You Will Need to Change the Way You Report Your Income and Expenses to HMRC

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If you have received a letter from HMRC saying “You will need to change the way you report your income and expenses to HMRC,” it means you are likely being brought into Making Tax Digital (MTD) for Income Tax. This is one of the biggest changes to the UK tax system in recent years, and many self-employed people and landlords are now receiving these letters.

Below are the most common questions about the letter and what it means for you.

Why have I received a Making Tax Digital letter from HMRC?

HMRC sends this letter to taxpayers who are expected to come within the Making Tax Digital rules based on the information it already holds about their income.

Receiving the letter does not necessarily mean you need to do anything immediately, but it does mean you should check whether the new rules apply to you. If they do, you will need to start keeping digital records and submitting information to HMRC using compatible software instead of relying on the traditional Self Assessment process.

If you are unsure whether your income is high enough to be affected, you can read more about Do I need to do MTD if I earn under £50,000? to understand the income thresholds and who is included.

What does the HMRC letter actually mean?

The letter is informing you that the way you report your business or property income is changing.

Instead of sending HMRC one tax return each year with all your income and expenses, you will generally need to:

• keep digital records throughout the year
• send quarterly updates using approved software
• submit a final declaration after the end of the tax year

This does not mean you will pay tax four times a year. The quarterly submissions are mainly reporting updates rather than tax payments.

Do I still need to complete a Self Assessment tax return?

For many people, the traditional Self Assessment tax return will be replaced by the new Making Tax Digital process for their self-employment and property income.

However, you will still need to complete a final declaration after the end of the tax year. This final step confirms your overall tax position and replaces many of the functions previously carried out through the annual Self Assessment return.

If you are confused about the difference, our guide Is Making Tax Digital the same as Self Assessment? explains how the two systems compare.

When do I have to start using Making Tax Digital?

Your start date depends on your qualifying income, which is the total turnover you receive from self-employment and property before deducting any expenses. HMRC will normally look at the qualifying income reported on your Self Assessment tax return for the previous tax year.

Self Assessment tax return used by HMRC	Qualifying income shown on the return	Date you must start using MTD
2024/25 tax return	More than £50,000	6 April 2026
2025/26 tax return	More than £30,000	6 April 2027
2026/27 tax return	More than £20,000	6 April 2028

For example, if your total turnover from self-employment and rental income was £52,000 on your 2024/25 tax return, you will normally need to start using Making Tax Digital from 6 April 2026. If your qualifying income was exactly £50,000, the first threshold would not apply because HMRC states that the income must be more than £50,000.

The HMRC letter should explain the tax year from which you are expected to begin reporting digitally. Before that date, you should make sure you have suitable MTD-compatible software, understand how digital records must be kept and decide whether you will manage the submissions yourself or appoint an accountant.

You will still need to submit your normal Self Assessment tax return for the tax year before you enter Making Tax Digital. After you join, you will use compatible software to maintain your records, send quarterly updates and complete and submit your tax return.

Leaving preparation until the last minute can make the transition much more stressful, particularly if your existing records are kept on paper or in a spreadsheet that is not connected to compatible software.

Can I continue using spreadsheets?

Some people can continue using spreadsheets, but only if they are used together with compatible software that allows information to be submitted digitally to HMRC.

A spreadsheet on its own will usually not meet the Making Tax Digital requirements.

If you currently keep your records in Excel, it is worth reading Can I Use a Spreadsheet for Making Tax Digital (MTD)? to see what additional software may be required.

Do I need special software?

Yes. HMRC requires most people within Making Tax Digital to use compatible software to keep digital records and submit information electronically.

There are many software packages available, ranging from simple products designed for sole traders to more advanced accounting systems for larger businesses.

Choosing software early gives you time to learn how it works before your reporting obligations begin.

Making Tax Digital letter hmrc -what happens if I ignore it

Ignoring the letter will not stop the new rules from applying.

If you are required to join Making Tax Digital and fail to comply, you could face late submission penalties, interest on unpaid tax where applicable, and additional contact from HMRC.

If you believe the letter has been sent in error or you think you may qualify for an exemption, you should seek advice before your reporting start date.

Do I need an accountant for Making Tax Digital?

You are not legally required to use an accountant, but many people find professional help useful during the move to digital reporting.

An accountant can help you choose suitable software, set up your digital records correctly, review your quarterly submissions, and ensure your final declaration is accurate.

Getting everything set up correctly from the beginning is often much easier than trying to correct mistakes after several quarterly submissions have already been made.

If you have received a Making Tax Digital letter from HMRC and are unsure what you need to do next, a qualified accountant can explain whether the rules apply to you, help you prepare for the change, and make sure you remain compliant with HMRC’s new reporting requirements.

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