Making Tax Digital for Childminders: Requirements & Setup

Making Tax Digital for Income Tax Self Assessment (MTD ITSA) is the new HMRC system that requires you to keep digital records, send quarterly income updates, and submit a final declaration instead of a single annual tax return.

HMRC estimates that avoidable errors cost billions in lost tax revenue each year, largely due to manual record-keeping. This is the main reason why millions of sole traders, including childminders, will be brought into MTD ITSA by 2028.

If you’re a childminder in the UK, MTD is about to change how you handle your tax. Let’s break down everything you need to know about MTD for childminders, so you know exactly how to prepare.

Key points

• MTD applies to childminders based on total income 💰
  Childminders must join Making Tax Digital once their combined income from childcare, other self-employment, and property exceeds HMRC thresholds.
• Digital record-keeping is mandatory 💻
  All income and expenses must be tracked digitally in real time. This includes payments from parents, household costs, and business expenses.
• Quarterly updates replace annual-only filing 📅
  Childminders must submit summaries of income and expenses every three months. These updates aren’t final tax bills, but they keep your tax position accurate and reduce end-of-year surprises.
• Simplified expense rules are being removed 🗒️
  The 10% wear-and-tear allowance and flat-rate household cost percentages are gone. Childminders now need to track actual costs and apportion business vs personal use.

When does MTD for childminders start?

MTD applies to childminders once your total qualifying income exceeds HMRC thresholds, starting from April 2026.

Here’s how the threshold rollout works:

• April 2026: Applies to individuals with an annual income over £50,000
• April 2027: Applies to individuals with an annual income over £30,000
• April 2028: Applies to individuals with an annual income over £20,000

The total income includes:

• Childminding income
• Other self-employed work income
• Property income

Even if your childcare income alone is lower, combined earnings could bring you into MTD sooner.

What’s changing specifically for childminders?

Childminding is a home-based business, so many costs are shared between personal and business use. This applies to food, utilities, household items, internet and phone bills, etc.

Under MTD, childminders can’t use simplified expense calculations anymore – they have to switch to more precise, evidence-based cost tracking.

Here are some big changes MTD brings for childminders:

1. Removal of the 10% wear and tear allowance

Previously, many childminders used a simple flat 10% deduction to cover general wear and tear on household items.

Under MTD, this is no longer available.

Instead, you’ll need to:

• Claim the actual cost of items (e.g. toys, furniture, equipment)
• Calculate the business-use proportion

For example, if you buy a sofa for £1,000 and use it 40% for childminding and 60% privately, you can only claim £400.

If you start using an item you already own for your business, you may be able to claim either a reasonable portion of its original cost or its value at the moment you start using it for business.

Which approach applies depends on how the item is treated for tax purposes:

• If it’s considered a day-to-day expense, you typically base your claim on the original purchase cost.
• If it’s treated as a capital asset, you can take into account its value at the time it starts being used for work and claim relief over time through capital allowances. This requires more detailed records and a clear explanation of how you split the use percentage.

2. Changes to household expense rules

Simplified flat-rate agreements for household costs are being phased out once you join MTD.

This affects expenses like:

• Heating
• Lighting
• Council tax
• Rent or mortgage interest

Instead of using standard percentages, you’ll need to calculate the actual costs and the business-use proportions (based on time, space, or usage).

For example, you’ll have to be precise about:

• The number of hours your home is used for childminding
• The number of rooms used for the business

This increases accuracy, but also adds complexity if done manually.

What are the MTD requirements for childminders?

Childminders must keep digital records, send quarterly updates to HMRC, and submit a final year-end declaration using MTD-compatible software.

Here’s what that actually looks like in day-to-day practice:

1. Digital record-keeping

You must keep a complete, up-to-date digital record of all business income and expenses.

That includes:

• Every payment you receive from parents (fees, deposits, extras)
• All business expenses (food, toys, equipment, insurance, utilities, etc.)
• The date of each transaction
• A clear category for each item (e.g. food, travel, equipment)

Under MTD rules, records must be maintained continuously throughout the year.

That means:

• No handwritten notebooks
• No ‘backfilling’ spreadsheets once a year
• No disconnected systems that don’t link to HMRC

Each transaction should be recorded as close to real time as possible to reduce errors and ensure compliance.

💡 Worth knowing

The good news is that most childminders can continue using cash basis accounting.

This method allows you to record income when you receive it and expenses when you pay them, rather than when they’re invoiced. This is simpler than traditional accounting and remains the most practical option for many small childcare businesses.

2. Quarterly updates

You must submit a summary of your income and expenses to HMRC every three months.

Each update should include:

• Total income for the period
• Total allowable expenses

You’ll typically submit four updates per tax year, based on standard quarters.

These updates aren’t final tax bills; they help keep your estimated tax position up to date. You still won’t pay tax quarterly (unless you already do through payments on account).

3. End of Period Statement (EOPS)

At the end of the tax year, you must finalise your business accounts for your childminding income.

This is where you:

• Confirm your total income and expenses
• Make accounting adjustments if needed
• Ensure everything is complete and accurate

For childminders, this step becomes more important under MTD because you’ll be working with more detailed expense tracking, and you may need to adjust for mixed-use costs (business vs personal).

4. Final declaration

You must submit a final declaration that replaces your Self Assessment tax return.

This pulls everything together, including:

• Your childminding income
• Any other self-employed income
• Property income (if you’re a landlord)
• Other personal income sources

Once submitted, this final declaration determines your actual tax bill for the year.

How to set up MTD as a childminder

Setting up MTD as a childminder means confirming your start date, choosing compliant software, and building a simple system that keeps your records accurate all year round.

Here’s an MTD checklist showing you how to do it step by step:

Step 1: Confirm your MTD start date

Your start date depends on your total qualifying income, not just your childminding earnings. You’ll need to include all your income, including property income and other self-employed earnings, if you have them.

Compare your qualifying income with the thresholds, and you’ll have your starting date for MTD.

Step 2: Choose MTD-compatible software

MTD can’t be done without software – this is the foundation of your entire setup.

At a minimum, your software must:

• Store digital records of all income and expenses
• Categorise transactions correctly for tax purposes
• Submit updates directly to HMRC

But in reality, there’s a big difference between technically compliant and actually useful options.

Some tools require you to manually input every transaction, categorise expenses, and prepare and submit updates by yourself.

Other, more advanced options automatically track your income and expenses, categorise transactions with smart rules, and manage submissions in the background.

That’s why choosing your MTD software is a big deal – it will directly influence how much admin you have to do on a daily basis.

Step 3: Start digital record-keeping now

The biggest mistake is waiting until MTD becomes mandatory – by then, you’re already behind.

Even if your deadline is a year away, starting early helps you:

• Build a habit of recording transactions consistently
• Avoid the stress of catching up on months of data
• Spot and fix mistakes before they matter
• Understand how your expenses actually work

In practice, this means you’ll be recording income as it comes in and keeping everything in one system.

Step 4: Get familiar with quarterly submissions

Quarterly reporting is one of the biggest changes under MTD, so it’s worth getting comfortable with it early.

You don’t need to master it straight away, but you should understand:

• What each update includes
• When submissions are due
• How your software handles them

If you’re using manual or semi-manual tools, this step often involves reviewing your records, fixing categorisation errors, and submitting updates yourself.

If you’re using automated software, many of these processes are done for you.

Step 5: Set up a simple routine

MTD works best when it becomes part of your routine, not a last-minute task.

A simple approach could look something like this:

• Weekly: check transactions and receipts
• Monthly: review categories and totals
• Quarterly: confirm everything is ready for submission

Or, ideally, you could use a system that removes most of this routine altogether.

Manual bookkeeping vs automated MTD software

Here’s how the different approaches compare in practice:

However, the real difference isn’t in the features – it’s in how much time you need to invest to stay compliant.

Manual bookkeeping struggles to keep up with MTD because staying up to date requires much more effort. Automated software manages this in the background, reducing admin time while keeping records accurate and compliant.

You can think about it like this:

• Manual spreadsheets work if you’re highly organised, but become risky under MTD due to frequent reporting and stricter rules.
• Typical MTD software solves the compliance issue, but still leaves you doing much of the work on your own.
• Fully automated solutions remove the need for ongoing bookkeeping by handling tracking, categorisation, and submissions automatically.

A simpler way to MTD compliance as a childminder – for FREE

Under MTD, even small tasks start to add up – especially when you’re running a childcare business at the same time.

ANNA is designed differently.

Instead of giving you more tools to manage, it removes the admin altogether. Your bookkeeping, tax tracking, and MTD submissions run in the background, so you’re not constantly logging expenses or worrying about deadlines.

Here’s what ANNA can do:

• Prepare and file your 2025/26 Self Assessment for free: No extra tools or add-ons. Once connected to HMRC, your return is filled out and submitted as part of the system. If you already filed your 2025/26 return using another platform, ANNA will refund what you paid for that platform when you open an account.
• Automatically prepare your MTD updates: Quarterly submissions are ready in the background, without manual prep or last-minute stress.
• Track your income in real time: Payments from parents are recorded as they happen, so your income and tax bill are always up to date.
• Categorise expenses automatically: From food and toys to household bills, transactions are sorted for you – including mixed-use expenses.
• Handle shared household costs more easily: ANNA helps you manage business vs personal splits, which is essential now that flat-rate methods are being removed.
• Manage everything with a built-in UK business account: Income, expenses, and tax all exist in one place – no need to connect multiple tools.
• Create and send invoices with integrated payments: You can get paid faster while keeping everything organised in the same system.
• Stay on track automatically: Deadlines, reminders, and submissions are handled for you.
• 24/7 human support: Get help whenever you need it, without long wait times or confusing advice.

Try ANNA today, and get ahead of MTD so you can continue your childminding business with confidence.