This year, however, there is an added consideration — Making Tax Digital for Income Tax (MTD for IT). For those earning over £50,000, the decisions you made before 5th April 2025 will have influenced not just your tax liability, but whether you are brought into quarterly digital reporting from April 2026.
Here’s what you need to know — and what you should be reviewing now.
Why the 2024/25 tax year was so important
From April 2026, MTD for IT becomes mandatory for individuals whose qualifying income exceeds £50,000. Crucially, this is based on income reported on your 2024/25 tax return — not income earned in 2026.
Qualifying income includes:
• Self-employment income
• UK property income
• Overseas rental income
Employment income is excluded, and income from partnerships and LLPs currently falls outside the scheme. It is your combined self-employment and property income that determines whether you exceed the threshold.
HMRC has confirmed plans to extend MTD for IT to those earning over £30,000 from April 2027 and over £20,000 from April 2028. These thresholds are open to change, but the direction of travel is clear: digital reporting will increasingly become the standard for businesses.
Only a select few will be automatically exempt from MTD for IT, so tax planning now is vital to determine whether you qualify for an exemption. For those approaching the £30,000 threshold, planning your affairs before the end of this tax year could directly influence whether you fall into the next wave of mandatory MTD reporting. Early preparation ensures you stay ahead and can manage your reporting obligations smoothly.
What MTD for IT will mean in practice
Under MTD for IT, affected individuals must:
• Maintain digital records
• Submit quarterly summaries of income and expenses
• File a final declaration after the tax year end
No filing services will be provided by HMRC and therefore recognised software, such as Xero or QuickBooks, should be used to keep digital records of business income and expenses. Separate quarterly updates are required for UK property, foreign property and each self-employment.
Under MTD for IT, quarterly updates are summary submissions, with a Final Declaration due by 31st January following the end of the tax year, where all adjustments — including capital allowances, relief claims and disallowable expenses — must be reported. While it is possible that all adjustments may need to be included by the Q4 submission, this represents the worst-case scenario.
For many sole traders, the shift replaces annual bookkeeping with continuous digital record-keeping, providing clearer visibility of profitability throughout the year and supporting better-informed business decisions. Approved software providers are responsible for keeping their systems compliant with HMRC’s latest requirements.
Legal ways to reduce your tax bill before 5th April
With the tax year closing, there remains a valuable planning window. The key is ensuring that any steps taken are commercially driven and fully compliant.
Bringing forward business expenditure
If profits are higher than expected, consider whether legitimate business expenditure can be accelerated into the current tax year.
This might include:
• Purchasing equipment qualifying for Annual Investment Allowance
• Completing planned repairs
• Paying professional fees in advance
• Renewing essential subscriptions
Accelerating necessary expenditure can reduce taxable profit, provided it aligns with genuine business needs and accounting principles.
Sales planning and income timing
Income timing can also influence your position.
If you are close to the £30,000 threshold, bringing forward sales before 5th April may trigger entry into MTD from April 2027. Where commercially feasible, deferring income could help manage threshold exposure.
However, accelerating income may be appropriate where profits are expected to increase next year, or where stronger year-end results support borrowing or investment plans. The right decision should reflect both tax efficiency and wider commercial objectives.
Reviewing payments on account
If profits have decreased compared to the prior year, it may be possible to reduce payments on account, improving cash flow. Conversely, rising profits may mean larger liabilities ahead. Planning early helps avoid unexpected pressure — particularly once quarterly reporting becomes mandatory.
Preparing for a more digital future
MTD for IT is more than an administrative update. It represents a structural shift in how sole traders manage and report their finances.
Those who prepare early by adopting robust digital bookkeeping processes often benefit from:
• Improved visibility of profitability
• Better cash flow forecasting
• Earlier identification of tax liabilities
• Reduced year-end stress
With enrolment in the new scheme based on your 2024/25 return, the actions you take now could shape your compliance obligations for years to come.
As 5th April approaches, sole traders earning over £30,000 should take time to review projected income, assess expenditure timing and evaluate the impact of sales planning decisions. Tax planning now is vital to determine whether you could qualify for an exemption ahead of April 2027.
Making Tax Digital for Income Tax is coming into force from April 2026, with lower thresholds to follow. The current financial year presents a valuable opportunity to plan proactively — reducing your tax bill where legally possible while preparing for a more structured, digital reporting environment.
Early advice and careful year-end planning can make a meaningful difference as the transition to quarterly reporting draws closer.
Are you a franchise and looking for more advice on MTD for IT and support with your end of year accounts? Get in touch with the DT Group.
Adding Value, Not Numbers ®
