Preparing for Making Tax Digital for Income Tax: What SMEs and franchise owners really need to know

The UK government’s Making Tax Digital for Income Tax (MTD-IT) initiative is set to transform how self-employed individuals and landlords manage their tax affairs. From 6 April 2026, MTD IT will become mandatory for anyone whose gross income from self-employment or property exceeds £50,000 per year.

This is part of a phased rollout, with thresholds dropping to £30,000 in 2027 and £20,000 in 2028, gradually bringing more small businesses and landlords into scope.

For SMEs and franchise operators, MTD IT is particularly relevant if you operate as a sole trader or draw personal income from your business. Understanding the changes and preparing in advance will help you stay compliant while also using the new system to gain better insight into your finances.

Who will be affected?

From April 2026, MTD IT applies to:

• Sole traders and freelancers with gross self-employment income over £50,000.
• Landlords or individuals with rental income above the threshold.
• People combining self-employment and property income, where the total counts toward the threshold.

Not affected (initially):

• Incorporated businesses (limited companies) – MTD IT targets unincorporated/self-employed and rental income only.
• Individuals whose gross income is below the threshold (though voluntary sign-up is possible).

If you run a small business or franchise as a sole trader, or earn rental income personally, MTD IT will affect you. However, if your business is incorporated, the 2026 phase does not automatically apply – unless you personally draw income subject to MTD IT.

What you’ll need to do under MTD IT

Compliance with MTD IT involves digital record keeping and regular reporting. The key requirements include:

1. Use HMRC approved, MTD compatible software: paper records or standalone spreadsheets won’t meet the requirements. Your software must record all income and expenses digitally.
2. Submit quarterly updates: rather than an annual return, you’ll provide HMRC with summaries of your income and expenses every quarter.
3. File a final declaration: at the end of the tax year, you’ll submit a final report combining all income, allowances, and reliefs. This will replace the previous annual Self-Assessment tax return for the relevant income.
4. Maintain digital records properly: ensure your bookkeeping is always complete and audit ready.

While these steps are mandatory, they also offer benefits. Quarterly reporting gives better visibility on tax obligations, smooths out cash flow planning, and reduces the risk of year-end errors.

What this means for small businesses and franchise owners

For SMEs and franchise operators operating as sole traders or unincorporated entities, MTD IT introduces more frequent reporting – but also more financial clarity.

• Greater transparency: quarterly updates give a rolling view of income and expenses, making it easier to plan budgets and tax payments.
• No more paper-only records: the digital-first approach removes much of the manual admin and reduces the likelihood of errors.
• Better financial control: regular bookkeeping encourages disciplined expense tracking and improved awareness of tax liabilities.
• Potential challenges if unprepared: without proper software and processes, MTD IT could feel like an added administrative burden.

For incorporated franchise owners, MTD IT doesn’t directly apply in 2026. However, if you personally earn self-employed or rental income, those parts of your finances may still be affected.

How we can help

At the dt group, we’re ready to support clients as MTD IT comes into effect. Our services are designed to make the transition seamless for SMEs, franchise owners, and landlords:

• MTD-ready software setup: we’ll help you choose and deploy software that meets HMRC requirements.
• Full-service bookkeeping: we can manage your digital records, keeping your accounts accurate and audit ready.
• Quarterly updates and final declarations: the dt group can handle all submissions on your behalf, ensuring deadlines are met.
• Ongoing support and advice: we guide you through allowances, allowable expenses, rental income complexities, and ensure full compliance.
• Tailored solutions for SMEs and franchise operators: we structure your bookkeeping around your specific business model, whether you have self-employed trade, rental income, or a mix of income streams.

With the dt group managing the administrative side, MTD IT becomes an opportunity to upgrade your financial processes, gain greater clarity, and avoid penalties.

What you should do now

1. Sign up for our webinar – Making Tax Digital webinar.
2. Check your gross income: review your self-employment and rental income for the 2024/25 tax year. If it exceeds £50,000, MTD IT will apply from April 2026.
3. Consider voluntary early adoption: if you’re close to the threshold, signing up early can make the transition easier.
4. Choose the right software: evaluate HMRC approved, MTD compatible software or reach out to the dt group for guidance.
5. Digitise your records: start maintaining all income and expense records digitally, so you’re ready for quarterly submissions.
6. Seek expert support: contact the dt group to help with software setup, bookkeeping, quarterly reporting, and year-end declarations.

Making Tax Digital for Income Tax may seem like a big change, but with the right preparation, it’s an opportunity to streamline your finances, gain better control over your business, and stay fully compliant. The team at the dt group is here to make that transition as smooth as possible, helping you focus on growing your business with confidence.