterly updates during this first year, although penalties can still apply to late tax returns or late payment of tax.
Why does good bookkeeping matter?
With VAT Returns, Self Assessment and now MTD for Income Tax, keeping accurate and up-to-date records is increasingly important.
Good bookkeeping can help you:
- keep your income and expenses organised
- maintain the records needed for your tax and VAT obligations
- identify errors sooner
- prepare information for VAT Returns
- prepare for Self Assessment
- maintain the digital records required for MTD for Income Tax, where applicable
Leaving your bookkeeping until a deadline is approaching can make things much more difficult.
Regular bookkeeping means your records are already there when you need them.
Not sure what applies to you?
The rules around Self Assessment, VAT and Making Tax Digital can seem complicated, particularly if your circumstances have changed or your business is growing.
Not everyone needs to use MTD for Income Tax yet, and the rules depend on your circumstances and qualifying income.
If you’re unsure what records you need to keep, whether you need to complete a Self Assessment tax return, or how MTD for Income Tax may affect your business, it’s worth checking the latest HMRC guidance or speaking to an appropriate professional.
Mays Accounting Services can help with bookkeeping, VAT Returns and Self Assessment tax returns, helping you keep your financial records organised and ready for the relevant deadlines.
Updated August 2026