I am NOT VAT Registered and NOT using MTD-compliant software

What does Making Tax Digital (MTD) mean for me?

From April 2026, HMRC will require individuals with a combined turnover of more than £50,000 from self-employment, UK rental, or foreign rental income to keep digital records and submit tax data quarterly under Making Tax Digital (MTD).

As you are not VAT registered and are not currently using MTD-compliant software, this means you will need to make changes to how you manage and report your income and expenses to HMRC.

What to Expect Between Now and April 2026

Here is a rough timeline of what to expect:

April 2025

HMRC will begin sending letters to individuals identified as being within scope of MTD, based on their 2023/2024 tax returns. If your income is £50,000 or more, or close to the threshold (£45,000-£50,000), you can expect a letter.

Mid-2025 to Early 2026

This is the ideal time to begin transitioning to digital record-keeping. You will need to start using MTD-compliant software that can link directly with HMRC.

7 August 2026 and Ongoing

Under MTD, you will be required to submit quarterly updates to HMRC for each tax year. The deadline for submitting the new quarterly returns will fall on the following dates:

7 August
7 November
7 February
7 May

These quarterly updates will then be followed by a final annual submission, similar to your current Self-Assessment tax return, which will continue to be due by 31 January each year.

Multiple Turnover Streams

If you have more than one source of income (for example, self-employed income and rental income), you will need to submit separate quarterly returns for each income stream. This means you could be filing multiple updates per quarter, followed by one final end-of-year declaration that brings everything together.

What You Need to Do Now

1. Separate Your Accounts

If you currently use the same bank account for both business and personal expenses, now is the time to separate them.

Open a dedicated business bank account for your sole trader business.
If you have rental income, it’s also advisable to have a separate account solely for rental income and expenses.

This will make it far easier to track income, claim allowable expenses, and remain compliant.

2. Set Up Online Banking

To use MTD-compliant software effectively, you’ll need to have online banking enabled for your business bank account so that your transactions can be securely linked and imported. This will save time and help ensure accuracy in your quarterly submissions.

3. Understand Quarterly Reporting Requirements

From April 2026, under MTD for Income Tax, you’ll be required to submit quarterly updates to HMRC for each relevant income source. These updates will be due:

7 August
7 November
7 February
7 May

At the end of the tax year, you’ll also need to submit a final declaration (similar to a Self-Assessment return) by 31 January, confirming the figures reported and making any necessary adjustments.

4. Be aware of multiple income stream rules

If you have more than one qualifying income stream (e.g. self-employment and rental income), you’ll need to submit separate quarterly updates for each. That means multiple filings each quarter and one final end-of-year submission.

5. Review your income sources

Check your self-employment and/or rental income from the 2023/2024 tax year.

If your total combined qualifying income is over £50,000, you will be mandated for MTD from April 2026.
If you’re close to this threshold, you may also receive a letter from HMRC in April 2025, so it’s important to review this now.

6. Choose MTD-Compliant Software

You’ll need to use software that is officially recognised by HMRC as MTD-compliant.

HMRC’s list of approved software (we can create this to keep all on our website

At Exchange, we are proud Xero Platinum Partners and recommend Xero as a robust and user-friendly solution. However, there are other good options such as FreeAgent — free to customers of Ulster Bank, NatWest, or Mettle. Mettle is an increasingly popular banking choice for freelancers and sole traders. https://www.mettle.co.uk/

7. Book Your Onboarding Call

Get in touch with our team to schedule your onboarding call. We’ll help you:

Understand your new responsibilities
Create a personalised plan to ensure you’re fully MTD-ready well before April 2026 including advising on the software that is appropriate for you and your business.

8. Understand the Opt-Out Process (if applicable)

There are limited circumstances where HMRC may allow exemptions from MTD (e.g. due to age, religion, or disability).
These applications must be submitted directly to HMRC, and unfortunately, we are unable to manage this on your behalf.

How Exchange Can Help

We'll recommend and help implement the best MTD compliant software for your needs
We’ll keep track of deadlines, prepare submissions for you approval , submit your quarterly returns making sure you stay compliant and penalty free
If you receive a letter and believe it is incorrect, we can advise you on how to respond

What We Can't Do

The Upside of MTD

Real-time visibility means less chasing:

Once you’re set up with MTD-compliant software, we’ll have secure, real-time access to your financial data. This means fewer follow-up emails and calls from us — saving everyone time and making things run more smoothly.

We’ll handle it for you:

Prefer not to get bogged down in the details? No problem. We can take care of the MTD submissions on your behalf, giving you peace of mind and more time to focus on running your business.

The Downside of MTD

Quarterly approval required:

You will need to approve each of the quarterly submissions before we can file them on your behalf — similar to how you currently approve your annual Self-Assessment return.

HMRC penalties for non-compliance:

HMRC has introduced a new penalty regime for late or missing quarterly submissions under MTD. It’s important to stay on top of deadlines to avoid penalties.

Software costs:

You’ll need to subscribe to MTD-compliant software. While this comes with a monthly fee, the good news is that these costs are tax deductible.

More submissions = more work = higher fees:

MTD requires at least five submissions per year (four quarterly plus one final annual declaration), compared to the current once annually Self-Assessment submission currently. This means more work for us in managing your tax affairs and, as a result, an increase in fees.

At this stage, we are unable to confirm the exact increase, as it will depend on the complexity of your circumstances and further details from HMRC about the new process. However, any increase in fees will also be tax deductible.

Book Your Discovery Call

Let’s work together to make sure you’re ready. Book a call with our team today.