I helped a friend prepare for Making Tax Digital last week. Here's what nearly caught her out.

#freelance #tax #ukfreelancer #smallbusiness

MTD for Income Tax starts in 13 days. If you're earning £50k+ as a sole trader, you're in the first wave.

My friend Sarah runs a small consulting business. She knew about MTD. She'd read the HMRC guidance. She thought she was fine.

She was not fine.

What she thought MTD meant

Sarah assumed it meant "submit your tax return quarterly instead of annually."

That's... sort of right. But it misses several things that actually require action now, before April 6.

What MTD actually requires

1. Compatible software — not just any accounting app

HMRC has a list of approved MTD-compatible software. Your spreadsheet is not on it. Your current accounting app might not be either — or might need you to pay for a higher tier.

Sarah was using free tier Wave. Not MTD-compatible. Had to switch.

2. You need to link your software to your HMRC account

This isn't automatic. You sign in to HMRC's business tax account, go to "Making Tax Digital for Income Tax," and authorise your software. Takes 10-15 minutes but you have to do it — it doesn't happen when April 6 arrives.

3. Your bookkeeping needs to be current before the first submission

First quarterly update is due 7 August (for April-July income). But you need your software connected and up to date from April 6. If you've got a backlog of receipts from January-March, sort them now.

4. Digital records for everything

Not "keep your receipts." Digital records. Every income entry, every expense, in software. Bank feed connected if possible.

The bit most people miss

MTD doesn't change how much tax you pay. It changes when you report and what records you keep.

What it does affect: your admin workload if you're not prepared. Scrambling to connect software, backfill records, and figure out which software to use in the middle of your busiest quarter is a bad time.

What to do this week

Check if you're in scope — £50k+ gross income for 2024-25. If yes, you're in wave 1.
Check your current software — is it on HMRC's approved list?
Authorise your software with your HMRC business tax account
Tidy your records from this tax year so far

If you want a checklist and a plain-English walkthrough of exactly what to do (including which software to pick and how to handle the HMRC authorisation), I made a MTD Readiness Toolkit for exactly this situation. £14, instant download.

MTD will expand to £30k+ earners in April 2027 and £20k+ in 2028. So even if you're not in scope now, you likely will be.