Making Tax Digital Fashion Industry

Written by Menswear Style
in
Business

on the

5th February 2025

Tax rules are changing fast. Recently, the UK government introduced Making Tax Digital for Income Tax. The regulation takes effect in 2026, and sole traders must adopt MTD before then to be on the right side.
This new development cuts across all sectors, including the fashion industry. The goal is to help you manage your taxes better and reduce unnecessary errors. But what does this change mean for fashion brands, designers, and retailers?
This article breaks down everything about MTD for income tax to help you keep pace.

What is MTD for Income Tax? 

HM Revenue and Customs made MTD mandatory in 2019, affecting VAT-registered businesses. MTD for VAT is in full swing, with the final introductory stage in April 2022.
The next group in this phased rollout plan is sole traders and landlords. Are you planning to start a men’s fashion business or have an existing one as a sole trader? If yes, you’ll be in this group and should adopt what HMRC calls MTD for Income Tax Self Assessment (ITSA).
So, what is MTD for ITSA? It is a government regulation that mandates you to keep your records digitally. As a sole trader, you must use approved software to send your tax information to HMRC.
With this system, you no longer rely on paper records or spreadsheets. Instead, you log all sales, expenses, and financial data in real time. It makes tax reporting more efficient and reduces the risk of errors.

When Does MTD for Income Tax Take Effect in the Fashion Industry? 

The first phase of MTD for Income Tax mandation will be April 2026. All sole traders and landlords earning £50,000 annually must modernise their tax systems by then. So, if you’re in this group, ensure you have the necessary software as early as possible.
But what if your men’s fashion business generates less than that threshold? There is a second mandate phase in April 2027. This deadline affects any sole trader between £30,000 and £50,000 annually.
The government also acknowledges fashion businesses earning less than £30,000 annually. However, there are no deadlines for this category yet. HMRC will assess the needs of these businesses before developing fair regulations. It will also announce when partnerships must meet MTD for ITSA regulations. 

Benefits of MTD for the Fashion Industry 

MTD for Income Tax is more than just a tax regulation. It offers a lot of benefits for fashion businesses, including yours.
Want to simplify your fashion business operations? MTD is the solution for those daunting record-keeping processes. This new system allows your accounting applications to log sales and expenses automatically. As such, it makes it easier to spot mistakes and reduces the time spent on manual work, allowing you to focus on growing your business.
The transparency of digital records helps you make informed decisions. There will be no more guesswork when analysing your profits or tracking your costs. With accurate data at your fingertips, you can easily spot trends and adjust your strategies. This means you can plan better for busy seasons and slower periods.
Another benefit is that digital records make audits much less stressful. All your data is accessible when needed, which builds trust with HMRC. It also streamlines your tax process and gives you better control over your financial decisions.

How to Prepare for MTD Implementation in the Fashion Industry 

MTD for income tax is a new concept in the UK tax system. But getting ready for its implementation is simpler than you might think.
So, where do you begin? Start by reviewing your current record-keeping methods. Are you still using paper records or outdated spreadsheets? If so, now is the time to switch to approved digital accounting software.
Look for a tool that fits your business needs and seamlessly handles income and expenses. Once you have the right software, transfer your existing data into the new system. This step might take time, so the earlier you begin your preparation, the better.
HMRC currently accepts voluntary sign-ups. You can sign up voluntarily if your tax information is up to date and meets HMRC requirements. Doing so allows you to familiarise yourself with the system and helps HMRC test and improve its system.
Finally, ensure that your team is well-trained. Hold practice sessions and provide clear guidance so everyone can manage the new tools confidently. Getting your team on board now means you’ll be ready when MTD becomes mandatory, giving your fashion business a strong head start. 

Final Thoughts 

MTD for Income Tax is set to change how fashion businesses handle their finances. By moving to digital record-keeping, you can simplify your processes and reduce errors. This shift will help you focus on creativity and growth rather than paperwork.
Taking the necessary steps now ensures you’re not caught off guard when the deadline approaches. Embrace the change and see it as an opportunity to improve efficiency.