Making Tax Digital for restaurant owners: what's changing in April 2026

TL;DR: Making Tax Digital for Income Tax Self Assessment (MTD ITSA) affects self-employed UK restaurant owners in three threshold steps based on qualifying income from self-employment and property combined: over £50,000 from 6 April 2026, over £30,000 from 6 April 2027, and over £20,000 from 6 April 2028. Three real things change: digital records must be created by each relevant update deadline (HMRC recommends creating them as close to the transaction date as possible), you submit four quarterly updates from compatible software each year on top of your Self Assessment tax return using compatible software, and you need compatible software. The underlying tax calculation does not change. Worth saying plainly: MTD does not change the underlying tax rules. A quarterly update can produce an estimate, but it is not a final tax calculation: adjustments and the final liability are dealt with through the tax return. Restaurants face a few practical wrinkles not common in other trades, including inventory-adjusted food cost, complex labour split across employer's NI and pension, VAT on till sales, and seasonal revenue swings that make quarterly figures feel uneven mid-year. This post sets out exactly what changes, what stays the same, and three honest routes to stay compliant without over-engineering it.

Current HMRC rule: Each update is calculated by compatible software from digital records and covers cumulative category totals from the start of the tax year to the end of the update period - not only the previous three months. If record keeping and filing use different software, keep a permitted digital link between them; manual re-keying or clipboard transfer is not a digital link. HMRC will not apply penalty points for late quarterly updates in 2026/27, but the updates must still be sent before you submit your Self Assessment tax return using compatible software. Check HMRC digital-record guidance, quarterly-update guidance and HMRC's current MTD journey.

2026/27 simplified mileage rate: For self-employed simplified expenses, HMRC's rate for cars and goods vehicles is 55p per business mile for the first 10,000 miles and 25p per business mile after that. The 55p rate applies retrospectively from 6 April 2026. Check GOV.UK simplified vehicle expenses before relying on the figures.

If you own or run a restaurant as a self-employed person or sole trader in the UK, the MTD ITSA headline is brief. Mandatory digital records and quarterly updates in three income steps:

• 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.

Many restaurant owners are already past the first threshold. If you also receive any rental income (a flat above the premises, a car park you let, a function room rented to external parties), that counts toward the same qualifying income total alongside your trading income.

The three real changes:

1. Digital records kept current, not reconstructed at year-end. Your income and expense records must be created by the relevant update deadline and kept in a structured digital format; HMRC recommends creating them as close to the transaction date as possible. A spreadsheet can work if it pairs with compatible software connected through a permitted digital link. Some cloud accounting software can handle both record keeping and filing; check HMRC's current compatible-software list and the provider's supported features. The shoebox of till rolls and supplier invoices reviewed once a year in January is no longer compliant as a standalone system.
2. Four quarterly updates per tax year, plus a Self Assessment tax return using compatible software. Each update contains cumulative totals for the categories you use, from the start of the tax year to the update-period end. The actual tax calculation still happens at year-end. The change is the rhythm, not the complexity.
3. Compatible software. The existing self-assessment portal will not accept MTD ITSA submissions. You need either cloud accounting software with direct MTD submission built in, or a spreadsheet paired with compatible bridging software that supports the workbook and a permitted digital link.

Worth saying plainly: the quarterly figures are provisional. They inform HMRC that your business is still trading and give a running picture. They are not mini tax returns.

Most self-employed trades have relatively linear income and expense categories. Restaurants have several layers of complexity that matter for quarterly reporting.

Inventory-adjusted food cost. Unlike a service business that simply records supplier invoices, a restaurant's true cost of goods sold for a quarter depends on opening stock, purchases during the quarter, and closing stock. You cannot simply record what you paid suppliers in Q1 and call it food cost. If you bought £20,000 of food and your closing stock was £500 higher than opening stock, your COGS is £19,500. Quarterly stocktakes become necessary, not optional, once MTD reporting begins.

Labour split. Your staffing cost is not simply wages paid. Under MTD's expense categories, you will typically record wages, employer's National Insurance contributions, and pension contributions as distinct figures. These can collectively represent 25–35% of revenue. If you report wages only and omit employer's NI and pension, your reported expenses will be understated.

VAT on till sales. If your restaurant is VAT-registered (above the £90,000 turnover threshold), your income for MTD ITSA purposes is net of VAT. You do not report VAT-inclusive till takings as income. This distinction trips up restaurants switching from an informal approach: £100,000 of till receipts at 20% VAT is £83,333 net income. The VAT collected belongs to HMRC separately via your VAT return, not your income tax return.

Seasonal unevenness. A restaurant earning £200,000 a year does not always earn £50,000 per quarter. Christmas trade may produce £70,000 in Q3, while February produces £35,000. This is normal, and MTD quarterly figures are intended to be uneven. You are not penalised for quarters that differ from each other. The full-year picture is what drives the tax liability.

A quarterly update reports total income and total expenses by category. The categories you will typically track on the expense side for a restaurant:

• Cost of goods sold (food and beverage): purchases adjusted for stock movement, as described above.
• Wages: gross wages paid to employed staff.
• Employer's National Insurance contributions.
• Employer pension contributions.
• Rent and rates: business premises rent plus business rates.
• Utilities: gas, electricity, water for the premises.
• Cleaning and hygiene supplies: chemicals, cloths, PPE, waste disposal.
• Repairs and maintenance: equipment repairs, servicing contracts, redecoration.
• Professional fees: accountancy, payroll bureau, food safety consultant fees.
• Insurance: public liability, employers' liability, buildings and contents.
• Marketing and promotions: website hosting, photography, advertising, booking platform fees.
• Equipment and small tools: items below the capital threshold, replaced regularly.
• Mileage (for any business travel outside the premises): HMRC's published rate is 55p per mile for the first 10,000 miles in a tax year, then 25p per mile.
• ICO registration fee (currently £40 per year, required for businesses processing customer personal data, which includes reservation systems and loyalty databases).
• Software and subscriptions: point-of-sale system, reservation platform, accounting software.
• Bank charges and merchant fees: card processing costs are an allowable business expense.

Your software sends cumulative totals for each category at every update, not individual receipts. The detailed paperwork stays in your records and is available if HMRC ever requests it.

There are three legitimate approaches to MTD ITSA compliance. Each has a real fit and a real cost.

Cloud accounting software. Platforms such as Xero, QuickBooks, FreeAgent, or Kashflow at £12–£30 per month. They handle income recording, expense categorisation, stock tracking in some cases, payroll integration, VAT returns, and cumulative MTD updates natively. Best fit: restaurants with VAT registration, multiple staff on payroll, complex supplier accounts, or owners who want one tool handling most of the financial administration. If cloud accounting handles more than you need for a straightforward cash-based operation, we'd say so plainly.

Spreadsheet plus bridging software. You maintain your own spreadsheet recording income and expenses by category; compatible bridging software that supports the workbook and a permitted digital link reads the spreadsheet and sends the update to HMRC in the format required by the compatible-software service. Best fit: restaurants with simpler finances, no VAT, or owners already comfortable maintaining their own records and wanting to avoid a monthly subscription.

Hand it to your accountant. They manage the quarterly updates from the records you supply. The cost is higher than DIY, but if your accountant already handles your year-end, the incremental cost for quarterly updates may be reasonable. The catch: your accountant can only submit what you've recorded. You still need to maintain digital records week to week. Quarterly cadence means you cannot hand everything to them in January and expect the same result.

There is no single right answer. The right tool depends on your transaction volume, your VAT position, your existing accountant relationship, and how much of this you want to own versus delegate.

If your records are currently informal (till rolls in a drawer, supplier invoices filed approximately, expenses reconstructed at year-end), the April 2026 start date is your hard deadline to work back from.

1. Separate business and personal money completely. A dedicated business bank account and business card make every MTD step faster. It also eliminates the most common source of errors: personal spend recorded as business expense.
2. Choose your approach now. Cloud accounting, spreadsheet plus bridging, or accountant-managed. Set it up before April. Do not try to migrate mid-quarter.
3. Establish your expense categories before Q1 starts. Consistent categorisation from the first day of the first quarter is significantly easier than trying to restate categories later.
4. Conduct a stock count at 6 April 2026. Your opening inventory for Q1 is the baseline for your food cost calculation. Without it, your COGS for the first quarter cannot be accurate.
5. Confirm your VAT position. If your turnover is above £90,000, you should already be VAT-registered. If it is below, confirm your net income figures are what you will be reporting for MTD, not gross till takings.

If you do nothing else this month: open a dedicated business bank account and separate your finances. Everything else cascades from that one step.

The time required varies with transaction volume, record quality and the software you use; the continuing duty is to keep accurate digital records and check the software-generated update. The work is in the ongoing record-keeping, not the quarterly filing.

Quarterly updates are still required. HMRC says it will not apply penalty points for late quarterly updates in 2026/27; for later tax years, missed update deadlines can generate penalty points and a financial penalty once the threshold is reached.

For the documentation side of running a restaurant, including food safety records, allergen management documentation, and staff training records, see essential business documents for UK restaurants. Keeping your tax records in order and your food safety paperwork in order are two sides of the same operational discipline.

Check current GOV.UK guidance and HMRC compatible-software information for your own MTD obligations.

The kit pairs with the restaurant business documents bundle (£19.99) if you also want food safety templates, allergen management records, staff training logs, and the operational paperwork that sits alongside tidy quarterly accounts.

This article is general guidance, not tax advice. For your specific tax position, VAT classification, and income-recognition approach, consult a qualified accountant or tax adviser with hospitality sector experience.