Tax changes are coming soon that will affect freelancers and self-employed businesses through the introduction of Making Tax Digital for Income Tax (MTD for ITSA). To help explain what this means in practice, we asked our partners at Cowgills to share an overview of what freelancers need to know and how to prepare.

Cowgills is one of the leading accountancy and advisory firms in the North West, working closely with businesses across the region. Built around people, they take a straightforward and down-to-earth approach, offering practical, entrepreneurial advice to help clients grow. As part of Sumer, a national collaboration of regional accountancy practices, they combine local expertise with the wider resources needed to support small and medium-sized businesses.

Making Tax Digital for Freelancers: What You Need to Know

Making Tax Digital for Income Tax (MTD for ITSA) is now being rolled out across the UK, marking a significant change in how freelancers and self-employed individuals report their income to HMRC.

Following the successful introduction of Making Tax Digital for VAT, the next phase began on 6 April 2026. If you're a freelancer, sole trader, or landlord, it's important to understand whether these new rules apply to you and what you need to do to stay compliant.

Does Making Tax Digital Apply to You?

You'll need to follow MTD for Income Tax if:

• You're registered for Self-Assessment as an individual.
• You earn income from self-employment, property, or both.
• Your combined qualifying income exceeds the relevant threshold.

The thresholds are being introduced in stages:

What Counts as Qualifying Income?

Qualifying income is generally your gross self-employment turnover and property income before expenses are deducted.

For example, if your 2024/25 Self-Assessment return showed £40,000 of freelance income and £12,000 of rental income, your qualifying income would be £52,000. This means you would be required to use MTD for Income Tax from 6 April 2026.

How Will Freelancers Report Their Income?

Under MTD, you must keep digital records and submit income and expense updates to HMRC every quarter using compatible software.

Instead of submitting information only once a year through Self-Assessment, you'll provide regular updates throughout the year.

Quarterly Reporting Deadlines

If you have both freelance income and rental income, you'll need to submit separate quarterly updates for each source.

At the end of the tax year, you'll need to complete a final declaration through your MTD-compatible software, confirming your income, claims, reliefs and any other information required by HMRC. The filing deadline remains 31 January following the end of the tax year.

Importantly, tax payment dates are not changing. Payments will still be due on 31 January, with payments on account continuing in January and July where applicable.

What Software Do You Need?

To comply with MTD, you'll need to keep digital records and submit information through HMRC-compatible software.

The right solution depends on your business. Some freelancers may only need a simple spreadsheet combined with bridging software, while others may benefit from dedicated accounting platforms that automate bookkeeping, invoicing and tax reporting.

If you're already using accounting software, check whether it's compatible with Making Tax Digital before the rules apply to you.

What Happens If You Don't Comply?

Keeping digital records and submitting updates via approved software are legal requirements under Making Tax Digital.

HMRC has announced a transitional approach for the first year of MTD for Income Tax, with no penalties for late quarterly updates during the 2026/27 tax year. However, taxpayers must still keep digital records and submit the required updates.

After the transition period, penalties may apply for late submissions, late tax payments, or failure to meet Making Tax Digital requirements.

What Should Freelancers Do Now?

If you're likely to exceed the qualifying income thresholds, it's worth preparing early by:

• Reviewing your income to see when MTD will apply to you.
• Choosing suitable accounting software.
• Moving your record-keeping online if you haven't already.
• Understanding the new quarterly reporting requirements.

Getting set up before the deadline will make the transition much smoother and help you avoid unnecessary compliance issues in the future.