by Steffen Kemmerzehl, MAAT, AATQB – see The Accounting Hub
Many UK sole traders, landlords and small business owners are already hearing about Making Tax Digital (MTD), but still aren’t fully clear on what it actually changes in practice. As HMRC continues its digital tax programme, understanding MTD for sole traders, MTD for landlords, and the wider HMRC Making Tax Digital requirements is becoming increasingly important.
A self-employed tradesperson using spreadsheets to track income. A freelancer uploading invoices to basic accounting software. A landlord keeping rental records across different files and folders. As more people earn income through freelance work and side hustles, understanding tax obligations and keeping accurate records has become increasingly important.
These are all very common setups across the UK, but they often create problems when HMRC’s digital reporting requirements become stricter.
MTD is HMRC’s move toward a fully digital tax system. In simple terms, it requires businesses to keep digital records and submit updates using compatible software rather than relying purely on an annual manual Self Assessment return.
It does not change what tax you owe.
It changes how and how often information is recorded and submitted.
What MTD Actually Means in Practice
Under Making Tax Digital, most affected businesses will need to:
- Keep digital records of income and expenses
- Use MTD-compatible software (such as Xero, QuickBooks, or similar)
- Submit updates to HMRC through the software
- Maintain more consistent bookkeeping throughout the year
Instead of one annual “snapshot” of your accounts, HMRC is moving toward more frequent digital reporting.
Businesses already registered for VAT may be familiar with some digital reporting requirements, as MTD for VAT has been in place for several years. Our guide on VAT compliance explains how digital record keeping and software submissions already form part of many businesses’ day-to-day obligations.
MTD for Sole Traders and Landlords
While Making Tax Digital affects a wide range of taxpayers, many questions currently come from sole traders and landlords. Both groups often rely on spreadsheets, manual records or basic bookkeeping systems, which may need reviewing before future HMRC requirements apply.
Understanding MTD for sole traders in the UK and MTD for landlords in the UK early can make the transition much smoother and help avoid unnecessary stress when reporting requirements increase.
Common Real-World Issues with MTD (What We Are Already Seeing)
Even before full rollout, many businesses are already experiencing practical issues when trying to adapt.
Some of the most commonly reported problems include:
1. “I use software, so I assumed I was compliant”
Many businesses already use accounting tools, but still make manual adjustments outside the system.
This breaks the digital record chain HMRC expects.
2. Spreadsheet users struggling with MTD bridging
Spreadsheets are still widely used, but require bridging software to remain compliant.
Many users are unaware this extra step is required.
3. Inconsistent bookkeeping throughout the year
A common issue is businesses updating records only before tax deadlines.
MTD is designed to reduce this, meaning gaps in monthly records can become a compliance risk.
4. Mixed personal and business transactions
This continues to be one of the biggest problems for sole traders.
Personal spending appearing in business records can distort digital submissions and create HMRC queries.
5. Software setup errors
Incorrect VAT settings, bank feeds not reconciled, or duplicate entries are common.
Under MTD, these errors are repeated into every submission unless corrected early.
6. “Digital” but not “accurate” records
HMRC’s focus is not just on using software, but on the accuracy and traceability of the data.
Poor bookkeeping can also lead to issues with HMRC compliance and penalties.
Read more: Avoiding HMRC Self Assessment Penalties: What You Need to Know
This is particularly important where employee benefits and expenses are involved, as future digital reporting requirements may place greater emphasis on accurate Benefits in Kind records.
Why MTD Matters More Than People Think
MTD is not just an admin change. It is a structural shift in how HMRC interacts with small businesses.
Instead of reviewing records once a year, HMRC will increasingly rely on:
- Real-time or quarterly updates
- Consistency of digital records
- Software-based audit trails
This means errors are likely to be identified earlier, not later. As HMRC Making Tax Digital continues to expand, businesses that maintain accurate digital records throughout the year are likely to find compliance easier than those relying on last-minute bookkeeping.
For many businesses, this is less about tax changes and more about improving financial discipline throughout the year.
This is particularly important in sectors such as construction, where accurate records of income, deductions and payments are already essential. Contractors and subcontractors operating under the Construction Industry Scheme often benefit from maintaining organised digital records throughout the year.
A Simple Example
Two self-employed traders:
Trader One
- Uses spreadsheets once a year
- Keeps receipts loosely in folders
- Updates records just before tax deadline
This creates higher risk under MTD due to missing digital continuity.
Trader Two
- Uses accounting software year-round
- Logs income and expenses weekly or monthly
- Reconciles bank transactions regularly
This approach aligns much more closely with MTD requirements.
Keeping Things Simple
At Friendly Assist Accountancy, we help sole traders, landlords, and small businesses prepare for Making Tax Digital in a practical and straightforward way.
You can view our Services and Prices page for an overview of the bookkeeping, tax and compliance support we offer.
This includes:
- Reviewing current bookkeeping systems
- Checking software readiness
- Fixing inconsistent records
- Helping clients move from spreadsheets to structured digital systems
- Explaining HMRC requirements without jargon
Most businesses do not need a complete overhaul. In many cases, a few structured changes are enough to become MTD-ready.
Better bookkeeping can also provide benefits beyond tax compliance, including clearer financial information for mortgage applications and borrowing decisions.
The key is understanding your current setup before HMRC requirements fully apply.
Frequently Asked Questions
When does Making Tax Digital apply to sole traders?
MTD is being introduced in stages. Many sole traders will be required to comply once they meet HMRC’s income thresholds. It is important to prepare early.
Does Making Tax Digital affect sole traders?
Yes. MTD for sole traders is being introduced in stages and will require eligible businesses to keep digital records and submit information using compatible software. Preparing early can make compliance much easier.
Does Making Tax Digital affect landlords?
Yes. MTD for landlords will require many property owners to keep digital records of rental income and expenses. Landlords who currently rely on spreadsheets or paper records may wish to review their systems before the rules apply.
Can I still use spreadsheets for MTD?
Yes, but they usually need bridging software to connect with HMRC’s systems.
Will Making Tax Digital increase my tax bill?
No. MTD does not change tax rates. It changes how records are submitted.
What software can I use for MTD?
Popular options include Xero, QuickBooks and other HMRC-approved software.
Does MTD affect landlords?
Yes. Many landlords will eventually need to keep digital records and submit updates through software.
Can an accountant help with MTD?
Yes. An accountant can review your systems, fix errors and help you move to a compliant setup.
Useful Resources for Making Tax Digital
HMRC Making Tax Digital Overview
Get in touch for a friendly chat about how we can support you.
Final Thoughts
Making Tax Digital is a gradual shift towards more consistent and transparent financial reporting.
With HMRC Making Tax Digital changes continuing throughout 2026 and beyond, businesses should take time to review their bookkeeping systems and understand any future obligations that may apply.
The key is not to panic, but to understand your current setup and make practical improvements where needed.
If you are unsure whether your business is ready for MTD, get in touch for a friendly, no-obligation chat.
Friendly Assist Accountancy
Clear advice. Friendly support. Practical help when you need it.