Making Tax Digital for Income Tax

Are you ready for the changes?

Making Tax Digital for Income Tax (MTD for ITSA) is part of the government’s plan to modernise the UK tax system. The new rules will require many self-employed individuals and landlords to keep digital accounting records and submit quarterly updates to HMRC using approved software.

Who will be affected?

MTD for Income Tax will be introduced gradually based on gross income (not profit) from self-employment and/or property.

The rollout will happen in stages:

• From April 2026 – Individuals with income over £50,000 (based on 2024/25 tax returns)

• From April 2027 – Individuals with income over £30,000 (based on 2025/26 tax returns)

• From April 2028 – Individuals with income over £20,000 (based on 2026/27 tax returns)

If you start a new business or rental activity during the year, HMRC will annualise the income to assess whether you exceed the threshold.

Who is not included?

Some taxpayers will not need to comply with MTD, including:

• Those with gross income of £20,000 or less

• Limited companies

• Certain individuals who qualify for digital exclusion due to age, disability, or lack of internet access

• Members of certain religious groups

• Individuals claiming Married Couple’s Allowance or Blind Person’s Allowance

• Those who claimed for farmers averaging on their 2024/25 tax return.

Partnerships are expected to join MTD in the future, although a start date has not yet been confirmed.

What will you need to do?

Under MTD, taxpayers must:

• Keep digital records of all business income and expenses

• Submit quarterly updates to HMRC using compatible software such as Xero or QuickBooks

• File a Final Declaration by 31 January after the end of the tax year to confirm the final tax position

Quarterly updates are cumulative, meaning errors can be corrected in the next submission.

Quarterly reporting deadlines

By default, reporting follows the tax year:

• 6 April – 5 July (due 7 August)

• 6 April – 5 October (due 7 November)

• 6 April – 5 January (due 7 February)

• 6 April – 5 April (due 7 May)

  
  

However, you can choose to make a “calendar quarters election“, so that the first quarter runs from the 1 April to 30 June etc, which may better align with quarterly VAT returns and annual accounts. The quarterly filing dates are not affected so the first quarterly update is still due by 7 August, the second by 7 November and so on.

Will the tax return disappear?

No. Even under MTD, you will still need to submit an end-of-year declaration, similar to the current Self Assessment tax return. This will confirm your final income, adjustments and any other sources of income such as pensions, salaries or bank interest.

Start preparing now

HMRC has begun writing to taxpayers who may fall within the new rules based on their 2024/25 tax returns, but you should not rely on receiving a letter. It is your responsibility to comply if you exceed the threshold.

With penalties for non-compliance expected from April 2027, now is the time to review your bookkeeping systems and ensure you are ready for digital reporting.

Practical steps you can take now

With the first phase of MTD for Income Tax almost upon those with income over £50,000, now is the time to start preparing if you have not already done so. Here are a few practical steps, which can make the transition much easier:

• Start keeping digital records if you are not already doing so. Using accounting software or spreadsheets will be essential for submitting information to HMRC simply.

• Open separate bank accounts for rental and self-employment income. Keeping business and rental transactions separate will make the quarterly reporting of each income stream much easier.

• Consider aligning your VAT quarters with the MTD quarterly reporting deadlines so reporting periods match and administration is simpler. The dates in which your VAT returns fall can be changed easily through your HMRC online account.

  
  

Taking these steps now can help reduce the administrative burden once MTD reporting begins. Mitchells can help you prepare for Making Tax Digital and ensure your accounting systems are ready before the new rules take effect.