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3 - Making Tax Digital: What It Means for You

Making Tax Digital for Income Tax Self-Assessment (MTD ITSA) is HMRC's plan to move all self-employed people from annual tax returns to quarterly digital updates. If you're a self-employed hairdresser, barber, beauty therapist, or nail technician, this will change how you report your income and expenses. This guide explains what's happening, when it kicks in, what software you'll need, and what to do right now to get ready.

Quick rule of thumb: if you earn over £50k from self-employment, MTD applies to you from April 2026 - if you earn over £30k, it's April 2027. Everyone else: keep watching, the threshold will probably drop further.

What is Making Tax Digital?

Right now, most self-employed people file one Self-Assessment tax return a year, by 31 January. MTD changes that. Instead of one annual return, you'll need to:

1. Keep your records digitally using compatible software (not spreadsheets on their own)
2. Send quarterly summaries to HMRC through that software
3. Submit a final declaration at the end of the year (replacing the traditional tax return)

The idea is that HMRC gets a rolling picture of your income throughout the year, and you get a better idea of what you owe - no more nasty surprises in January.

Key dates

"Earning" here means your gross self-employment income (total turnover before expenses), not your profit. So if you take in £55,000 a year but spend £20,000 on chair rent, products and other costs, you're over the £50,000 threshold even though your profit is £35,000.

What quarterly updates actually look like

Every three months, you'll need to send HMRC a summary of your income and expenses for that quarter. The quarters follow the tax year:

After Q4, you'll also need to submit a final declaration by 31 January the following year - similar to the current Self-Assessment deadline.

You don't pay tax quarterly. You just report quarterly. The payment dates stay the same (31 January and 31 July for payments on account).

What "digital records" actually means

HMRC requires your records to be kept in MTD-compatible software. Here's what counts and what doesn't:

Acceptable:

• Cloud accounting software (FreeAgent, Xero, QuickBooks, etc.)
• MTD-compatible apps on your phone
• HMRC-approved bridging software that links spreadsheets to HMRC (though HMRC prefers full software)

Not acceptable on its own:

• A paper notebook
• A basic spreadsheet with no HMRC connection
• Receipts in a shoebox

You need to record:

• Each transaction (income and expenses) with the date and amount
• The category of each expense
• Your total income and expenses per quarter

For most beauty workers, this means putting your income and expenses into an app as you go, and the app handles the rest.

Tip for new starters: Even if MTD does not apply to you yet, start using accounting software from day one. Most apps offer free trials, and getting into the habit now means you will already have clean digital records when the threshold eventually reaches your income level. It also makes filing your annual Self-Assessment much quicker.

Software options and real prices

Here's what's available as of early 2026. All of these are HMRC-recognised for MTD ITSA:

Which one should you pick? If your business is straightforward - chair rent, products, a few other expenses - GoSimpleTax or QuickBooks Self-Employed are the cheapest options that do the job. If you want proper invoicing and a real-time view of your tax bill, FreeAgent is worth the extra cost.

Most of these offer free trials. Try before you buy.

Special considerations for beauty workers

Chair rent

Your biggest expense is probably chair rent. Under MTD, you'll log this monthly (or weekly) in your software. Make sure you categorise it correctly - it's a "rent" expense, not "cost of goods sold."

Tips and cash payments

All income must be recorded - including cash tips. Under MTD's quarterly reporting, it's even more important to log cash as it comes in rather than trying to remember three months' worth at the end of a quarter. A quick note in your app after each cash client takes 10 seconds.

Tip for new starters: If you are choosing software for the first time, check whether your bank offers free accounting software. NatWest and RBS customers can get FreeAgent for free, which saves you £180-£264 per year. Always check for offers before paying full price.

Product costs

Colour, retail products, tools - all need recording when you buy them. Keep digital copies of receipts (most accounting apps let you snap a photo). Paper receipts fade; digital ones don't.

Mixed personal and business use

If you use your phone for both personal and business calls, or drive your car for both personal and client visits, you can only claim the business portion. Your software should let you record a percentage split.

Multiple income sources

If you rent a chair three days a week and do mobile work two days, that's all one self-employment. Record it all in the same place.

I earn under £50k - do I still need to worry?

Short answer: not yet, but yes eventually.

• Under £30k: MTD ITSA doesn't apply to you yet. The government has signalled it will keep lowering the threshold, but there's no confirmed date for under-£30k earners. You still need to file a normal Self-Assessment return each year.
• £30k-£50k: You've got until April 2027. Start getting your digital records sorted now.
• Over £50k: It's here. April 2026. If you haven't set up compatible software, do it today.

Even if you're well under the threshold, getting into the habit of digital record-keeping now will save you pain later. When MTD does apply to you, you'll already be set up.

What happens if you ignore it

If MTD applies to you and you don't comply, HMRC can issue penalties:

• Late submission penalties: HMRC uses a points-based system. You get a point for each late quarterly update. Once you hit the threshold (4 points for quarterly obligations), you get a £200 penalty. Further late submissions also attract £200 each.
• Late payment penalties: Similar to current SA penalties - charges start at 2% of tax outstanding after 15 days, rising to 4% after 30 days, plus daily interest.
• Failure to keep digital records: HMRC can issue penalties of up to £40 per day if you don't keep records in compatible software when required.

The points system is designed to give you a few chances, but once you're over the threshold, it gets expensive fast. The simplest way to avoid all of this is to set up your software and submit on time.

Step by step: what to do NOW to prepare

If MTD applies to you from April 2026 (earning over £50k):

1. Choose your software from the list above and sign up. If you're unsure, start with a free trial of FreeAgent or QuickBooks.
2. Enter your opening balances - your current bank balance, any money owed to you, any bills you haven't paid yet.
3. Start logging every transaction from now. Income in, expenses out. Every day, or at least every week.
4. Connect your bank account - most accounting apps can pull in transactions automatically, saving you time.
5. Set calendar reminders for quarterly submission deadlines (7 August, 7 November, 7 February, 7 May).
6. Talk to your accountant - if you use one, check they're set up for MTD. If you don't use one, consider whether you need one.

If MTD applies from April 2027 (earning £30k-£50k):

1. Choose your software now - don't wait until March 2027.
2. Start recording digitally from April 2026 at the latest so you have a full year of practice before it's mandatory.
3. Review the quarterly deadlines and work out how they fit into your routine.

If you earn under £30k:

1. Don't panic. You've got time.
2. Start building good habits. Even a simple spreadsheet that you update weekly is better preparation than nothing.
3. Keep an eye on gov.uk for announcements about lower thresholds.
4. Consider free tools like Hammock or HMRC's app to get used to digital record-keeping without spending money.

Frequently asked questions

Do I need to submit invoices to HMRC every quarter? No. You submit summary figures - total income and total expenses for the quarter. You keep the detailed records yourself in case HMRC asks to see them.

Can my accountant do the quarterly submissions for me? Yes, but they'll probably charge extra for four submissions instead of one annual return. Ask them for a quote.

What if I'm on holiday when a quarterly deadline hits? Submit early. Most software lets you submit as soon as the quarter ends - you don't have to wait until the deadline.

Will this replace Self-Assessment? Eventually, yes. The final declaration under MTD replaces the SA tax return. But the transition will be gradual.

I'm VAT-registered - is this the same as MTD for VAT? Similar concept, different system. MTD for VAT has been running since 2019. If you're already doing MTD for VAT, you'll understand the process - but you'll need to set up MTD for Income Tax separately.

What to do next

1. Check your gross income for the current tax year - are you over £50k or £30k?
2. Pick accounting software and sign up for a free trial this week
3. Start logging your income and expenses digitally - even if MTD doesn't apply to you yet
4. Talk to your accountant (if you have one) about their MTD plans and pricing
5. Bookmark HMRC's MTD page at gov.uk/making-tax-digital-income-tax-self-assessment for updates

Who to Contact

• HMRC Self-Assessment helpline - general SA and MTD queries - 0300 200 3310 (Free)
• HMRC MTD guidance page - gov.uk/making-tax-digital-income-tax-self-assessment (Free)
• TaxAid - free tax advice for people on low incomes - taxaid.org.uk (Free)
• Citizens Advice - general guidance on tax and self-employment - 0800 144 8848 (Free)
• National Hair & Beauty Federation (NHBF) - sector-specific guidance - nhbf.co.uk (Membership required)
• Your accountant - ask specifically about MTD readiness (Paid)
• Software support teams - FreeAgent, Xero, QuickBooks all have help centres and live chat (Free with subscription)

Sources

• Making Tax Digital for Income Tax Self-Assessment, gov.uk/making-tax-digital-income-tax-self-assessment
• HMRC MTD ITSA regulations and timeline, gov.uk
• Finance Act 2022 (MTD provisions), legislation.gov.uk
• HMRC penalties for late submission (points-based), gov.uk/guidance/penalties-for-income-tax-self-assessment-volunteers

Related Guides

• Self-Assessment for Hairdressers: Complete Guide
• Self-Assessment for Beauty Therapists
• Allowable Expenses: What You Can Claim
• Understanding Your Employment Status
• VAT Registration: When and How

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