Accountancy & Business Advisory Services
Making Tax Digital for Income Tax (MTD for Income Tax)
Making Tax Digital (MTD) is a UK government initiative by HM Revenue & Customs to modernise the tax system. It requires individuals and businesses to keep digital records and submit tax information electronically using compatible software. It replaces paper records and annual filing with a fully digital process for real-time record-keeping and quarterly updates to close the tax gap.
Who needs to comply?
MTD for Income Tax applies to individuals who are:
- Self-employed (sole traders), and/or
- Landlords with UK property income
Turnover thresholds:
- From April 2026: Total turnover over £50,000 based on your 2024/25 (6 April 2024 – 5 April 2025) tax return, must join MTD from 6 April 2026.
- From April 2027: Total turnover over £30,000 based on your 2025/26 (6 April 2025– 5 April 2026) tax return must join MTD from 6 April 2027.
- From April 2028: Total turnover over £20,000 based on your 2026/27 (6 April 2026– 5 April 2027) tax return must join MTD from 6 April 2028.
Turnover = gross income = total money coming in before any expenses or tax deductions. It is combination of self-employment turnover + property income, before any deductions, such as:
- Expenses
- Capital allowances
- Losses
Not included:
- Employment (salary/PAYE income)
- Dividends
- Bank interest
- Capital gains
- Pension
⚠️ Important Points
- Threshold is based on turnover, NOT profit
- Even if your profit is low (due to high expenses), you may still need to comply
- Once you enter MTD, you must continue unless your income falls below the exit threshold (rules apply)
What will change?
Under MTD for Income Tax, you will need to:
1️⃣ Keep Digital Records
- Maintain records of income and expenses in digital format
- Use recognised software (such as Xero, QuickBooks, FreeAgent, or an app on your phone or laptop) or a spreadsheet combined with bridging software, which automatically and digitally collects data from your spreadsheet into HMRC systems.
2️⃣ Submit Quarterly Updates
- Send updates every 3 months to HMRC. The update periods end on 5 July, 5 October, 5 January, and 5 April, with submission deadlines of 7 August, 7 November, 7 February, and 7 May respectively.
- These updates summarise income and expenses (not full tax calculations)
- If you have more than one income source (for example, a sole trade and a rental property), you must submit a separate quarterly update for each source, meaning eight submissions per year rather than four.
3️⃣ Submit a Tax Return/End of Year Tax Return
- Replaces the annual Self-Assessment tax return
- Consolidates all business and property data, adds details of any other personal income (PAYE, dividends, interest, etc.), and finalises your total tax and National Insurance liability.
- Deadline is 31 January following the end of the tax year.
Software Requirement
MTD-compatible software or a spreadsheet combined with bridging software allow:
- Digital record keeping
- Direct submission to HMRC
- Real-time tax estimates
Exemptions
You may be exempt if:
- Cannot use digital tools due to age, disability, health condition or location
- Person being practising member of a religious society or order, whose beliefs are incompatible with using digital communications or keeping digital records
- Apply and receive exemption from HMRC
Benefits of MTD
- More accurate tax reporting
- Simple compliance and Reduced errors
- Clearer, near-real-time view of tax position throughout the year
Improved financial management
Penalties
MTD uses a points-based penalty system:
- Late submissions earn penalty points
- Points accumulate until a threshold is reached
- Financial penalties apply after threshold
- Every missed quarterly update or Final Declaration deadline earns one penalty point, and a fine of £200 will be issued once the threshold of four points (for quarterly submission) is reached.
- The government has said that late submission penalty points will not apply to quarterly updates in the first year of mandation.
HMRC Letters
HMRC are now sending letters to taxpayers who will need to sign up to MTD by April 2026 because their 2024/25 tax return reported gross self-employment or property income of more than £50,000. A final mailing is scheduled from mid-March for customers that filed their 2024–25 tax return before 31 January 2026.
Here’s an MTD for Income Tax timeline
Date | Event |
31 January 2026 | Deadline to submit a Self-Assessment tax return for 2024 to 2025 |
6 April 2026 | When you must start keeping records using MTD for Income Tax software |
7 August 2026 | Deadline to send your first quarterly update |
7 November 2026 | Deadline to send your second quarterly update |
31 January 2027 | Deadline to submit a Self Assessment tax return the usual way for 2025 to 2026 |
7 February 2027 | Deadline to send your third quarterly update |
7 May 2027 | Deadline to send your fourth quarterly update |
7 August 2027 | Deadline to send your first quarterly update for 2027 to 2028 |
7 November 2027 | Deadline to send your second quarterly update |
31 January 2028 | Deadline to submit your tax return straight from MTD for Income Tax software for 2026 to 2027 |
7 February 2028 | Deadline to send your third quarterly update |
7 May 2028 | Deadline to send your fourth quarterly update |
How We Can Help
As your accountants, we arehere to make this transition as straightforward as possible. We can:
- Review your income to confirm whether and when MTD applies to you
- Set up your agent services account and obtain the necessary authorisation to act on your behalf
- Help you choose the right recognised software for your needs; some clients benefit from more than one type
- Sign you up to MTD and get you comfortable with the new process before it becomes mandatory
- Handle your quarterly updates and end-of-year tax return submissions on your behalf
Get in touch today to make sure you are ready well ahead of your start date.
The changes outlined in the Making Tax Digital initiative will apply to a wide range of taxpayers, including most businesses, self-employed people, landlords, and individuals who pay tax.
MTD requires businesses and individuals to:
- keep digital records
- use software that works with Making Tax Digital
- submit updates every quarter, bringing the tax system closer to real-time
The benefits of Making Tax Digital
Making Tax Digital supports HMRC’s plans to digitalise the tax system. It will:
- make it easier for individuals and businesses to get their tax right
- mean customers can integrate tax management with a range of business processes through software
- contribute to wider productivity gains for businesses by encouraging digitalisation
The story thus far:
MTD for VAT
First launched on 1st April 2019. and updated 1st April 2022, the Government requires all VAT-registered businesses to file VAT returns using MTD-compatible software and to store financial records relating to VAT digitally.
Online Business Tax Account
Every small business owner and individual taxpayer has an online business tax account. They can use this to check HMRC records and manage their details.
Making Tax Digital for Income Tax
Making Tax Digital for Income Tax will affect self-employed individuals and landlords.
If you are self-employed or a landlord you will have to follow the rules for MTD for Income Tax:
- From 6 April 2026 if you have an annual business or property income of more than £50,000
- From April 2027 if you have an annual business or property income of more than £30,000
- Partnerships will be required to join at a date that is still to be announced.
Paperwork Solutions can help you by managing your tax affairs, or we can just help you find suitable software that you can use to keep your own records.