Making Tax Digital for Income Tax: What UK Shopify Merchants Need to Know

The UK government is overhauling how self-employed individuals and landlords report their income to HMRC. If you run a Shopify store as a sole trader, Making Tax Digital (MTD) for Income Tax is going to impact you, and the first deadline is just around the corner.

Here's everything you need to know about what's changing, whether it applies to you, and the steps you should take right now.

What is Making Tax Digital?

Making Tax Digital (MTD) is a UK government initiative to modernize the country's tax system. The core idea is simple: replace paper-based records and once-a-year tax returns with digital recordkeeping and regular, automated reporting.

The government's stated goals are to reduce tax errors, cut down on administrative friction, and make compliance easier for both businesses and HMRC. In practice, that means moving away from spreadsheets and shoeboxes full of receipts—and toward software that talks directly to HMRC.

Why did the government introduce it?

The UK tax gap—the difference between tax owed and tax actually collected—runs into the tens of billions of pounds each year. A significant chunk of that is attributed to avoidable errors in Self Assessment returns. MTD is the government's answer to that problem.

By requiring digital records and more frequent submissions, HMRC gets a clearer, more up-to-date picture of what businesses are earning.

It also means fewer end-of-year surprises for business owners since your tax position is being tracked throughout the year rather than all at once in January.

What's actually changing?

Self Assessment reporting is changing

Under MTD for Income Tax Self Assessment (MTD ITSA), the traditional once-a-year Self Assessment process changes significantly. Instead of reporting everything annually, taxpayers will submit quarterly updates throughout the year and then complete a final year‑end declaration to confirm their tax position.

You'll now need to:

• Keep digital records of all income and expenses throughout the year
• Submit quarterly updates to HMRC summarizing your income and expenses
• File a final year-end declaration to wrap up your tax position

Tax is still due by January 31, following the end of the tax year, but the way you report it changes significantly.

Digital recordkeeping is mandatory

Every income stream—whether that's trading revenue, rental income, or service fees—must be recorded digitally. Paper books and standalone spreadsheets won't cut it unless they're linked to an approved bridging tool. You'll need software that is recognized by HMRC and capable of submitting data directly.

Who does it apply to?

From April 6, 2026

MTD ITSA becomes mandatory for sole traders and landlords whose qualifying income from self‑employment and/or property exceeds £50,000.

Partnerships are not included in the initial rollout, although the government has indicated they may be brought into MTD for Income Tax at a later date.

To be in scope, you must:

• Be an individual registered for Self Assessment
• Receive income from self-employment, property, or both
• Have qualifying income above £50,000

From April 6, 2027

The threshold drops to £30,000, bringing a much larger group of medium-sized businesses and landlords into scope.

If you're a Shopify merchant running your store as a sole trader and your combined qualifying income from all self‑employment and/or property sources crosses these thresholds, MTD applies to you.

What steps do you need to take?

1. Check your income

Review your 2024/25 tax year qualifying income. If your combined income from self‑employment and/or property exceeds £50,000, you’re expected to fall within the first group required to comply from April 6, 2026. If it's over £30,000, you'll need to comply from April 2027.

2. Choose HMRC-recognized MTD software

You'll need accounting or tax software that is compatible with MTD and can submit quarterly updates directly to HMRC. Make sure whatever you choose can consolidate all your income streams (not just your Shopify sales) and automate the calculations.

3. Start digitizing your records now

Don't wait until April 2026 to make the switch. Begin managing your records digitally today and practice running through quarterly updates. The earlier you start, the smoother the transition will be.

4. Brief your accountant

If you work with an accountant, make sure they're familiar with the new requirements and timelines. The shift to quarterly reporting changes their workflow too, so get aligned sooner rather than later.

5. Run a readiness check

Do a gap analysis of your current processes. Where are your records being kept? What software are you using? What needs to change? Map out a clear plan to get compliant before the deadline.

What about MTD for VAT?

It's worth noting that MTD for VAT has already been in effect since 2022 for all VAT-registered businesses in the UK. If you're already VAT-registered and using compatible software, you're ahead of the curve. MTD for Income Tax is a separate obligation with its own requirements.

Keep your Shopify store's finances in order with Sufio

MTD compliance starts with clean, accurate records, and that means your invoicing workflow needs to be reliable. If you're still issuing invoices manually or relying on basic order printer apps for compliance, now is the time to upgrade.

While you'll still need accounting or tax software that can submit MTD updates directly to HMRC, tools like Sufio help ensure your Shopify invoices and transaction records stay accurate and organized. This makes it easier to keep your books clean and ready for compliant reporting.

Sufio is a professional invoicing app built for Shopify. It automatically creates and sends invoices, credit notes, and payment reminders for overdue invoices—so your records are always accurate and up to date. Sufio generates fully compliant documents and supports multi-currency and multi-language invoicing for merchants selling globally.

For Shopify stores doing business with other businesses, Sufio also offers native Shopify B2B integration and supports modern e-invoicing standards, including ZUGFeRD in Germany, Factur-X in France, and Peppol in Belgium.

Don't waste your time with order printer apps. Join 7,550+ growing Shopify merchants who depend on Sufio because of its ability to always stay compliant, even as legal requirements evolve in key regions like the UK and the EU.

You can find Sufio on the Shopify App Store and get started today.