Making Tax Digital (MTD) is a cornerstone of HMRC’s ambitious digital transformation strategy. First introduced in 2015, this programme is being phased in over several years to modernise the UK tax system. One of the most significant forthcoming changes is MTD for Income Tax, which will directly impact many self-employed individuals and landlords.

Understanding the requirements and preparing early will be key to ensuring a smooth transition to this new system.

MTD for Income Tax: What Does It Mean for You?

Making Tax Digital: The Story So Far

Making Tax Digital is a UK government initiative. It aims to make the UK a leader in digital tax systems. It aims to simplify tax processes and make it easier for taxpayers to comply.

The first phase, Making Tax Digital for VAT, was introduced in 2019. At first, it targeted specific VAT-registered businesses. These businesses had to keep digital records and use MTD-compatible software to submit VAT returns. Since April 2022, all VAT-registered businesses have been required to follow these rules.

The next stage is Making Tax Digital for Income Tax. This will replace the current annual Self Assessment tax returns. This change will start in April 2026 for self-employed individuals and landlords. It applies to those with income over the initial thresholds. HMRC is currently undertaking ‘private beta’ testing of its systems to support this transition.

What is Changing Under MTD for Income Tax?

Under the new MTD for Income Tax rules, affected individuals will no longer submit a single annual Self Assessment tax return. They must give four updates on their income and expenses each quarter. Then, they will provide a final declaration to confirm their overall tax position.

This new reporting cycle will give HMRC timely information. It will also help taxpayers stay on top of their obligations.

Who Will MTD for Income Tax Affect?

MTD for Income Tax will initially apply to:

• Self-employed business owners and landlords with qualifying income exceeding £50,000 per year, starting from 6th April 2026.

• Those with qualifying income over £30,000 will come within scope from April 2027.

• Individuals earning more than £20,000 from self-employment and property income will be included from April 2028.

• Partnerships will be required to comply at a future date, yet to be confirmed.

It is essential to assess whether your income places you within these thresholds and to prepare accordingly.

What Will You Need to Do Under the New Rules?

If you are a self-employed business owner or landlord affected by MTD for Income Tax, you will be required to:

Keep Digital Records

You need to keep digital records of all income and expenses from your self-employment or property business. It is advisable to begin keeping digital records as soon as possible to familiarise yourself with the process.

Accounting software like FreeAgent, Xero and Quickbooks can help. They offer features such as direct bank feeds, invoicing, expense management, and project tracking and can help you meet filing requirements with minimum cost and give added value in terms of understanding profits,tax liabilities and minimising administration time .

Send Quarterly Updates

After joining MTD for Income Tax, you must send quarterly summaries of your business income and expenses to HMRC. Use MTD-compatible software for this.

Software such as FreeAgent, Xero and Quickbooks which are recognised by HMRC, can facilitate these submissions in compliance with MTD requirements.

The deadlines for quarterly updates are fixed and will apply to all who must follow the MTD for Income Tax rules:

• 7th August

• 7th November

• 7th February

• 7th May
  
  

Finalise Your Business Income

At the end of each tax year, you will need to submit a final declaration which will effectively replace the current Self Assessment tax return.

This final declaration will confirm the information's accuracy from the year. It will allow for adjustments and add details like other income sources or tax reliefs.

As with the existing system, the deadline for submission and payment will remain 31st January following the end of the tax year.

What Information Will You Need to Submit for MTD for Income Tax?

Although HMRC’s requirements may evolve, the expected reporting information includes:

For Self-Employment:

• Business income (e.g. turnover)

• Business expenses, including disallowable expenses

• Tax allowances for equipment and vehicles (capital allowances)

• Necessary adjustments, including basis adjustments

• Balancing charges

• Details of goods and services for personal use
  
  

For Property Businesses:

• Income from UK and foreign property

• Allowable expenses (e.g. maintenance costs)

• Capital allowances

• Property-related adjustments (e.g. losses carried forward)

• Balancing charge
  
  

For the Final Declaration:

• Total UK dividend income

• Taxed and untaxed UK savings interest

• Other personal income sources

• Applicable claims or elections

It is advisable to stay updated with HMRC’s guidance as the specific requirements are confirmed.

HMRC Resources and Guidance

HMRC has published detailed guidance on MTD for Income Tax on GOV.UK. To help taxpayers understand whether they fall within the scope of the new rules, HMRC has also developed an interactive MTD tool.

Conclusion

MTD for Income Tax represents a significant shift in the way many self-employed individuals and landlords will manage their tax reporting. The move to more frequent digital updates is designed to simplify tax compliance and reduce errors, but it will require affected taxpayers to adapt their record-keeping and reporting processes.

Preparing early, adopting compatible digital tools, and seeking professional advice will be essential steps in ensuring a smooth transition to this new system.