Archives September 2025

Making Tax Digital (MTD) for Income Tax comes into force from April 2026.

If you’re a sole trader or landlord who meets the criteria, the new requirements from HMRC will offer you a great opportunity to overhaul your accounting admin tasks for the better.

By choosing the best cloud accounting software, and following the MTD for Income Tax rules, you’ll spend less time on admin and more time developing your products and services, adding value for your customers and clients, and growing your business.

In this article, we reveal how MTD for Income Tax will benefit you and your business.

Here’s what we cover:

An overview of Making Tax Digital for Income Tax

Making Tax Digital (MTD) for Income Tax is a HMRC’s new tax system that will be launched across three phases, in April 2026, April 2027 and April 2028.

It affects sole traders and landlords that have income over £50,000 in the first phase, over £30,000 in the second phase, and over £20,000 in the third phase.

The new rules mean you’ll be required to manage your taxes by using functional compatible software for your accounting.

Across each year, you’ll need to provide four quarterly reports, then a digital tax return by 31 January.

This might sound like a lot of additional work but that’s where the software will come into play.

Most tasks required to complete the various steps will be automated, and the data should be there ready and waiting when the time comes.

Below are five ways that MTD for Income Tax will make life easier for you and your business.

1. You’ll have more clarity of your financial position

Making Tax Digital for Income Tax can be so beneficial for your business.

Yes, you’re required to pay more attention to your accounting than you might be used to.

But this means you’re more likely to know your financial position at any given moment. You’ll know about the cash flowing in and out, and how much money you have to operate with.

Compare that to how some businesses are run, where the owner might only get this kind of insight once a year when they visit their accountant at tax return time.

Additionally, if you use mobile accounting apps, you can get this kind of insight at any time of the day.

You can always be connected to your business finances, reducing the amount of times that you need to sit down at a desk to work out and understand your numbers.

2. You’ll know how much tax you owe

One key benefit of MTD for Income Tax is that you’re able to keep on top of your tax liability across the year.

In short, it means you have the best possible idea of how much you’re likely to owe.

This benefits cash flow.

You might be used to setting aside a quarter or a third of your income for tax purposes. This is often more than enough to cover January’s tax bill, but the idea is that saving too much is better than saving too little.

But instead, you can set aside how much you’re actually likely to owe, based on the data shown in your quarterly reports.

This amount will still be an estimate, of course, and because of the potential need to make adjustments and reliefs in January it continues to be a good idea to be generous in your estimate.

But you can certainly avoid setting aside far too much each year.

As with any software, what you see in your accounting software for the quarterly reports is only going to be as accurate as the data you input.

But if you get the simple steps of MTD for Income Tax correct, the rest of your accounting should follow suit.

3. It will be easier to spot accounting mistakes and amend them

Making mistakes with your accounting can not only give you a false idea of your cash flow position, it can also attract penalties from HMRC.

Similarly, late submissions can attract penalties, too.

To accompany MTD for VAT and MTD for Income Tax, a new points-based penalty system has been introduced by HMRC that will mean automatic £200 fines are applied if a certain number of points is exceeded in a time frame.

This came into force on 1 January 2023 for MTD for VAT customers, and will apply as soon as taxpayers become mandated for MTD for Income Tax in either 2026, 2027 or 2028, depending on their income.

But fines and points are just one of your worries.

Accounting mistakes also eat your time when they must be corrected. And you don’t want yet more admin tasks on top of what you’re already doing.

MTD for Income Tax makes it harder to make mistakes and easier to spot any you do make because of the requirement to send quarterly updates to HMRC. Essentially, you’re checking your accounting data every three months.

Perhaps surprisingly, there’s no legal requirement for the quarterly reports to be correct. But it’s obviously a good idea to be as accurate as you can be.

And while your accounting software can only be as accurate as the data you input, MTD-compatible accounting software will automate much of the work required to create the quarterly reports.

In many cases, it’ll simply be a matter of checking the report and then opting to submit it.

4. Working with your accountant could become more effective

Good-quality MTD for Income Tax software will be cloud-enabled and will offer an option to connect to your accountant’s systems.

This means the accountant can see the same financial data as you do, so can help with the periodic reporting requirements of Making Tax Digital.

And depending on your needs, this insight means they can evolve into more of a business partner.

After all, they have the knowledge to examine financial data and vast amounts of experience in businesses of all kinds due to their work with other clients.

Your accountant will be able to spot any problems that might arise long before they actually become a problem. And they can spot opportunities for you too.

If nothing else, connecting your accounting system to theirs makes it much easier each January when you need to make the digital tax return for your business(es) or property income, and pay your tax.

And that means you can say goodbye to the days of visiting them with a big box full of paperwork and receipts.

5. You’ll bring new tech into your business and work more efficiently

Choosing good-quality MTD for Income Tax-compatible software is an opportunity to get the most from technology for the benefit of your business.

It would certainly be a mistake to assume that all software solutions are essentially the same. In fact, being able to handle your accounting is just the very basic level for the best accounting software.

Key developments in recent years include artificial intelligence in the form of machine learning. This can make bank reconciliation much quicker, for example, by automatically matching incoming payments against invoices.

Similarly, taking a snapshot of a receipt using your phone can mean the data is captured and inserted automatically into your accounting.

All this means you’ll save time that can be used for other tasks and opportunities, such as freeing up your staff, adding value to your customers, growing your business. and getting your weekends back.

Final thoughts

Adapting to MTD for Income Tax provides you with an opportunity to truly get to grips with your business accounting.

It’d be wrong to assume this means spending more time on the task.

Quite the opposite is true.

If you’re really managing your business accounting well, you should find the time you spend doing it is reduced.

Additionally, the amount of vital information you learn about your business will increase.

This will allow you to be more agile in your decision making, and means more opportunities can be harnessed, which leads to a stronger business and faster growth.

Editor’s note: This article was first published in September 2021 and has been updated for relevance.

Get the lowdown on how Making Tax Digital will change the way sole traders submit tax returns, and what that means for Self Assessment.

You may have heard of Making Tax Digital. You might have also heard that it means the end of Self Assessment.

As usual, the truth is a little more nuanced.

From April 2026, sole traders earning over £50,000 will have to switch to using Making Tax Digital (MTD) for their income tax. They’ll stop using traditional tax returns for their self-employment income.

The same goes for those earning over £30,000 from April 2027, and over £20,000 from April 2028.

Those earning under the thresholds will continue to use Self Assessment.

For now, this article will look at the details and at what’s changing with MTD.

Here’s what we cover:

How Self Assessment works now

The Self Assessment system is built around a yearly tax return, where you inform HMRC of your income, business-related allowable expenses, and any adjustments or allowances required.

Using these figures, HMRC calculates your final income tax and National Insurance bill.

Some people fill in their own Self Assessment form, while others have their accountant do it on their behalf.

Most people submit their Self Assessment online, through HMRC’s digital service, with a deadline of midnight on 31 January following the end of the tax year.

But it’s also possible to fill in the paper SA100 and post it to HMRC, in which case it must arrive no later than 31 October following the end of the tax year.

Any outstanding tax and National Insurance amounts must be paid by 31 January.

If you pay tax on account, at this point you’ll also make your first payment on account for the most recent tax year (with the second due by 31 July).

How things will change with Making Tax Digital for Income Tax

If you earn over £50,000 in total from a combination of income as a sole trader and/or from rental income as a landlord, you’ll need to start following the rules of Making Tax Digital for Income Tax (also known as MTD for Income Tax) from April 2026.

If you earn less than £50,000 but more than £30,000, you’ll need to start following the rules from April 2027. And you’ll need to comply from April 2028 if you earn more than £20,000.

What does this mean? You’ll no longer need to fill in a Self Assessment return.

MTD for Income Tax means you’ll need to use a functional compatible software to digitally keep your accounting records relating to income tax. This makes it easier for sole traders and landlords to manage their taxes.

There are three further key requirements that you or your accountant must do:

• Provide quarterly updates to HMRC, at least every three months. This must be via functional compatible software. You’ll need to provide separate updates for each business you run (if more than one), as well as a separate one for all rental income you receive as a landlord.
• Provide a digital tax return of all your income for each business and for rental income. This must be submitted no later than 31 January following the end of the tax year. It summarises the income, allowances, and adjustments for each business and rental income. It will also need to include any claims for personal allowances such as High Income Child Benefit Charge or Marriage Allowance.
• Pay any tax and national insurance you owe, no later than 31 January following the end of the tax year. Note that the payment on account system will continue, so you may need to make a further payment on 31 July of the same year.

And that’s all that’s new.

MTD for Income Tax doesn’t change the rules of income tax. The rules around allowable expenses, personal tax allowances, National Insurance contributions, and so on, all remain the same.

Similarly, you’ll continue to pay tax and National Insurance in the same way, and the bill shouldn’t be any different had you done it via Self Assessment (assuming your accounting is correct).

All that changes with MTD for Income Tax are the requirements and processes around reporting the information to HMRC.

Why MTD can make life easier for sole traders

Despite the initial challenge of these changes to processes, MTD for Income Tax isn’t that difficult.

The goal is to give you better insight into your taxes and by extension, you get better visibility into your business finances.

This includes your all-important cash flow.

Many of the additional processes required for MTD for Income Tax will be automated, provided you use HMRC-recognised accounting software.

And for your periodic updates, it’ll simply be a matter of clicking or tapping a button to prepare the report, then checking it briefly, before sending it off.

You should know there’s no legal requirement for the periodic updates to even be accurate—although it’s best if they are.

For the digital tax return, you’ll need to ensure that any adjustments have been included both for each business and also as an individual before submitting.

It’ll be straightforward to get all the information together, provided you’ve made good use of your accounting software.

If you use an accountant, they can help with the periodic updates and digital tax return, just as they provide support with Self Assessment tax returns.

The level of financial insight provided by Making Tax Digital can make planning for growth so much easier.

For example, if you want to save for some capital expenditure, such as getting a new van, this should become a lot more straightforward.

Similarly, it becomes a cinch to spot trends, so you can capitalise on things such as seasonal business movements.

Furthermore, because of the insight you gain into your cash flow, you can also spot problems before they arise.

Of course, MTD for Income Tax means having a good idea throughout the year of your likely tax bill too.

Rather than setting aside a nebulous 25% to 30% of your income for the bill, you can set aside a more accurate amount.

Although until the digital tax return is complete and any adjustments and allowances are accounted for, it will continue to be tricky to predict the precise amount you owe.

Self Assessment vs Making Tax Digital for Income Tax—what’s required?

For Self Assessment, the sole reporting requirement is to complete and submit a Self Assessment tax return (and pay your tax and National Insurance bill, of course). 

You also need to keep the underlying records for a period of time, the exact period varies depending on:

• When you submit your Self Assessment tax returns
• If you’re also VAT registered
• If you’re registered for the Mini One Stop Shop (MOSS)
• If there are any ongoing discussions with HMRC.

However, how you do your accounting is up to you. You can currently record it using a paper notebook, or a spreadsheet, or you could use dedicated accounting software.

This all changes radically under MTD for Income Tax.

The biggest change is that you must use functional compatible software and send quarterly updates and a digital tax return to HMRC through the software.

What is functional compatible software?

Functional compatible software is the HMRC name for:

• All the pieces of software you use to create the original digital records of your business activity (such as sales, purchases and any accounting adjustments)
• The software that then generates the HMRC updates (normally by summarising the data from your original digital records)
• The software that then electronically submits the updates to HMRC.

The journey from the digital records (once created) to the digital submission must all be digital, meaning no copying and pasting is permitted. 

This is a point of law, and there’s no getting around it unless there’s a very good reason (you live in a remote location without an internet connection, for example, or your religious beliefs mean you can’t use a computer).

Can you use spreadsheets for MTD for Income Tax?

You do have some flexibility in how you use software to keep your accounting records.

It’s possible to use a spreadsheet, for example, along with bridging software that will use formulas to gather together the details from the various cells on the spreadsheet and then prepare your periodic updates and digital tax return, as each is required.

This would help you be legally compliant but, as you might’ve realised, it would barely be more than a makeshift solution. Under the mandate, you also must keep your spreadsheet data intact, including ensuring that you have separate records (cells in the spreadsheet) for any adjustments.

Furthermore, using a spreadsheet runs the risk of breaking the rules around digital linking, as Making Tax Digital requires the movement of data to be both digital and automated. Manually copying and pasting from one place to another is prohibited most of the time.

Why using MTD-recognised software is the better approach

Due to issues with spreadsheets, most people will find it much easier to use MTD-recognised accounting software. Since using it encourages basic accounting practices, such as using the software to submit invoices and record payments, creating and submitting your periodic updates, payment tracking, automatic tax calculations and the digital tax return will be simple.

The data will already be in the system, and up to date.

HMRC has said it’s working with software vendors such as Sage to ensure there will be free software available to meet the needs of the simplest businesses. However, it’s not yet clear what form this will take, or what features it will have.

If you already have a cloud accounting software subscription, it’s very likely it will be ready for MTD for Income Tax.

What sole traders can do now to prepare for MTD for Income Tax

While the introduction of MTD for Income Tax sounds like it’s a long way away, the reality is that it’ll be here in no time. It’s worth getting prepared now.

Here’s three ways you can do that:

1. Start using accounting software and keeping digital records

This is the basic legal requirement of Making Tax Digital. If you’re not doing so already, you should look to switch to using some kind of software for your accounting.

If you are a sole trader, and your income is blended into a personal banking account or you have multiple income streams, you may also want to consider getting a business account for each. This makes it easier for the software to collate the relevant data from each business for your MTD for Income Tax quarterly reports and the digital tax return.

Alternatively, as mentioned earlier, this could be using a spreadsheet to create a makeshift ledger to log your incomings and outgoings.

But one thing you can’t do is keep a paper-based ledger.

Many sole traders simply rely upon accounting software. This means they can issue invoices with ease, reconcile their bank statements against their outgoings, and more. It means they have perfect visibility into their cash flow.

Accounting software also grows with your business and helps you cope with more complex finances.

Using it means your accounting records are always kept in a legally compliant digital way—and for the required period (usually five to seven years). This method removes the worry and stress of managing the data collection yourself through spreadsheets.

2. Photograph your receipts

Whenever you spend money for your business, you need to record that information as soon as possible.

This is a requirement for basic good accounting, but recording it digitally is a requirement of Making Tax Digital. Digital recording doesn’t mean keeping a digital photo, it means creating digital information that can be used by computer systems.

One of the big advantages of cloud accounting software is the ability to create digital records like those required by MTD, from digital photos. This is often called Optical Character Recognition or OCR.

AutoEntry, for example, lets you use your phone or a PC and scanner to grab an image of the receipt. The information is then automatically extracted and can be sent straight to your accounting software.

If you buy something in a shop and are handed a paper receipt, you can take a snap of it using your phone.

The information such as the retailer details, amount, date, VAT amount, and so on, will be extracted automatically.

3. Get support with the changes

It’s a good idea to get help when first implementing MTD for Income Tax.

Luckily, this kind of help is available on every high street in the form of accountants and tax advisers.

These people have amazing experience of every aspect of tax and running a business, and can advise you on how to both start the MTD-ball rolling in your business and then ensure you’re ready in time for your 2026, 2027 or 2028 deadline.

You can hand off a some of the workload around MTD to your accountant once MTD for Income Tax is up and running but you still need to use software to keep your accounting records digitally.

Your accountant will be able to advise the best way forward, and how best you can work with them.

Contact your software vendor too. They’ll have a massive amount of experience with both tax and, unsurprisingly, accounting software.

As MTD for Income Tax approaches, your accountant or tax adviser will have dedicated support where you can learn if the software you use is MTD-ready, and what Making Tax Digital means for you, too.

Final thoughts

To paraphrase Mark Twain, reports of the end of the Self Assessment tax return are perhaps premature.

It will remain a legal requirement for many following the start of Making Tax Digital for Income Tax in April 2026.

But for those required to switch to MTD for Income Tax, Self Assessment reporting won’t be required for tax years following April 2026 (although you’ll still need to submit your final Self Assessment return, for 2025/26, by 31 January 2027).

If you’re someone who hates poring over your Self Assessment tax return each January, the arrival of MTD for Income Tax will surely be welcome.

By creating periodic updates, you’ll find the data you require is already present and correct because you’ve been updating it across the year.

Therefore, submitting your digital tax return by 31 January will be much easier compared to how things are now.

Pretty soon, the Self Assessment tax return will become a forgotten memory—while you reap the benefits of better and clearer accounting that reduces admin and frees up time to do more of what you love.

Frequently asked questions on Making Tax Digital for Income Tax

What if it costs me too much money to switch to digital accounting? Do I still have to declare tax for Making Tax Digital?

As a sole trader, if you meet the threshold for switching to MTD for Income Tax, you should treat the requirement as a legal obligation.

This means budgeting in your business for expenses related to Making Tax Digital compliance such as hiring an accountant or using a digital accounting software subscription.

Don’t forget, you might be able to claim certain things back as allowable expenses, so make sure you know what can be claimed for, such as the cost of using an accountant, and what can’t.

Can I manage my Making Tax Digital requirements myself rather than hire an accountant?

Yes if you keep accurate digital records, usually via cloud accounting software to make it easier to compile and submit your quarterly updates and your digital tax return.

Many digital accounting software providers are aimed at medium to large businesses, so make sure you find one that doesn’t overcharge you for services you won’t need as a sole trader.

There are some limitations around how you keep your records.

For example, using spreadsheets will no longer be acceptable as a way to collate financial information unless you use bridging software to verify the data.

Any on-desktop or paper records must be kept unchanged for several years to ensure the data can be verified, or you’ll risk getting into trouble with HMRC should it ask for your financial data.

Editor’s note: This article was first published in January 2022 and has been updated for relevance.

Is it really the end of Self Assessment for landlords? Discover how property income will be affected by Making Tax Digital for Income Tax.

Have you heard that Self Assessment might be coming to an end?

And that the need for you to file an annual tax return might be on its way out?

Well, back in 2015, the then-Chancellor announced the death of the tax return. This would be achieved, he added, by the digitalisation of taxes.

It would mean the end of the Self Assessment tax return, used by many landlords to declare rental income among other things.

It’s taken a little longer than anticipated but this is now happening.

The Making Tax Digital (MTD) revolution will soon encompass non-incorporated landlords (those who own and rent out properties as individuals, rather than as limited companies).

This will be via the Making Tax Digital for Income Tax (also known as MTD for Income Tax, and MTD for Income Tax Self Assessment) system.

It all begins as of 6 April 2026.

Initially, it will only affect those with property income over £50,000 (along with sole traders) creating a requirement for earnings to be declared.

From 6 April 2027, those with property income over £30,000 will also be affected.

And from April 2028, it will include those who earn more than £20,000, as announced in the 2025 Spring Statement.

Let’s take a look at what landlords need to know.

Here’s what we cover:

How Self Assessment for landlords works now

Some landlords run property businesses as their sole occupation, while others may have purchased one or more buy-to-let properties as a sideline to their main income.

Some may have inherited a property that they let out, or perhaps even live in a property while renting out a part of it.

Those landlords who don’t own and run the property (or a property portfolio) through a limited company typically must use a yearly Self Assessment tax return to declare their property income.

Since this is a form of income, it’s no surprise that income tax applies. Using Self Assessment means they can work out how much tax and National Insurance is due.

How much they pay will therefore depend on their personal circumstances.

For example, they may be taxed on this income at a higher rate because of their day job, where their salary is paid by their employer through PAYE.

The great news is that the first £1,000 from property income (called the property allowance) may be tax-free. If you receive between £1,000 and £2,500 from property, you might not need to use Self Assessment either and should contact HMRC for more information.

It’s a good idea to check the Self Assessment guidelines every year.

However, you must use Self Assessment if the income is:

• £2,500 to £9,999 after allowable expenses
• £10,000 or more before allowable expenses.

What allowable expenses are there for landlords?

Buying, renovating or improving properties isn’t included, unfortunately.

However, wear and tear repairs between tenants can probably be claimed, as can repairs or maintenance that returns the property back to an original condition before the damage (such as  replacing roof tiles that blew off or replacing a boiler).

But the rules around what counts as repairs and maintenance, and what’s considered as actually improving a property, are complicated.

You should check the rules before making a claim.

Other allowable expenses for landlords include things you expend money for in the day-to-day running of the property, such as:

• Fees, such as letting agents, accountants and legal fees (for lets of a year or less, or renewing a lease for less than 50 years)
• Insurance (buildings and contents)
• Bills such as gas, water, electricity, and council tax
• Ground rent and service charges
• Professional property services you employ, such as a gardener or cleaner
• Other costs relating to running a business, such as stationery or advertising.

Relief on interest on the mortgage for a buy-to-let residential property can’t be claimed as an expense of the business. But if it’s included on the Self Assessment return separately, a tax reduction may apply.

How Making Tax Digital will change things for landlords

MTD brings new requirements for how landlords do their accounting relating to property income, and as such can make things much simpler and give you a much clearer insight into your property business finances.

MTD for Income Tax marks the end of the Self Assessment tax return if income from the property is over £50,000 from April 2026, over £30,000 from 2027, and over £20,000 from 2028.

These individuals will be required to use MTD for Income Tax instead, which unlike Self Assessment, is a digital-only submission.

Those who fall below these thresholds will continue to use Self Assessment without significant landlord tax changes.

MTD for landlords doesn’t change how tax works for landlords, as so much of what’s already been described remains true. However, MTD does provision for sole trader income and landlord income to be combined in its threshold.

The Government has also changed the rules for landlords letting or selling holiday rentals effective from 6 April 2025, which brings all landlord income into the same scope.

What does Making Tax Digital mean for landlords?

1. Landlords need to use software for their accounting

To declare your taxes correctly, you must use software for your accounting relating to property income and keep the accounting records digitally.

Using software could mean using a spreadsheet, but this will require bridging software to be able to communicate with HMRC.

Many landlords will use MTD-ready accounting software, which will free up an enormous amount of time otherwise spent on admin.

2. Landlords need to provide periodic updates to HMRC

You must provide periodic updates to HMRC across the year. These should be least quarterly (that is, every three months), and must be submitted via software. Your accountant or bookkeeper can do this for you, if you wish.

This is for all your property income. You don’t need to create period updates for each individual property if you have a portfolio; although if you hold property abroad, then you do them for all UK property, and separately for any foreign property..

3. Landlords need to provide a digital tax return

By 31 January each year, at the latest, you must submit a digital tax return to HMRC. This single tax return details all your income and expenditure, and is what’s used to determine your tax liability. It should include any other income you might receive, too.

Am I a professional landlord?

The first phase of MTD for Income Tax affects any unincorporated landlord with rental income over £50,000. And the second phase affects those earning over £30,000, whiel the third phase covers those earning over £20,000.

HMRC considers these people to be running a business.

This remains true even if it might not feel like you’re running a business.

For example, somebody who rents out an inherited property or holiday letting, or expends the equivalent of just a few days of work a year attending to the property and its tenants is still considered to be running a business.

Similarly, those renting out part of the home might also be affected.

Put simply, if total rental or combined rental and self-employment income you receive is over either threshold, you’ll need to follow the rules of MTD for Income Tax from the appropriate date.

HMRC defines professional landlords in the following way (all of these points must apply to the individual):

• Being a landlord is their main job
• They rent out more than one property
• They’re buying new properties to rent out.

In addition to potentially following MTD for Income Tax rules, these people may also need to pay Class 2 National Insurance contributions if their profits are above £6,725 a year.

The definition of a professional landlord predates the introduction of MTD for Income Tax, but is carried over when the new rules come into effect.

Furthermore, those who rent out part of a property that’s their only or main home are known as resident landlords.

Again, these individuals might need to follow the MTD for Income Tax rules if the rental income is over the thresholds, just as they need to use Self Assessment currently once their property income gets above £7,500 annually (assuming they’re registered under the Rent a Room scheme).

What if I’m a sole trader and a landlord?

If you’re a sole trader, running one or more businesses and using Self Assessment, then MTD for Income Tax could apply to your income.

If you’re both a sole trader and a landlord, then your total income from all sources is taken into account when working out if MTD for Income Tax applies to you.

For example, if your income is £40,000 a year as a plumber and £10,000 from property rental, then MTD for Income Tax will apply to both your income as a plumber and your property income—even though the property income taken on its own isn’t over the threshold.

You’ll have to make separate periodic updates and for the property income, and for any sole trader business(es) you own. You only need to submit a single digital tax return, though, that will list all your income and expenditure.

For example, if you work as a sole trader plumber and also as an electrician, and receive property income, you’ll need to submit quarterly updates for each income source, listing all your income and expenditure. Then by 31 January each year, you will submit a digital tax return.

Why Making Tax Digital can make life easier for landlords

Landlords must keep certain kinds of records, such as details of rent received, plus invoices, bank statements, and more.

But Self Assessment makes no demands on how you keep your accounting—or even if you need to bother doing so.

This changes with MTD for Income Tax.

And that’s a good thing.

The use of modern accounting software provides incredible insight into business finances making it easier than ever to be stress-free MTD landlords. 

You’ll also have a far better idea of how much tax you owe at any given moment too.

Many of the additional processes required for MTD for Income Tax will be automated, provided you use good-quality accounting software.

For your periodic updates, it’ll simply be a matter of tapping a button to prepare the reports, checking the details to ensure everything is correct (and applying adjustments if necessary), then sending them off.

If you use an accountant or bookkeeper, they can help with these processes.

Self Assessment versus MTD for Income Tax: What’s required?

Outside of submitting the yearly Self Assessment tax return, using Self Assessment as a landlord doesn’t present too many requirements.

But to be compliant as a landlord with MTD for Income Tax, you’ll need to use software for your accounting as it relates to property income.

At its most simple, digitalising your property accounting could be using a spreadsheet plus a plugin known as bridging software.

You record income and expenditure details in the spreadsheet, and then tell the bridging software what the key cells are that it needs to use to prepare things such as periodic updatess.

However, it’s so easy to accidentally overtype a cell in a spreadsheet. But the main worry to consider is the rules around digital linking.

MTD rules say the movement of data from one destination to another must be both digital and automated. Manually copying and pasting from one place to another is prohibited most of the time—as incredible as that might sound. If HMRC finds out, you could be penalised.

The solution is to use MTD-ready accounting software.

This encourages basic accounting practices, such as using the software to submit invoices and record payments. Therefore, creating and submitting your quarterly updates will be easier.

What landlords can do now to prepare

To get ready for Making Tax Digital, you need to start using accounting software and keeping digital records.

If you’re not doing so already, you should be looking to switch to using some kind of software for your accounting. An accountant can advise you if you are unable to decide.

Do so as soon as possible; don’t leave it until the last moment.

After all, in April 2026, April 2027 and April 2028, a lot of people will be contacting HMRC with problems trying to adapt to MTD—and if you’re already using software, you’ll be in a far better position.

Many landlords already rely upon accounting software. They can issue invoices with ease, reconcile their bank statement against their outgoings, and more.

The software also grows with them, should they increase their property portfolio.

Tracking income and expenditure for several properties can become complex—but much less so if you’re using good accounting software. And it means your accounting is always kept in a legally compliant digital way—and for the required period (usually five years).

Apps that help you stay on track

One tip is to pick your financial reporting software and use an app to record and start snapping receipts for expenditures, such as property repairs. This removes the need to enter any numbers manually.

AutoEntry lets you use your phone or a computer and scanner to grab an image of the receipt. The information is then automatically extracted and can be sent straight to your accounting software.

For example, if you buy something in a shop for your property and are handed a paper receipt, you can take a snap of it using your phone. The information such as the retailer details, amount, date, VAT amount, and so on, will be extracted automatically.

Where to get support with tax return changes

It’s a good idea to get help when considering how your accounting will change once Making Tax Digital for Income Tax arrives.

Seek out an accountant or tax advisor that specialises in property income and, in return, you get people with amazing experience of every aspect of tax and running a property business.

But care needs to be taken.

You can hand off a lot of the workload around MTD to your accountant once MTD for Income Tax is up and running. But you still need to use software to keep your accounting, and you need to keep your accounting records digitally.

Your accountant will be able to advise the best way forward, and how best you can work with them.

Contact your software vendor too. They will have a massive amount of experience with both tax and, unsurprisingly, accounting software.

As MTD for Income Tax approaches, many will offer dedicated support where you can learn if the software you use is MTD-ready—and what you’ll have to do to make use of the MTD features.

Finally, consider approaching professional landlord associations to see what their advice is.

There’s little doubt that applying the rules of MTD to a property business isn’t like applying it to a sole trader business, and inside information could prove extremely useful.

Final thoughts

Many landlords are sure to find the arrival of Making Tax Digital for Income Tax a surprise. For some, it might mean they have to start taking accounting more seriously than they might have done so previously.

But it’s important to focus on the positives, which includes a much better understanding of your property business finances, and a reduced requirement for onerous administrative tasks.

Frequently asked questions on landlords and Making Tax Digital

What if I am already earning through a PAYE job and earn over £1,000 annual income as a landlord? Do I still have to declare it for MTD?

As a landlord, you should declare your earnings on a Self Assessment form annually if your income exceeds £1,000, even if you are already taxed as a PAYE in your other job.

You won’t need to switch to MTD until you reach its thresholds of first £50,000 and then £30,000 annually but keep an eye on proposed expansions to MTD, for example, to add a threshold that’s less than £30,000 as you could eventually qualify.

Can I do my Making Tax Digital tax returns myself rather than hire an accountant?

Yes, if you keep accurate digital records, usually via cloud accounting software to make it easier to compile and submit your quarterly updates and your digital tax return.

Many digital accounting software providers are aimed at medium to large businesses, so make sure you find one that doesn’t overcharge you for services you won’t need as a sole trader and landlord.

There are some limitations around how you keep your records. For example, using spreadsheets will no longer be acceptable as a way to collate financial information unless you use bridging software.

Any on-desktop or paper records must be kept unchanged for five to seven years to ensure the data can be verified or you will risk getting into trouble with HMRC should it ask for your financial data.

Editor’s note: This article was first published in January 2022 and has been updated for relevance.

Have you ever listened to someone in a meeting saying, ‘Our products have a two-and-a-half-times multiple with a 60% margin and our markup percentage is 150%’, and felt completely out of your depth? 

Do you know how to calculate the retail price from the markup percentage? Or, calculate the cost price of goods when you know the selling price and the markup?  

If the mention of markup makes you feel like you’re presenting on Dragon’s Den and you try to avoid answering – you’ve come to the right place. 

Whether you’re a seasoned entrepreneur or just starting out, having a solid grasp on markup is critical to ensure you get your selling prices right. 

In this article, we will cover the essentials of markup, the differences between markup and margin, and how they both impact your pricing strategy.  

We also have a markup calculator that can quickly give you an answer. Or, you can use this to sense check your own calculations, so you can learn to confidently set your own prices knowing you have covered all your costs. 

By the end of this read, you’ll have a clear understanding of what markup is and how to calculate it so you can make informed pricing strategy choices.  

Most importantly, you will never get your markup and margin confused again. 

Here’s what we’ll cover

Markup calculator

The markup calculator can be used in a variety of ways for your own products.

It can also be used for market research on competitor products. 

Use our markup calculator to find out: 

• What a product should be sold for, based on the cost and the desired markup. 
• How much a product should cost, based on the selling price and a markup percentage. 
• What is the markup percentage of a product, based on the selling price and the cost price. 

Simply input either your selling price, cost price or markup percentage into the required fields and press calculate.  

Toggle through the buttons at the top, to calculate either selling price, cost price or markup percentage. 

What is markup?

Markup is the percentage increase over the cost price of an item. You add the percentage to the cost price of a product to determine its selling price.

It’s the amount you’re “marking up” the price from what you paid for it.

Markup is calculated by dividing the profit (selling price minus cost) by the cost price and then multiplying by 100.

Markup formula

Markup = ((Selling price – Cost price) / Cost price) x 100

Example, if you sell a product for £100 that costs you £60 to produce, your markup would be:

Markup = ((100 − 60/60) × 100) = 66.67%

This means you’re selling the product for 66.67% more than it cost to produce.

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In simple terms

Markup uses the cost price as the base and margin uses the selling price as the base.

Because of this, markup percentages will always be higher than margin percentages for the same item.

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Markup percentage or multiplier

Markup is often expressed as a multiplier. For example, the fashion industry standard markup is 2.5.

This is equivalent to 150% markup.

If a dress costs £100 to manufacture, this would be sold for £250.

Common multiple to markup percentages include:

MULTIPLE	MARKUP	MARGIN
1.25	25%	20%
1.5	50%	33.33%
2	100%	50%
2.5	150%	60%
4	300%	75%
5	400%	80%
10	900%	90%

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How to calculate selling price using markup percentage

Determining the selling price of your products using a markup percentage is a straightforward process.

By adding a specified percentage to the cost of your product, you can ensure that your selling price covers your costs and provides the desired profit.

Here’s a step-by-step guide on how to calculate the selling price using markup percentage:

Determine the cost price

The cost price is the total cost incurred to produce or purchase the product.

This includes manufacturing costs, shipping fees, and any other expenses directly associated with getting the product ready for sale (read below).

Decide on the markup percentage

The markup percentage is the percentage by which you want to increase the cost price to arrive at the selling price.

This percentage should account for your desired profit margin and other indirect costs.

Apply the markup percentage

Use the markup formula to calculate the selling price:

Selling Price = Cost Price + (Cost Price × Markup Percentage)

Alternatively, this can be simplified to:

Selling Price = Cost Price × (100% + Markup Percentage)

How to calculate cost price from selling price and markup

Starting with a selling price and reversing the calculation to determine the cost price is useful if you are thinking of launching a new product.

You can also estimate what your competitors’ cost price might be on comparable products.

If you know the selling price and the markup percentage applied, you can easily reverse-calculate to find the original cost price.

Formula for calculating cost price

Cost Price = Selling Price / (100% + Markup Percentage)

Knowing how to calculate the cost price from the selling price and markup allows you to understand the base cost of your products, enabling you to adjust prices strategically without compromising on profitability.

Accurate cost-price calculations also help to value inventory, budget for future purchases, and manage cash flow effectively.

What is the difference between margin and markup?

Let’s clarify the distinction between margin and markup.

These two terms are so often confused and if you get it wrong, you could be selling goods at a loss.

Markup and margin are both business terms used to refer to profitability, but they calculate profit in slightly different ways.

Understanding both markup and margin is crucial for businesses to set effective pricing strategies and analyse profitability.

Have a look at the differences so that you can ensure you make the right calculations.

MARGIN	MARKUP
The percentage of the selling price that is profit	The percentage added to the cost price to arrive at the selling price
Margin = ((Selling Price − Cost Price) / Selling Price) × 100	Markup = ((Selling Price − Cost Price) / Cost Price) × 100
Calculated based on the selling price	Calculated based on the cost price
If a product costs £60 and sells for £100, the margin is 40%	If a product costs £60 and sells for £100, the markup is 66.67%
Helps understand the profitability of sales	Helps determine the selling price needed to achieve desired profits

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Why the difference matters

Understanding the difference between margin and markup is important because it affects your pricing strategy and profitability.

• Pricing accuracy: Getting confused between markup and margin can lead to product underpricing, and a reduction in profit.
• Competitive analysis: Markup is useful for product comparison in different industries, to ensure that you are competitively pricing your products.
• Financial analysis: Margin is important for financial reporting, as it directly impacts your profit and loss statements. It also helps you understand the profitability of individual products and overall business performance.
• Pricing strategy: Both metrics are important for strategic planning. Markup is useful for setting initial selling prices, and margin helps to evaluate ongoing profitability.

Markup vs. Margin calculation example

Consider you own a food truck, and you want to set the selling price for a burger.

You know your cost to make the burger is £5.00 and a 50% markup would give you a competitive advantage.

Markup = £5.00 + (£5.00 × 50%) = £7.50

Another way to calculate this is:

• Your cost price = £5.00
• You want a markup of 50% = £2.50
• Add your markup to the cost price = £7.50

If you want a 50% margin, work backward from the desired margin.

Margin = £5.00 / 50% = £10.00

A 50% margin on a burger costing £5.00 would need a selling price of £10.00

A 50% margin results in a higher selling price (£10.00) compared to a 50% markup on the same burger (£7.50).

This example shows why you need to understand the difference between margin and markup and make sure you get your calculations right.

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What do I need to consider when I calculate markup?

When setting your markup, there are several factors to consider to make sure you set a profitable price that covers your costs and is competitive.

1. Cost of goods sold (COGS)

Overhead costs are essential because they relate to all the indirect expenses required to operate your business, failing to account for these costs can result in underpricing (read below).

2. Profit margin

Determine the profit margin you want to achieve.

This involves understanding your business goals to ensure that the markup not only covers costs but also provides a satisfactory profit.

3. Market conditions

Analyse the pricing strategies of your competitors.

Competitive pricing can help you position your product effectively in the market and attract customers​.

High-demand products can typically sustain higher markups, whereas low-demand items might require lower markups to boost sales.

4. Customer perception

Ensure that the markup reflects the perceived value of the product to the customer.

Luxury items can command higher markups due to their perceived value and exclusivity.

Also, consider the target market’s willingness and ability to pay.

Markups should balance profitability with customer affordability to maintain sales volume​.

5. Industry standards

Research average markups within your industry to ensure your pricing aligns within your vertical.

This helps in setting competitive prices while maintaining profitability.

6. Product life cycle

For new or innovative products, initial markups might be higher to capitalise on early adopters.

Over time, markups may be adjusted as the product moves through its life cycle​.

Adjust markups based on seasonal demand.

Higher markups can be applied during peak seasons, while lower markups might be necessary during off-peak times to stimulate sales.

7. Sales strategy

Factor in planned discounts and promotional activities.

Ensure that even after discounts, the selling price remains profitable​.

Consider offering lower markups on bulk purchases to encourage higher sales volumes, which can lead to economies of scale and increased overall profitability​.

8. Economic factors

Monitor inflation rates, currency fluctuations, and other economic conditions that might affect the cost of goods and adjust your markup accordingly to maintain profitability.

9. Legal and regulatory requirements

Ensure that your pricing complies with legal and regulatory requirements, avoiding practices that could be considered unfair or deceptive​.

Should I include overhead costs in the markup calculation?

Finally, don’t forget to include all your overhead costs when considering your markup.

Your costs of product are not limited to the direct cost of the goods, but also the indirect costs required for the running of the business:

• Direct costs: Include all direct costs associated with producing or purchasing the product, such as materials, labour, and manufacturing expenses.
• Indirect costs: Consider overhead costs such as business rates, rent, utilities, salaries, and administrative expenses that contribute to the overall cost structure.

To include overhead costs in your markup calculation, follow these steps:

Calculate total overhead costs

Identify all indirect costs associated with running your business.

This includes rent, utilities, salaries, office supplies, and other administrative expenses.

Determine overhead rate

Allocate overhead costs to individual products or services.

This can be done by determining an overhead rate, which is typically a percentage of direct costs or a fixed amount allocated based on the number of units produced or sold.

Add overhead to direct costs

Combine overhead costs with direct costs to get the total cost of producing or acquiring a product.

If you don’t consider your overhead costs then you could underprice your products with detrimental impact on your business.

Failing to consider your overheads and indirect costs will mean your cash flow will gradually decline and your income might not be enough to ensure you have sufficient cash flow to continue trading.

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Once you’ve set your markup, monitoring your revenue and profit is crucial to ensure that the chosen markup is working for you.

As you grow, you can use cash flow management software to gain a real-time view of your revenue and profit and adjust your pricing as needed.

That knowledge and ability to act quickly is essential for retail operations.

Cloud financial solutions such as Sage Intacct include all these tools and enable that awareness and ability to act across multiple stores, locations, and organisations.

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Whatever the size of your company, you have any number of contracts, wage laws, workplace policies, and data protection rules to keep track of.

To bring order to this web of requirements there’s nothing better than a good checklist.

It’s a great tool for spotting gaps that could develop into serious problems if they go unnoticed.

Use this article, and our HR compliance checklist, to stay organised and keep your business on the right side of the law.

Here’s what we’ll cover:

What is HR compliance?

HR compliance means making sure your staff management practices stay up to date with the law and follow it correctly.

Compliance in HR touches on a wide range of legal areas—employment contracts, minimum wage, leave entitlements, fair hiring, safe working conditions, and more.

In the UK, HR compliance is shaped by key legislation including the Employment Rights Act 1996, the Working Time Regulations 1998 (WTR 1998), Equality Act 2010, and the Data Protection Act 2018.

Compliance also covers data protection rules like the UK version of GDPR.

You’re responsible for keeping staff information secure, and for being transparent about how it’s used.

If you track absences, performance, or payroll details, those records must meet privacy standards.

Health and safety is part of human resources compliance as well.

You need to assess risks and provide a safe work environment, whether your team is on-site or remote.

On top of legal requirements, you’ll also want to align internal HR policies—like grievance procedures and staff handbooks—with employment law and best practices.

This helps ensure fair treatment for all employees.

Why HR compliance matters more than ever

With the world becoming more digital and employees growing more informed, governments have introduced new rules to protect rights and regulate workplaces.

That includes employment law, which continues to evolve with updated wage thresholds, right-to-work rules, and workplace safety standards.

At the same time, expectations around diversity, data security, and ethical conduct are higher than ever.

The ever-changing rules and responsibilities mean HR compliance has become more complex in 2025, especially for small businesses and startups in the UK.

Aside from presenting a legal risk, falling short on compliance can disrupt operations, damage morale, and harm your reputation.

A single error in hiring, pay, or employee records can trigger an audit—or even a tribunal.

One safeguard in this confusing landscape is to use an HR compliance checklist so you avoid oversights and stay consistent.

Who is responsible for HR compliance?

Big companies tend to have professional HR teams and it’s part of their job to maintain compliance.

But if you’re running a small business, people from various departments may have to pitch in and share the load.

Founders, managers, and even office assistants have been known to juggle HR tasks alongside other duties—but this can lead to confusion over who handles what.

Without clear ownership, key steps can fall through the cracks.

If one person is managing contracts and tracking working hours, someone else should take charge of responding to staff concerns and updating policies, for example.

It depends on each team member’s workload and skillset.

The most important thing is clarity and structure around HR compliance roles and responsibilities.

When assigning HR duties make sure each person understands what’s expected and what resources they can use—like compliance checklists or access to compliant HR software.

HR compliance checklist for employers

Here we break down the checklist into seven key areas to focus on:

1. Employment documentation

When you bring new people onboard, setting clear expectations will keep many other processes on track throughout the employee lifecycle. Chief among these early-stage records and formalities are:

• Employment contracts. These should outline job role, pay, and working hours at the very least.
• Right to work checks. Verify that every new hire is legally allowed to work in the UK.
• Job descriptions and offer letters. Use these to confirm duties, reporting hierarchy, and pay terms before you sign contracts.
• Staff handbooks and HR policies. Outline company rules, benefits, and how you handle issues like grievances or misconduct.

2. HR reporting and recordkeeping

Good recordkeeping doesn’t stop with the onboarding process. There are plenty of other instances where records need to be updated as employees progress through their roles.

• Absence logs. Track sickness, holidays, and unpaid leave to spot trends and meet legal requirements. This should include unauthorised absences.
• Performance documentation. Keep notes from appraisals and improvement plans to support decisions around promotion, guidance or dismissal.
• Training records. Log completed skills training, onboarding sessions, and refresher courses.
• Safety records. Maintain up-to-date logs of health and safety checks, risk assessments, and incident reports.

3. Payroll and benefits compliance

Among the primary considerations for applicants and ongoing employees alike.

Mistakes in payroll compliance can lead to penalties, not to mention broken trust.

• PAYE setup. PAYE rules require registration with the tax office HMRC and deduct tax and National Insurance contibutions correctly.
• National minimum wage. Check that pay rates meet or exceed legal thresholds for each age group in your roster.
• Statutory sick and parental pay. Ensure your system is set up to calculate the correct leave and pay in cases of sickness, maternity, paternity, and shared parental leave.
• Pension auto-enrolment: Enrol eligible employees into a workplace pension and ensure that your payroll software deducts the required contributions.

4. GDPR and data protection

Another way to build trust is to let employees know you adhere to these legal duties.

• Employee privacy policy. Explain how you collect, use, and store personal data, including descriptions of what data is included.
• Data processing records. Keep a log of the data you hold, why you hold it, how it’s processed and where it’s stored.
• Secure file storage. Use encrypted systems or password-protected files for storing sensitive information.
• Subject Access Requests (SARs). Know how to respond when an employee requests access to their personal data.

5. Workplace policies

The whole point of policies is consistency and transparency, helping to prevent misunderstandings and clarifying employees’ rights.

Your policies should cover all nine protected characteristics under the Equality Act 2010, including age, disability, race, and sexual orientation.

Pay special attention to:

• Grievance and disciplinary policies. Set out fair procedures for dealing with complaints or misconduct, with ample opportunities for each party to make their case.
• Anti-discrimination and equal opportunity statements. Show your commitment to fair treatment and inclusive hiring.
• Absence and flexible working policies. Explain how leave is handled and outline the process staff should follow for requesting flexible or remote work.

6. Health and safety compliance

Any shared workspace or use of equipment naturally introduces risks—whether from human error, miscommunication, or something breaking down.

• Risk assessments. Identify hazards in the work environment and assess how to manage them.
• Health and safety lead. Appoint someone to take responsibility, even in a small team.
• Safety training. Give staff the right training to handle equipment, emergencies, and daily risks.
• Fire drills: Run regular drills so your team knows what to do in an emergency.
• First aid kits: Make sure kits are available, stocked, and easy to find in every location.

7. Remote and hybrid compliance considerations

All these legal responsibilities apply equally for staff who work remotely or in the field—but that can make it harder to manage.

When team members work in different locations you lose visibility over how, where, and when work is being done.

Here are four areas where you need to pay particular attention:

Health & safety

You’re still responsible for your team’s working conditions, even at home.

That includes making sure they have a safe setup, take proper breaks, and understand how to use equipment safely.

You can’t look over their shoulder, so you’ll need to rely on home workstation assessments, regular check-ins, and clear health and safety training.

Employment eligibility

Right-to-work checks are required for new hires no matter where they work.

But this is solved by digital checks, perhaps involving video calls, the use of scanned documents, or ID verification tools.

However, be sure to follow approved procedures—get it wrong and you could face penalties for employing someone illegally.

Tech systems

The good news is that many corporate systems now run on cloud-based platforms with secure login functionality.

It’s common for hybrid or remote staff to access systems from home networks or personal devices.

The training for data handling and rules on file sharing or storage are often the same for in-house staff.

Logging hours

Finally, just because someone’s not in the office doesn’t mean Working Time Regulations don’t apply.

Use tools to log hours and help staff manage their time without slipping into overwork.

How to stay on top of HR compliance all year round

Laws can shift from one year to the next. People join and leave your organisation. Policies often need refreshing.

To avoid slipping out of step, there are ways to build HR compliance into your ongoing routines:

• Set a regular schedule for reviews. A quarterly HR audit can help you spot issues early—before they become problems. Use this time to review contracts, check training logs, and revisit policy documents. If any laws have changed or staff needs have shifted, this is when you can catch it.
• Monitor employment law updates. Modern HR software can keep you up to date with the latest changes to employment law, health and safety regulations through automatic updates, dedicated HR advice resources and direct access to HR experts. If you work with an accountant or legal advisor, ask if they offer alerts too.
• Use quality HR software. Good systems don’t just store documents—they track expiry dates, send reminders, and help you report on key compliance areas automatically.

How Sage can help you stay compliant

Managing compliance on your own can be time-consuming and stressful, but a lot of the administrative burden can be automated.

HR software helps you deal more efficiently with admin and adhere to legal obligations. It offers a centralised and secure platform for managing employee records, which is a crucial step for data protection.

You can store and manage documents like contracts, job offers, and right-to-work proof in one secure location.

Customisable templates also let you standardise important documentation and templates across your organisation, ensuring a consistent and compliant approach.

The platform also streamlines the distribution of policies, so all your colleagues receive the latest version, and you can keep a record of who has seen and acknowledged it.

HR tools such as Sage HR also helps you stay on top of things with automated alerts for important deadlines, such as contract renewals, training deadlines, or policy updates.

This, and centralisation of tasks, reduces the risk of human error and helps your business maintain HR compliance.

Final thoughts

Staying legally compliant in HR matters can be a minefield, particularly as the legislative landscape is constantly changing.

However, with a proactive strategy—including regular audits, continuous learning, and the use of smart HR technology—you can easily take charge of the admin required.

With compliance taken care of, and built into your everyday processes, you’ll spend less time chasing paperwork and more time focusing on your people.

Get expert advice and guidance

Talk to a CIPD-qualified HR consultant, who can explain the law updates and translate what these changes mean specifically to your business.

Solutions like Sage HR Advice provide SMBs access to cost-effective, reliable advice to keep their businesses compliant.