Your Ultimate Guide to Making Tax Digital for Childminders
If you are a childminder running your own business, Making Tax Digital (MTD) is not a minor administrative tweak or a background compliance update that can be dealt with later. It is a fundamental restructuring of how HMRC expects you to keep records, report income, and finalize your tax position. While the phrase “Making Tax Digital” often gets presented as a technology issue, the reality is that it is a process change – and for childminders, process is everything.
Childminding is not a conventional business. It operates from the home, overlaps with family life, and is regulated by Ofsted alongside HMRC. Income can fluctuate, expenses are often shared between personal and business use, and record keeping must already meet safeguarding and regulatory standards. MTD does not remove any of that complexity. Instead, it requires that those realities are captured digitally, consistently, and more frequently.
From April 2026, childminders with combined gross income over £50,000 from childminding, other self-employment, and/or property letting will be required to comply with MTD for Income Tax. That threshold drops to £30,000 in April 2027 and £20,000 in April 2028. This staged rollout means that even childminders who are currently outside the scope will almost certainly be affected in the near future. Waiting until the year you are forced in is not preparation – it is damage control.
This guide is written as a practical, end-to-end preparation manual, not a surface-level explainer. It is designed to help childminders understand exactly what MTD requires, how it works in practice, where mistakes commonly occur, and how to build a system that is sustainable long term. Sterling & Wells works with childminders specifically, and this guide reflects the realities seen in practice – not idealised examples.
What Making Tax Digital Actually Changes (and What It Does Not)
One of the most important things to understand at the outset is what Making Tax Digital does not change. It does not change how tax is calculated. It does not change what expenses are allowable. It does not introduce new taxes, increase rates, or remove existing reliefs. A childminder claiming household expenses, mileage, food costs, toys, or wear-and-tear allowances will continue to do so under the same underlying tax rules.
What MTD Changes is How Information is Recorded & When It is Reported.
Under the current Self Assessment system, many childminders keep paper records or spreadsheets throughout the year and submit one tax return long after the tax year has ended. MTD replaces that annual reporting rhythm with an ongoing digital process. Income and expenses must be recorded digitally, preserved digitally, and submitted digitally at regular intervals.
This distinction matters because many childminders approach MTD with the assumption that it is simply “Self Assessment but online.” It is not. The reporting cycle is different, the penalties are structured differently, and the margin for disorganisation is far smaller. Understanding this early prevents panic later.
Who Exactly Must Comply: Understanding the Income Thresholds Properly
MTD for Income Tax applies based on gross income, not profit. This is one of the most common areas of misunderstanding and one of the biggest reasons childminders get caught out.
Gross income means total income before expenses. For a childminder, this includes:
- Fees received from parents
- Government-funded childcare income
- Grants that are treated as trading income
- Any other self-employed income
- Rental income from property (if applicable)
If you earn £38,000 from childminding and £14,000 from rental property, your combined gross income is £52,000 – which places you within MTD from April 2026. Profit levels are irrelevant for threshold purposes.
Even where income fluctuates, HMRC expects reasonable forecasting. If it is clear that your income will exceed the threshold, delaying preparation is not a defence. Sterling & Wells strongly advises childminders close to the threshold to prepare early, even if they are not yet mandated.
The Core MTD Obligations Explained Clearly
Once within scope, Making Tax Digital introduces four ongoing obligations:
- Digital record keeping
- Quarterly updates
- Final Declaration
These obligations replace the traditional Self Assessment workflow but do not remove personal tax responsibilities. They simply restructure them.
Digital records must be kept using HMRC-compatible software. This does not mean scanning paper documents once a year. It means recording income and expenses digitally at or near the time they occur, with records preserved in a format that cannot be manually altered without trace.
Quarterly updates are summaries of income and expenses submitted four times a year. They are not tax bills, not final, and not payments. They exist to keep HMRC informed.
The Final Declaration is where adjustments are made – capital allowances, private use adjustments, and corrections to estimates. It also confirms total income across all sources and calculates the actual tax due.
Understanding how these elements interact is critical. Treating quarterly updates as final figures is one of the most damaging misconceptions under MTD.
Why Quarterly Updates Are Not “Mini Tax Returns”
Quarterly updates are often the source of the most anxiety for childminders, largely because they are misunderstood. These submissions do not determine how much tax you owe, nor do they require perfection. They are informational snapshots based on your digital records at that point in time.
For childminders, this is particularly important because many expenses are estimated during the year. Household apportionments, for example, may be applied provisionally and finalized later. HMRC explicitly allows this, provided the final figures are corrected at the Final Declaration stage.
The deadlines, however, are strict. Each quarterly update must be submitted by the 7th of the month following the quarter end. Missing these deadlines triggers penalty points, regardless of whether any tax is due.
Sterling & Wells structures bookkeeping and review processes around these dates to ensure submissions are routine rather than stressful.
The New Penalty System & Why It Changes Behavior
MTD introduces a points-based penalty system designed to penalize patterns of non-compliance, not one-off mistakes. Each late submission earns a penalty point. Once four points are accumulated, a £200 fine is issued. Further late submissions trigger additional £200 penalties until compliance is maintained for a full 12-month period.
Points do not reset automatically. They must be actively worked off through consistent, timely submissions. For childminders who are used to a single annual deadline, this represents a major shift in risk exposure.
The solution is not working harder – it is building systems that remove reliance on memory and last-minute effort. This is where professional support becomes practical rather than optional.
What “MTD-Compatible Software” Actually Means in Practice
One of the most misleading aspects of Making Tax Digital is HMRC’s use of the phrase “compatible software.” Many childminders assume this simply means using any accounting software or keeping records digitally in some form. In reality, HMRC has very specific requirements around how records are created, stored, and transmitted.
MTD-compatible software must be able to:
- Maintain digital records in a structured format
- Preserve those records without manual alteration
- Submit quarterly updates directly to HMRC via an approved digital link
- Retain an audit trail showing how figures were derived
This is why basic spreadsheets on their own are often not sufficient, unless they are linked to bridging software that submits data digitally without manual re-entry. HMRC’s core principle is that once a figure exists digitally, it must flow digitally all the way to submission. Manual copying, retyping, or recalculating figures between systems breaks that digital link and can invalidate compliance.
For childminders who have historically relied on paper notebooks or handwritten cash books, this represents the biggest behavioral shift under MTD. It is not simply about using a computer – it is about changing how records are created at the point of transaction.
Choosing Software That Works for Childminders (Not Just Businesses in General)
Childminding is a niche activity, and not all accounting software handles it well. Many systems are designed for conventional trades with straightforward income streams and expenses that are wholly business-related. Childminders, by contrast, deal with shared household costs, variable hours, attendance-linked income, and Ofsted record-keeping obligations.
Effective MTD software for childminders must be able to:
- Record income linked to attendance or invoices
- Apply consistent expense apportionment rules
- Handle mileage claims alongside household costs
- Store receipt images securely
- Generate reports suitable for quarterly submissions
Software like QuickBooks can be configured to do this properly, but configuration matters. Poor setup leads to messy data, which then creates stress at each quarterly update and increases the risk of errors at the Final Declaration stage.
Sterling & Wells does not simply “turn on” software. Setup is tailored to how the childminder actually works – hours, patterns, number of children, use of space in the home, and frequency of outings. This upfront work is what keeps later compliance manageable.
Digital Record Keeping: What Must Be Recorded and When
Under Making Tax Digital, childminders must keep digital records of every item of income and every allowable expense. This does not mean every receipt must be uploaded instantly, but it does mean records must be kept digitally and contemporaneously.
For income, records should show:
- Date received
- Amount
- Source (fees, funded childcare, grants, etc.)
For expenses, records must include:
- Date incurred
- Amount
- Category of expense
- Business proportion (where applicable)
Receipts should be retained digitally wherever possible. Many childminders now use mobile apps to photograph receipts immediately, reducing the risk of loss. For small cash purchases under £10, receipts are not strictly required under HMRC-PACEY guidance, but digital entries must still be made.
Consistency matters more than perfection. HMRC is far more concerned with systematic, reasonable record keeping than with flawless categorization of every item.
Household Expenses: Why Childminders Are Treated Differently
Childminders operate from their homes, which makes expense claims inherently complex. HMRC recognizes this and has long agreed simplified methods with PACEY to reflect real-world working conditions.
Unlike many home-based businesses, childminders apportion household expenses based on hours worked, not rooms used. This is a critical distinction. It acknowledges that childminding affects the entire household environment during working hours, not just a specific room.
Under the agreed framework:
- Heating and lighting are apportioned based on hours worked
- Water, council tax, and rent are claimed at lower percentages
- Full-time work (40+ hours per week) allows the maximum permitted proportions
These percentages must be applied consistently across the year. Under MTD, this consistency is easier to achieve using software rules rather than manual calculations repeated each quarter.
Where working hours vary, reasonable averages are acceptable, but they must be justifiable. Sterling & Wells helps childminders document these assumptions so they can be defended if HMRC queries arise.
Wear & Tear: Understanding the 10% Deduction Properly
The 10% wear-and-tear deduction is often misunderstood. It exists to recognize that household furniture, carpets, and equipment used in childminding suffer accelerated wear, even though they are not used exclusively for business.
If a childminder claims this 10% deduction:
- It applies to total childminding income
- It covers general household items not used exclusively for childminding
- It prevents separate claims for replacing those same items
This deduction cannot be combined with capital claims on household furnishings. However, cleaning costs attributable to childminding can still be claimed separately, provided they are reasonable and evidenced.
Under MTD, the wear-and-tear deduction is usually applied at the Final Declaration stage, once total income for the year is known. Quarterly updates may include provisional figures, but final adjustments must be made before submission of the Final Declaration.
Food & Drink: Recording Without Receipts
Food and drink provided to children is a legitimate business expense, and HMRC allows reasonable estimates rather than exact receipt-based calculations. This is particularly important for childminders who shop for household groceries rather than separating purchases.
The key requirement is that estimates are:
- Reasonable
- Consistent
- Clearly attributable to childminding
Digital software allows childminders to enter regular food expense entries without uploading receipts, reducing administrative burden. Sterling & Wells advises documenting how estimates are calculated so that they can be explained if required.
Mileage & Car Expenses Under MTD
Childminders often use their vehicles for school runs, outings, and activities. HMRC allows two methods for claiming car expenses:
- Simplified mileage rates
- Actual cost method
The simplified mileage method is the most common for childminders. It allows claims based on business miles driven, without requiring receipts for fuel or maintenance. Digital mileage logs are particularly helpful under MTD, as they create an automatic audit trail.
Once a method is chosen, switching between methods is restricted. Sterling & Wells advises childminders carefully at the outset to ensure the most appropriate method is used long-term.
Digital Links & Why Manual Re-Entry Is a Compliance Risk
One of the least understood MTD rules is the requirement for digital links. HMRC expects data to flow digitally from record keeping to submission without manual intervention.
For example:
- Copying totals from a spreadsheet into HMRC software manually breaks the digital link
- Re-typing figures from notes into accounting software is not compliant
This is why many “DIY” setups fail under MTD, even if the figures themselves are correct. Compliance is about process, not just outcomes.
Sterling & Wells ensures that digital links are preserved throughout the reporting chain, reducing the risk of penalties due to technical non-compliance.
HMRC Compliance Checks & What Childminders Should Expect Under MTD
As Making Tax Digital becomes embedded across the tax system, HMRC’s approach to compliance is also evolving. The aim of MTD is not only to reduce accidental errors but also to make it easier for HMRC to identify inconsistencies or gaps in reported information. For childminders, this means that keeping accurate digital records is no longer just good practice-it is your first line of defense if HMRC ever queries your figures.
Under MTD, HMRC has greater visibility throughout the year rather than relying solely on an annual tax return. Quarterly updates allow HMRC to spot unusual fluctuations, missing submissions, or patterns that do not align with typical childminding businesses. This does not automatically mean an investigation, but it does increase the likelihood of questions being asked if figures appear inconsistent.
A compliance check may involve HMRC asking for explanations of certain expenses, requesting copies of digital records, or seeking clarification on how household costs have been apportioned. Because childminding businesses often operate from home, HMRC pays particular attention to how private and business use is separated. Clear digital records, consistent apportionment methods, and well-documented calculations significantly reduce the stress and time involved in responding to such queries.
Sterling & Wells supports childminders during HMRC compliance checks by reviewing records before submission, ensuring explanations are clear, and liaising with HMRC where appropriate. This support is particularly valuable under MTD, where regular submissions mean small issues can compound quickly if not addressed early.
Record Retention Rules: How Long Childminders Must Keep Digital Records
One area that often causes confusion is how long records must be kept under Making Tax Digital. While MTD changes how records are kept, it does not reduce HMRC’s retention requirements.
In most cases, childminders must keep tax records for at least five years after the 31 January submission deadline for the relevant tax year. This includes digital records of income, expenses, quarterly submissions and the Final Declaration. If a return is filed late, records must be kept longer to reflect that delay.
Separately, Ofsted and safeguarding requirements impose their own retention rules. Records relating to children, accidents, medications, and attendance often need to be retained for shorter but specific periods, typically around two years, although safeguarding considerations may require longer retention in some cases. These records must also be stored securely, particularly where personal data is involved.
The key point is that tax records and regulatory records serve different purposes. Digital accounting software can store financial data securely, while separate systems or encrypted storage may be appropriate for sensitive child-related information. Sterling & Wells helps childminders structure record-keeping systems that meet both tax and regulatory obligations without unnecessary duplication.
Managing Deadlines in Real Life: What Quarterly Reporting Looks Like in Practice
On paper, quarterly updates appear straightforward. In reality, they must be fitted around school holidays, inspections, illness, family responsibilities, and the day-to-day demands of caring for children. This is why practical planning matters just as much as understanding the rules.
Each quarterly deadline falls shortly after a busy working period. For example, the update covering April to July is due by 7 August, often during school holidays. Without systems in place, it is easy for deadlines to slip. HMRC does not allow leeway for personal circumstances under the points-based penalty regime, which makes proactive planning essential.
Many childminders find it helpful to treat bookkeeping as a regular task rather than a quarterly scramble. Updating records weekly or monthly ensures that when a quarterly deadline arrives, the submission is largely a review exercise rather than a full reconstruction of income and expenses.
Sterling & Wells works with childminders to align bookkeeping routines with their working patterns. Automated reminders, periodic check-ins, and pre-deadline reviews help ensure that submissions are completed accurately and on time, reducing both stress and penalty risk.
How Making Tax Digital Affects Payments on Account
One common concern among childminders is whether Making Tax Digital changes when tax must be paid. While MTD changes reporting frequency, it does not change payment deadlines or the payments-on-account system-at least for now.
Tax is still generally payable by 31 January following the end of the tax year, with payments on account due on 31 January and 31 July if applicable. However, because quarterly updates provide a clearer picture of income throughout the year, childminders may find it easier to anticipate their tax liabilities and budget accordingly.
There is ongoing discussion about future reforms to payment timings, but these are not part of the current MTD requirements. It is important not to assume that quarterly updates mean quarterly payments. Sterling & Wells regularly clarifies this point with clients to avoid unnecessary worry or misinformed budgeting decisions.
Choosing & Using Software: What Actually Matters for Childminders
HMRC requires the use of MTD-compatible software, but not all software is equally suitable for childminders. The most important factors are usability, flexibility around expense apportionment, and the ability to integrate with real working practices.
Childminders need software that can handle mixed-use expenses, mileage tracking, and simple invoicing without excessive complexity. Overly advanced systems designed for larger businesses can be counterproductive, while basic tools may lack the necessary MTD submission functionality.
QuickBooks is commonly used because it balances functionality with ease of use and is fully MTD-compliant. Sterling & Wells supports childminders by setting up software correctly from the outset, ensuring categories align with HMRC requirements and childminding-specific expenses.
Importantly, software does not replace professional oversight. While it records and submits data, it does not assess whether claims are reasonable or compliant. That judgment remains critical, particularly for household and shared costs.
Preparing for Growth, Change or Reduced Hours
Childminding businesses are rarely static. Income may increase or decrease depending on the number of children cared for, working hours, or changes in personal circumstances. Making Tax Digital applies based on gross income thresholds, which means movement in and out of scope is possible.
Understanding how changes affect MTD obligations is essential. Falling below a threshold does not necessarily remove obligations immediately, and exemptions must be confirmed rather than assumed. Similarly, taking on additional work or rental income may push a childminder into MTD sooner than expected.
Sterling & Wells monitors these changes with clients, ensuring that obligations are understood and adjusted proactively rather than reactively. This forward-looking approach prevents unexpected compliance issues and supports informed decision-making.
Bringing Everything Together: From Compliance to Confidence
At this point, it becomes clear that Making Tax Digital is not a single task or deadline. It is an ongoing framework that affects how childminders record information, interact with HMRC, and manage their finances throughout the year.
The transition can feel overwhelming, particularly for those who have relied on paper records or annual accounting processes for many years. However, when approached methodically, MTD can actually reduce pressure rather than increase it. Regular record keeping spreads the workload, digital systems reduce errors, and clearer visibility improves financial control.
The key is not trying to navigate these changes alone. Childminders already operate within a demanding regulatory environment, balancing care responsibilities with compliance. Professional support transforms MTD from a source of anxiety into a structured, manageable process.
Conclusion: A Practical Path Forward for Childminders
Making Tax Digital represents one of the most significant changes to the UK tax system in decades, and childminders are firmly within its scope. While the requirements may appear complex at first glance, they are ultimately about consistency, accuracy, and better use of information.
By understanding how MTD works, preparing early, and adopting digital record keeping gradually, childminders can avoid the stress of rushed transitions and missed deadlines. The shift to quarterly updates and digital submissions does not change what tax is owed, but it does change how confidently and efficiently obligations can be met.
Sterling & Wells supports childminders through every stage of this journey, from initial preparation and software setup to ongoing submissions and year-end compliance. The focus is not on overselling solutions, but on providing clarity, structure, and reassurance in a changing tax landscape.
With the right approach, Making Tax Digital becomes not just a requirement to meet, but an opportunity to build a more organised, resilient, and well-managed childminding business.
Frequently Asked Questions
Does Making Tax Digital apply to all childminders automatically?
No. It applies based on combined gross income thresholds. However, most childminders will fall within scope over time as thresholds reduce.
Do quarterly updates mean I pay tax quarterly?
No. Quarterly updates are reporting requirements only. Tax payment deadlines remain unchanged under current rules.
Can I still use the PACEY Accounts Book?
Yes, as a method of recording information, provided the data is transferred into MTD-compatible digital software.
What happens if I make a mistake in a quarterly update?
Mistakes can usually be corrected in later updates or at the Final Declaration stage. Consistency and transparency are key.
How does Sterling & Wells help childminders specifically?
By providing tailored onboarding, software setup, training, ongoing compliance support, deadline management, and professional oversight throughout the MTD process.
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