Making Tax Digital for Farmers: Complete Guide for 2026

With Making Tax Digital (MTD), the way farmers record and report financial information is changing.

This shift affects a large part of the farming sector. The UK has over 100,000 farm holdings in England alone, and agriculture employs around 452,000 people across the UK, many of whom are farm owners or partners running their own businesses.

Because many farmers operate as sole traders, a significant number will fall under Making Tax Digital for Income Tax Self Assessment.

In this guide, we’ll break down what Making Tax Digital for farmers means, who needs to comply, when the key deadlines are, and how to prepare before the new rules take effect.

Key points

• MTD will change how farmers report their taxes 📄
  Under Making Tax Digital for Income Tax Self Assessment, many farmers will need to keep digital records and send quarterly updates to HMRC instead of submitting one annual Self Assessment return.
• Income thresholds determine when farmers must comply 💰
  MTD rules will apply to sole traders and landlords with qualifying income. The rollout begins in April 2026 for those earning over £50,000, expands to £30,000 in 2027, and then to £25,000 in 2028.
• Quarterly updates and a final declaration replace traditional reporting ✍️
  Instead of preparing everything at the end of the tax year, farmers will submit four quarterly summaries of income and expenses. At the end of the year, a final declaration confirms the full tax position.
• Digital record-keeping can actually simplify farm finances 🖥️
  Although the transition may feel like extra admin at first, digital records make it easier to track seasonal income, equipment spending, grants, and diversified farm income.

What is Making Tax Digital?

Making Tax Digital is a government initiative designed to modernise the UK tax system by moving it fully online. The goal is to reduce errors, improve tax accuracy, and make tax reporting more efficient.

Under MTD rules, businesses and self-employed people have to:

• Keep digital records of income and expenses
• Use compatible software to maintain records
• Submit regular updates to HMRC electronically

Instead of preparing one annual return with months of paperwork, taxpayers will update their records throughout the year, giving them a clearer view of their tax bills.

Does Making Tax Digital apply to farmers?

Yes, in many cases. Farmers who operate as sole traders or landlords need to follow the rules under Making Tax Digital for Income Tax Self Assessment (MTD for ITSA).

The new rules apply if your combined annual income from self-employment and property exceeds these thresholds:

• From April 2026: Applies to individuals earning over £50,000
• From April 2027: Applies to individuals earning over £30,000
• From April 2028: Applies to individuals earning over £25,000

Many farmers fall into these categories because farm income counts as self-employment income. If your farm is operated as a limited company, you aren’t affected by MTD for ITSA. Instead, company tax reporting falls under the standard Corporation Tax rules.

What is changing for farmers under MTD?

Here are the key changes farmers should expect under MTD for ITSA:

1. Mandatory digital record-keeping

Under MTD, farmers must keep digital records of all business income and expenses using compatible software.

This means that instead of relying solely on paper notebooks, handwritten ledgers, or boxes of receipts, financial information must be stored electronically in a system that can connect directly with HMRC.

Digital records typically include details such as:

• Income from agricultural activities, including crop sales, livestock sales, dairy production, or other farm products
• Agricultural subsidies, grants, and environmental scheme payments
• Purchases of machinery, tractors, tools, or other farm equipment
• Operating costs, such as feed, fertiliser, seeds, veterinary expenses, and agricultural supplies
• Running expenses, including fuel, utilities, land maintenance, and repairs
• Property or land rental income, if the farm rents out buildings or fields

Each transaction should include the date, amount, and category of income or expense, ensuring that records are detailed enough to support tax calculations.

Under MTD, paper records aren’t enough anymore. While you may still keep physical receipts for reference, the financial data itself must exist in digital form within approved software.

2. Quarterly updates replace annual reporting

Under the traditional tax system, many farmers prepared their accounts once a year and submitted a Self Assessment tax return after the tax year ended.

MTD changes this by introducing quarterly reporting.

Farmers who fall within the MTD thresholds will have to submit four summary updates each tax year to HMRC. These updates provide a snapshot of income and expenses for each period.

The standard reporting schedule follows the UK tax year:

These updates allow HMRC to generate an estimated view of your annual tax position.

3. A final declaration replaces the Self Assessment return

Although quarterly updates provide regular info to HMRC, they don’t replace the need for a final confirmation of your annual tax position. At the end of the tax year, farmers will have to submit a final declaration through their MTD-compatible software.

This process effectively replaces the traditional Self Assessment tax return. However, rather than entering all financial data at once, the final declaration primarily involves reviewing and confirming information already reported throughout the year.

During this step, you will verify:

• All income sources, including farm income, property income, or other self-employment earnings
• Allowable expenses that reduce your taxable profit
• Adjustments or reliefs, such as capital allowances on machinery or other qualifying investments
• Any additional financial details that may affect your tax bill

From there, HMRC will determine the final amount of tax owed.

How Making Tax Digital for farmers helps in the long run

At first glance, MTD for ITSA might sound like extra admin. However, once everything is set up, digital systems can actually make managing farm finances simpler, clearer, and less stressful.

Here are some of the biggest benefits:

1. Better visibility of your farm finances

With digital records, you aren’t waiting until the end of the tax year to understand how your business performed.

Instead, you can track:

• Seasonal income patterns
• Spending on equipment and machinery
• Feed, fertiliser, and supply costs
• Profit margins throughout the year

Having this information readily available makes it much easier to spot trends, manage cash flow, and make informed decisions about your farm.

2. Fewer tax errors

Manual bookkeeping leaves a lot of room for small mistakes. Receipts get lost, numbers get entered incorrectly, and calculations can easily go wrong.

MTD-compatible software helps reduce these issues by:

• Automatically recording transactions
• Categorising expenses for you
• Generating tax estimates as you go

This makes it much easier to keep your records accurate and up to date, which can make tax reporting far less stressful when deadlines approach.

3. Easier collaboration with accountants

Many farmers rely on accountants to help prepare their tax returns. Digital records make that relationship much smoother.

Instead of sending piles of paperwork once a year, your accountant can:

• Access your records directly
• Check for missing information earlier
• Prepare final submissions more quickly

For farms with multiple income streams or complex finances, this can make the entire tax process far more efficient.

Common tax situations farmers should track under MTD

Farming businesses often have different types of income and expenses compared to other self-employed businesses. Keeping clear digital records makes it easier to track these properly.

Here are a few common areas farmers should pay close attention to:

1. Agricultural grants and subsidies

Many farms receive payments through government schemes or environmental programmes.

These can include:

• Environmental land management schemes
• Agricultural support payments
• Sustainability or conservation grants

In most cases, these payments count as taxable income, so they must be recorded correctly in your financial records.

2. Seasonal income fluctuations

Farm income rarely arrives evenly throughout the year. For example, crop sales may generate a large amount of revenue during harvest season, while other months are much quieter.

Because MTD uses quarterly updates, your income is recorded as it happens, rather than estimated long after the fact.

3. Capital investments

Farming often involves significant investments in equipment and infrastructure, such as:

• Tractors
• Harvesters
• Irrigation systems
• Grain storage or livestock facilities

Many of these purchases may qualify for capital allowances, which can reduce your taxable profit.

4. Diversified farm income

Modern farms often generate income from more than just traditional agriculture.

For example, many farms now run additional activities, such as:

• Holiday cottages or farm stays
• Farm shops
• Renewable energy projects like solar or wind
• Agricultural tourism or events

All of these income streams still need to be recorded digitally under MTD rules. Keeping everything in one place makes it easier to track the full financial picture of your farm business.

What happens if you don’t comply?

Like other tax rules, failing to follow MTD requirements can lead to penalties.

HMRC is introducing a points-based penalty system for late submissions. Instead of receiving an immediate fine, you accumulate penalty points when deadlines are missed.

Here’s the basic idea:

• Each missed submission deadline adds one penalty point.
• Once you reach a certain number of points, a financial penalty is applied.
• Continued missed deadlines can lead to additional penalties.

The easiest way to avoid this is to keep digital records up to date and submit your quarterly updates on time.

Can farmers be exempt from Making Tax Digital?

Some farmers may qualify for a digital exemption, although these situations are relatively rare.

You may be eligible if:

• A disability prevents you from using digital tools
• You live in a location without reliable internet access
• Your religious beliefs prevent the use of technology

Exemptions are reviewed and approved by HMRC, and you have to apply to receive one.

If an exemption is granted, you still have to submit tax information, but you can do so through alternative methods that don’t involve digital software.

How farmers can prepare for MTD

For farmers who have relied on traditional bookkeeping for years, switching to digital systems might feel like a big change. The good news is that starting early makes the transition much easier.

Here are a few practical steps you can take now:

1. Start digitising your records

Even if MTD doesn’t apply to you yet, it’s a good idea to begin keeping your financial records electronically.

This could include:

• Scanning or photographing receipts
• Recording transactions digitally
• Tracking expenses regularly

2. Choose MTD-compatible software

To comply with MTD, farmers will need software that can connect directly with HMRC systems.

Look for tools that offer:

• Digital record-keeping
• Quarterly reporting capabilities
• Automatic tax estimates
• Simple expense tracking

3. Organise your income streams

If your farm generates income from multiple sources, it’s helpful to organise them clearly in your records.

Make sure you track income from:

• Crop sales
• Livestock sales
• Agricultural grants or subsidies
• Property or land rentals
• Diversified farm activities

4. Speak with your accountant early

If you work with an accountant, it’s worth discussing MTD well before the rules apply to you.

They can help you:

• Choose the right software
• Set up digital record-keeping systems
• Understand how the new reporting process works

Getting advice early ensures your farm is ready when the new rules take effect.

How ANNA helps farmers stay MTD-ready – for FREE

Preparing for Making Tax Digital doesn’t have to mean learning complicated accounting software or spending hours on bookkeeping.

Many traditional accounting tools were originally built for accountants, not for business owners. That often means complicated dashboards, confusing terminology, and a lot of admin.

ANNA does things differently.

ANNA combines a business account, bookkeeping, and tax reporting in one place, so your financial admin largely runs in the background while you focus on running your business.

Even better, MTD is free for new and existing ANNA customers. Already submitted your 2025/26 Self Assessment using another platform? No worries – ANNA will refund the cost when you open an ANNA account.

Here’s what you get with ANNA’s automated MTD solution:

• Automatic MTD quarterly updates: Stop worrying about deadlines; your records are prepared automatically and ready to file each quarter.
• Year-end Self Assessment filing: Submit your final declaration to HMRC directly from the app.
• 2025/26 Self Assessment filed for free: Just connect your HMRC account to unlock this.
• Auto Accountant bookkeeping: Automatically categorise transactions and keep your records organised.
• 24/7 Auto Accountant support: Get jargon-free answers to your tax questions anytime, directly in the app.
• Automatic VAT calculations and filing: Calculate and file your VAT Return automatically if you’re VAT-registered.
• Simple invoicing with card payments: Send invoices and accept payments quickly so you get paid faster.
• Personalised tax calendar: Stay on top of important deadlines without worrying about missing them.
• Payroll for one employee: Easily pay one employee with automated PAYE and National Insurance calculations.

Try ANNA out today and simplify your MTD obligations. And if you ever have a question about MTD or your taxes, help is always available in the app, 24/7.