Making Tax Digital and AI Bookkeeping Safely

Let AI sort and suggest; keep a person responsible for categories, quarterly figures and anything sent to HMRC.

Where Making Tax Digital for Income Tax stands

Making Tax Digital for Income Tax is now live. According to gov.uk, sole traders and landlords registered for Self Assessment should have started using it from 6 April 2026 if their qualifying income from self-employment and property was over £50,000 for the 2024 to 2025 tax year. The threshold then falls to £30,000, based on the 2025 to 2026 tax year, from 6 April 2027, and to £20,000, based on the 2026 to 2027 tax year, from 6 April 2028.

Under the scheme you keep digital records in compatible software and send quarterly updates for each self-employment and property business. For standard update periods, the cumulative periods run from 6 April to 5 July, 5 October, 5 January and 5 April, with deadlines of 7 August, 7 November, 7 February and 7 May. HMRC says you must still send an update for a quarter with no income or expenses, and that it does not receive individual records such as receipts or invoices.

If you are in the first wave, the first quarterly deadline of 7 August 2026 has passed and the next is 7 November 2026. If you are in the April 2027 group, now is the time to choose software and clean up your record-keeping habits.

What AI can sensibly automate

Most MTD-compatible bookkeeping packages now include some automation, and many businesses also use general assistants such as ChatGPT, Claude or Copilot around the edges. The safe uses are the dull, repetitive ones where a mistake is easy to spot:

• reading receipts and supplier invoices and proposing the date, amount and supplier
• suggesting a category for bank transactions based on past choices
• flagging duplicates, missing receipts and unusual amounts
• drafting a short summary of the quarter for you or your accountant to read
• reminding you of deadlines and missing paperwork

In each case the AI proposes and a person accepts. The benefit is fewer hours of data entry, not fewer decisions.

What a human must check

Some judgements carry tax consequences and should never be accepted without review:

1. Allowable expenses. Whether a cost is wholly and exclusively for the business, or needs splitting between business and personal use, is a judgement an AI cannot make from a bank line.
2. Income classification. Self-employment income and property income go into separate businesses in MTD. A wrongly routed payment changes the figures for both.
3. Capital versus revenue. Equipment, vehicles and property improvements need proper treatment.
4. The quarterly update itself. Read the totals before you submit. Compare them with the previous quarter and with your bank balance movements.
5. Anything the AI could not read. Blurry receipts, foreign currency and handwritten notes should be checked by hand.

Keep a simple record of who reviewed each quarter and when. If HMRC or your accountant asks later, that is your evidence. Our note on how to review AI finance output sets out a fuller review routine.

Data boundaries for AI tools

Bookkeeping data is personal data for sole traders and landlords. It includes your own finances, and often tenants' or customers' names and payment details. Before connecting an AI tool, decide where the boundaries sit:

• Prefer AI features built into your MTD software over copying bank exports into a general chatbot. The data stays within one supplier you have already assessed.
• If you use a general assistant, use a business plan with training on your data switched off, and remove names, account numbers and addresses before pasting anything.
• Never paste your Government Gateway credentials, HMRC reference numbers or bank logins into any AI tool.
• Check where the supplier stores data and how long it keeps uploads.
• Give an accountant or bookkeeper access through the software's own user roles rather than by sharing your login.

For a wider list, see what not to put into AI finance tools.

A practical quarterly routine

A routine that fits into an hour or two each quarter:

1. Upload receipts as you go, and let the software extract details.
2. Once a month, review suggested categories and fix any that are wrong. Corrections help future suggestions.
3. At quarter end, reconcile against bank statements and resolve flagged items.
4. Ask the AI to draft a short comparison with last quarter, then check it against the software's own reports.
5. Review and submit the quarterly update yourself, or approve your agent's submission.
6. Record the date, the reviewer and any open questions for the year-end.

The software does the filing. You remain responsible for what it says.

Source basis

• gov.uk: Check if you're eligible for Making Tax Digital for Income Tax
• gov.uk: Send quarterly updates for Making Tax Digital for Income Tax