Making Tax Digital 2025: What UK Businesses Must Know and Do Now

In 2025, HMRC is accelerating the rollout of Making Tax Digital (MTD)—a transformative programme aiming to modernise the UK’s tax system through digital record-keeping and real-time reporting. While MTD for VAT has been in place for some time, the next wave—MTD for Income Tax Self Assessment (ITSA)—brings substantial changes for sole traders, landlords, and eventually partnerships and incorporated businesses.

For UK business owners and landlords, the implications are both technical and operational. Understanding what’s required, what’s changing, and how to prepare is essential to stay compliant and avoid unnecessary penalties.

What Is Making Tax Digital (MTD)?
Making Tax Digital is HMRC’s initiative to digitise tax administration, with the goals of:

Reducing errors in tax returns
Improving efficiency and accuracy
Providing a more up-to-date picture of tax liabilities
MTD mandates the use of compatible digital software to maintain records and submit tax information directly to HMRC through an Application Programming Interface (API).

What’s Changing in 2025?
While MTD for VAT has been mandatory since April 2022 for nearly all VAT-registered businesses, the focus now shifts to MTD for Income Tax Self Assessment (ITSA).

Key updates for 2025:
Mandatory from April 2026 for self-employed individuals and landlords earning over £50,000 per year
Expanded to those earning over £30,000 from April 2027
Partnerships and other income groups will be brought in at a later date (timeline under review)
Even though the start dates are staggered, 2025 is a critical preparation year.

 
Who Is Affected?
If you fall into any of the following categories, MTD for ITSA will likely impact you soon:

• Sole traders (including gig economy workers and freelancers)
• Private landlords with rental income
• Individuals with multiple income streams (e.g., property + self-employment)
   
  What Does Compliance Involve?
  Under MTD for ITSA, affected individuals must:

1. Keep digital records of income and expenses
2. Use MTD-compatible software to send quarterly updates to HMRC
3. Submit an end-of-period statement (EOPS) after the tax year
4. Submit a final declaration to reconcile all income and claim reliefs

Quarterly updates replace the single year-end tax return with more frequent (though estimated) reporting.

 
Benefits and Opportunities
While many see MTD as an administrative burden, it can offer real benefits to businesses that embrace it early:

• Better cash flow forecasting from real-time data
• Fewer surprises at year-end
• Improved financial discipline through more regular record-keeping
• More time to correct errors or plan for tax bills
  

Accountants can play a strategic role here—not just ensuring compliance, but helping clients use financial data to make better business decisions.

 
Challenges to Anticipate
Software costs – While free options exist, most users will need to invest in MTD-compatible tools (e.g., QuickBooks, Xero, FreeAgent).
Learning curve – Especially for smaller or less tech-savvy clients.
Increased reporting workload – Moving from annual to quarterly filings.
System integration – For those already using spreadsheets, bridging software may be needed to ensure compliance.
 
What Should You Do Now?
1. Assess Your Status
Determine whether your income levels will bring you into scope for the April 2026 or April 2027 deadlines.

2. Choose Your Software
Work with your accountant to select HMRC-approved software that fits your needs. Integration, ease of use, and support should be key factors.

3. Begin Digital Record-Keeping
Even before it's mandatory, starting now helps reduce friction later. Many cloud platforms offer automation tools that simplify this process.

4. Schedule Quarterly Check-Ins
Start simulating the quarterly reporting schedule so you’re familiar with the rhythm by the time it's compulsory.

5. Talk to Your Accountant Early
Don’t wait until next year. Your accountant can help set up systems, train your team, and manage the transition smoothly.

 
How Accountants Are Supporting Clients
At Acceta, we’re helping clients prepare by offering:

• MTD-readiness audits
• Training in cloud accounting tools
• Software onboarding and support
• Quarterly review services to ensure data accuracy

We see MTD not just as a compliance challenge, but an opportunity for businesses to modernise and improve financial control.

 
Conclusion
Making Tax Digital is not just a shift in how you report tax—it’s a shift in how you manage your business finances. By planning ahead in 2025, businesses and landlords can avoid the last-minute rush, stay compliant, and use the transition as a springboard for better financial practices.

The sooner you start, the smoother the journey will be.