How to Set Up Making Tax Digital (MTD): Step-by-Step Guide
Imagine reaching the end of a financial quarter and, instead of scrambling through piles of receipts or wrestling with endless spreadsheets, you simply hit a button and send all your records directly to HMRC. No late nights, no last-minute panic, just compliance done efficiently. This is the promise of Making Tax Digital (MTD). For UK-based sole traders, landlords, or VAT-registered businesses, setting up MTD now could save you considerable stress ahead of the April 2026 rollout.
This guide takes you through every step, from confirming whether the rules apply to you to testing your first submission. We’ve kept it practical and straightforward because, while taxes can feel complicated, the setup process doesn’t have to be. Sterling & Wells can also assist if you prefer expert guidance, helping you stay compliant without losing focus on running your business.
Why MTD Matters to You Right Now
Think back to the last time you filed a Self Assessment tax return. It likely involved frantic calculations, double-checking figures, and worrying about deadlines. MTD changes this by requiring digital records from the start, making updates to HMRC more transparent and accurate throughout the year. Originally launched for VAT, the system is now expanding to Income Tax Self Assessment, affecting sole traders and landlords whose combined business or rental income exceeds £50,000 for the 2024/25 tax year, starting 6 April 2026.
Early adoption offers real benefits. By digitising your records now, you gain a clearer picture of your cash flow and tax position, which reduces the risk of penalties for missed or inaccurate submissions. HMRC’s enforcement of these rules means that ignoring the transition could lead to audits and additional costs. For growing businesses or property investors, embracing MTD early allows you to address issues before they become urgent, ensuring smoother financial management year-round.
Does MTD Apply to Your Situation?
If you are VAT-registered, you are already familiar with MTD, having maintained digital records and submitted returns electronically. The significant change now is the expansion to Income Tax Self Assessment. Sole traders and landlords whose gross annual income exceeds £50,000 must comply from April 2026. Those below this threshold should prepare for future deadlines: £30,000 in April 2027, and £20,000 in April 2028. Limited companies and partnerships are not affected at this stage, so the focus is firmly on individuals.
If you’re unsure whether you meet the threshold, it’s worth reviewing your latest accounts or seeking advice. Sterling & Wells helps clients check whether MTD applies, often uncovering triggers during free initial assessments. Knowing where you stand now ensures you are fully prepared, avoiding last-minute complications and giving you the confidence to manage your records digitally.
Signing Up with HMRC – Your First Move
The first step to joining MTD is signing up via your Government Gateway account. This is the online portal that connects you to HMRC’s systems. If you don’t have an account, creating one is quick: enter your email, choose a secure password, and complete a simple identity verification process. Once logged in, search for “Making Tax Digital for Income Tax” or VAT as appropriate, then provide your Unique Taxpayer Reference (UTR), National Insurance number, business details, and address. HMRC will confirm your registration via email and issue a digital authorisation code for your records.
New to Self Assessment? You’ll need to register first to receive your UTR before signing up for MTD. The process is straightforward and designed to get you ready for quarterly updates efficiently. Sterling & Wells supports clients through this step, handling the setup and ensuring all details are correctly submitted to avoid delays when the first quarterly reporting period begins.
Choosing the Right Software That Fits Your Life
MTD requires HMRC-approved software that can send quarterly updates and final declarations directly to HMRC. Simple spreadsheets or paper records alone are no longer sufficient unless integrated with compatible software. Options vary from basic apps suitable for sole traders to comprehensive platforms for landlords with multiple properties. Popular choices like RentalBux offer different features depending on the scale of your business.
Selecting the right software isn’t just about compliance; it also affects efficiency and accuracy. Many systems automatically import bank transactions, categorise expenses, and link invoices and receipts digitally. Sterling & Wells helps clients test software, migrate existing records, and ensure the system integrates seamlessly with their business operations, removing the hassle and ensuring the first quarterly submissions are accurate.
Setting Up Your Digital Records Properly
Once software is in place, the next step is organising your digital records. Scan or photograph invoices, receipts, and bank statements, linking them to transactions in your software. Income, expenses, and VAT adjustments should be logged accurately, following HMRC’s guidelines. For landlords, this includes tracking rent receipts, allowable repairs, and partial VAT claims. Maintaining consistent digital records for six years is crucial, and good software handles archiving and backups automatically.
Testing your setup by reconciling past transactions ensures your digital records are reliable. Proper organisation also allows you to spot deductible expenses or forecast tax bills more accurately. Sterling & Wells helps clients build this structure from day one, especially for multi-property landlords, ensuring compliance and efficiency simultaneously.
Submitting Your Quarterly Updates Smoothly
MTD replaces the single annual filing with four quarterly updates. For Income Tax, periods run from 6 April to 5 July, 6 July to 5 October, 6 October to 5 January, and 6 January to 5 April, each submitted within 30 days via software. Even if you have no activity to report, you can submit a nil update to remain compliant.
The software calculates totals from your digital records, summarising income and expenses for HMRC. At the end of the tax year, a final declaration ensures all additional income, such as dividends, is included. Sterling & Wells guides clients through this process, handling submissions to minimise errors and maintain compliance with all deadlines.
Handling Corrections & Common Hiccups
MTD allows corrections to be made directly through software within four years of the relevant tax year. Adjustments to income, expenses, or property transactions flow seamlessly into future updates, reducing administrative burden. Common issues include software glitches, mismatched bank feeds, or complex income streams, particularly overseas earnings.
Sterling & Wells advises clients proactively, monitoring submissions, checking reconciliations, and preventing errors that could otherwise result in fines. Staying updated via HMRC announcements and accounting guidance ensures you remain compliant and prepared for potential changes in the scope of MTD in future years.
Payments and End-of-Year Wrap-Up
While MTD focuses on reporting, the actual payment of tax remains via Self Assessment, due by 31 January. Payments on account may also apply if your tax liability exceeds £1,000 and less than 80% was collected through PAYE. Integrating bank feeds with software helps forecast payments and manage cash flow, which is essential for landlords and seasonal businesses.
Sterling & Wells combines MTD compliance with broader tax planning, helping clients schedule payments effectively, reduce penalties, and optimise overall financial management. Accurate quarterly updates make the end-of-year calculation simpler and give clients a clear picture of their tax obligations throughout the year.
How Sterling & Wells Makes This Effortless
Transitioning to MTD can seem daunting, but you are not alone. Sterling & Wells specialises in property accounting, VAT, and now full MTD for Income Tax, tailored to landlords, sole traders, and individual investors. Services include threshold assessments, software setup, quarterly submissions, and Self Assessment integration.
Our team handles the heavy lifting, ensuring records are accurate, software is configured correctly, and deadlines are never missed. By relying on expert support, you can focus on growing your business while staying fully compliant with the new digital tax landscape.
Conclusion
Setting up Making Tax Digital is more than a compliance exercise; it’s an opportunity to streamline your finances and gain greater insight into your business or property investments. By following the steps outlined, maintaining accurate digital records, and submitting quarterly updates, you can reduce errors, avoid penalties, and make tax time far less stressful.
Sterling & Wells can guide you through every stage, from initial sign-up to ongoing MTD reporting. With expert advice, tailored software solutions, and hands-on support, the transition to Making Tax Digital can be smooth, efficient, and beneficial to your business. Start preparing now to stay ahead and take full advantage of the clarity and control that digital tax records provide.
Sterling & Wells
We are Sterling & Wells — a UK-based team of accountants and tax advisors helping individuals and businesses stay fully HMRC compliant. From VAT and bookkeeping to self-assessments and tax planning, we’ve got your finances covered.