Making Tax Digital for Solicitors: What You Need to Know

Making Tax Digital (MTD) is HMRC's programme to move record-keeping and tax filing into compatible software with digital links from record to return. For solicitors it lands as two separate regimes that are often confused: MTD for VAT, which already applies to every VAT-registered firm, and MTD for Income Tax, which phases in from April 2026 based on each individual's income. They are different taxes, with different triggers and different start dates.

Whether you are a sole practitioner, an individual partner or LLP member, or a practice manager, the first job is to work out which regime you are in and when. This guide sets out both, the record-keeping and quarterly update rules, and how MTD sits alongside the SRA Accounts Rules.

The two MTD regimes that affect solicitors

MTD for VAT applies to every VAT-registered business. The old £85,000 turnover trigger was removed in April 2022, so a firm being VAT-registered is what puts it in scope, not its turnover. If your firm is registered for VAT it should already be keeping digital VAT records and filing returns through compatible software. (The VAT registration threshold itself is a separate figure: a firm must register once taxable turnover exceeds £90,000, in force from 1 April 2024. Once registered, you are inside MTD for VAT.)

MTD for Income Tax (sometimes called MTD for ITSA) is the bigger change for most practices, and it is phased in by qualifying income, meaning your gross trading plus property income before expenses:

• From 6 April 2026: qualifying income over £50,000
• From 6 April 2027: qualifying income over £30,000
• From 6 April 2028: qualifying income over £20,000

MTD for Income Tax applies to individuals: sole practitioners, and individual partners and LLP members reporting their profit share on self-assessment. It does not apply to companies, because it is an income tax regime, not corporation tax. There is more on the corporation tax position below.

What is Making Tax Digital for solicitors?

For solicitors, MTD means using compatible software to keep digital records and to send information to HMRC electronically, rather than relying on paper records or a manually maintained spreadsheet. For VAT that has been the position for some years. For Income Tax it brings a new rhythm: quarterly updates during the year, replacing the single annual data-entry exercise.

MTD touches how you record fee income, disbursements, office expenses, professional indemnity insurance and SRA fees inside your software. It does not change how you handle client money: that remains governed by the SRA Accounts Rules, and client money is never the firm's income (see the SRA section below).

MTD for Income Tax: who is in scope, and when

The threshold that matters is your qualifying income, not your profit. A sole practitioner with £55,000 of practice turnover but £30,000 of profit is still over the £50,000 line and is in scope from 6 April 2026. The same gross-income test applies at each later stage.

For an anonymised illustration, a sole practitioner billing around £75,000 a year is over the £50,000 threshold and joins from 6 April 2026. A consultant solicitor with a smaller practice billing around £35,000 a year is below £50,000, so does not join in 2026, but is over £30,000 and so comes into scope from 6 April 2027. Working out the exact start date is simply a matter of matching each person's qualifying income to the phased thresholds.

What MTD for Income Tax requires once you are in scope:

• Digital records of all business income and expenses, kept in compatible software
• Quarterly updates sent to HMRC during the tax year
• A final declaration after year end that finalises the figures (this replaces the data-entry part of the old self-assessment return)
• Digital links between systems, so data flows without being retyped at any stage

Property income counts towards the same qualifying-income test. A solicitor with practice income plus rental income should add both together when checking which threshold applies. For locum and consultant solicitors operating through a personal service company, note that the company's profits sit outside MTD for Income Tax, although the individual's own self-assessment income is tested in the normal way; see our guide to locum solicitor IR35 rules for how the PSC structure interacts with status.

Digital record-keeping

Under both regimes you must keep digital records of the relevant income and expenses in compatible software. For a legal practice that means recording fee income, disbursements, office rent, professional indemnity insurance, SRA fees, professional subscriptions and capital allowances on equipment digitally, with the data captured at source rather than re-keyed from paper at year end.

Your digital records for MTD for Income Tax should include:

• All fee income from legal work
• Business expenses including office costs, insurance and professional subscriptions
• Capital allowances on equipment and fixtures
• Where you are VAT-registered, your VAT records under MTD for VAT

A manually kept spreadsheet on its own does not satisfy the digital-link requirement. Spreadsheets can still play a part if they connect to HMRC through bridging software that preserves the links, but most firms find dedicated software simpler, particularly because it can also keep client money separate for the SRA.

Quarterly updates under MTD for Income Tax

Instead of a single annual self-assessment return, in-scope individuals send quarterly updates summarising income and expenses for each period, followed by a final declaration after the tax year ends. The standard quarterly periods run:

• 6 April to 5 July
• 6 July to 5 October
• 6 October to 5 January
• 6 January to 5 April

Each update reports the income and expenses for that three-month period. After the year end you confirm the full-year position through a final declaration, which finalises the figures (including any adjustments and reliefs) and settles the tax due. The quarterly updates replace the data-entry burden of the annual return rather than adding a fifth filing on top of it.

MTD for VAT: already live for VAT-registered firms

If your firm is VAT-registered, you are already inside MTD for VAT and should be keeping digital VAT records and filing VAT returns through compatible software. There is no turnover floor: it is registration, not turnover, that determines scope.

Legal services are standard-rated for VAT at 20%, and the disbursement-versus-supply distinction is a recurring source of VAT error in conveyancing in particular. MTD does not change those rules, only how the records are kept and the return is filed. For the substantive VAT position see our guides to VAT registration for law firms and the treatment of disbursements and VAT.

What about Corporation Tax?

There is no corporation tax MTD obligation in force. MTD for Corporation Tax has been proposed but no start date is confirmed, so incorporated firms have nothing to file under MTD for Corporation Tax at present. Do not assume a fixed commencement date: HMRC has indicated it will give significant notice, and any mandation would be some way off.

This matters because MTD for Income Tax and MTD for Corporation Tax are often run together in people's minds. An incorporated law firm pays corporation tax and is outside MTD for Income Tax; its individual director-shareholders are tested for MTD for Income Tax only on their own self-assessment income (for example rental income), if any. A VAT-registered company is, separately, already inside MTD for VAT.

Deadlines and penalties

VAT returns under MTD are filed on the firm's normal VAT cycle, with payment due one month and seven days after the period end for standard quarterly VAT periods. Under MTD for Income Tax there are quarterly update deadlines through the year plus the final declaration after year end.

Late submissions sit within HMRC's points-based late-submission regime: each missed deadline adds a point, and a financial penalty is charged once you reach the threshold for your filing frequency, with separate late-payment penalties and interest on tax paid late. Because MTD for Income Tax brings more deadlines than annual self-assessment, the practical risk is an inadvertent missed quarter, so clear internal ownership of filing dates is worth more than it was under the old annual cycle.

How MTD interacts with the SRA Accounts Rules

MTD governs your own business accounting and tax filing. It does not govern client money, which remains governed by the SRA Accounts Rules. Your MTD software, or the wider system around it, must continue to:

• Keep client money fully separate from office (practice) money
• Support reconciliation of the client account, signed off by the COFA or a manager, at least every five weeks
• Preserve the audit trail the SRA expects, alongside the digital records HMRC expects

Client money is not the firm's income, so it never forms part of an MTD income figure. The realistic risk is the reverse: choosing software for HMRC filing that does not cleanly support SRA client account separation. Pick a system that satisfies both, and keep your SRA compliance procedures aligned with how the data flows through it.

Impact on different practice structures

Sole practitioners over the relevant threshold report practice profits through quarterly MTD for Income Tax updates and a final declaration, replacing the old annual data entry. Individual partners and LLP members are each tested on their own qualifying income, even though the partnership or LLP files its own return; the firm should make sure each individual knows their start date and has compatible software for their share. Incorporated firms are outside MTD for Income Tax (corporation tax), but are inside MTD for VAT if VAT-registered, and should simply note the proposed-but-unconfirmed status of MTD for Corporation Tax.

For the underlying tax treatment of profit shares, see our guide to how LLP members are taxed, and for the individual filing position our solicitor self-assessment guide.

Practical steps to prepare

• Confirm which regime applies and when. If you are VAT-registered you are already in MTD for VAT. For MTD for Income Tax, match each individual's qualifying income to the £50,000 (2026), £30,000 (2027) and £20,000 (2028) thresholds.
• Check software compatibility. Verify your accounting or practice management software is HMRC-recognised for the regimes you are in, and that it keeps client and office money separate for the SRA.
• Test digital links. Make sure data flows between systems without being retyped at any stage, which is the requirement most often missed.
• Assign ownership of deadlines. With quarterly Income Tax updates, decide who is responsible for each filing date.
• Update partnership or LLP processes. Ensure each partner's or member's profit share is recorded in a way that supports their individual MTD for Income Tax obligations.

Many firms run their chosen software in parallel for a period before their mandatory start date, so the team is comfortable with quarterly updates before they count.

MTD software for legal practices

Compatible options range from cloud accounting packages to legal-specific practice management systems with built-in MTD support. Useful features for a law firm include:

• HMRC recognition for the regimes you are in (VAT and, where relevant, Income Tax)
• Legal-specific expense categories and disbursement handling
• Client and office money separation for the SRA Accounts Rules
• Integration with time recording, billing and case management to avoid duplicate entry

Verify current MTD recognition before committing, since the list of recognised software changes over time. Our law firm accounting software guide compares the main options for solicitors.

Getting professional support

MTD for solicitors sits at the intersection of tax filing, software and SRA client-money obligations. The combination is what creates the work: generic MTD advice rarely addresses client money handling, partner-level income testing, or how a legal practice's billing and disbursement flows feed the digital records.

If you would value a second pair of eyes on which regime applies to whom, when each person comes into scope, and whether your current software meets both HMRC and SRA requirements, consider specialist accounting support for law firms. Early preparation, rather than a last-minute scramble before a quarterly deadline, is what keeps MTD from becoming a problem.