Making Tax Digital (MTD) for Income Tax is a major UK government initiative aimed at modernising the tax system for self-employed individuals and landlords. Its objective is to make tax administration more effective, efficient, and straightforward by mandating digital record-keeping and more frequent reporting to HMRC. Here’s what you need to know about the upcoming requirements and how they may affect you.
Who will be affected and when?
MTD for Income Tax will be introduced in phases:
- From 6 April 2026, it will be mandatory for individuals (sole traders and landlords) with qualifying income over £50,000.
- From 6 April 2027, the threshold will reduce to £30,000.
- From 6 April 2028, the threshold will further reduce to £20,000, as announced in the 2025 Spring Statement.
What is qualifying income?
Qualifying income refers to total gross income (before expenses) from self-employment and property (including both UK and overseas property income for UK residents). It excludes income from employment, partnership profits, dividends, and qualifying care receipts. For jointly owned property, only your share of the income is considered. If your accounting period is not 12 months, income will be time-apportioned on a just and reasonable basis.
What are the digital requirements?
If you fall within the scope of MTD for Income Tax, you must:
- Use compatible software to maintain and preserve digital records of your business or property income and expenses.
- Submit quarterly updates to HMRC for each business and property.
- Correct any errors or omissions in your digital records promptly.
The software must be capable of communicating with HMRC via its API platform.
Quarterly updates
Quarterly updates must be submitted for each business by the following deadlines:
- 7 August
- 7 November
- 7 February
- 7 May
You may opt to report on calendar quarters if preferred.
Are there any exemptions?
Yes, several exemptions apply:
- Income exemption If your qualifying income is below the relevant threshold (£50,000 for 2026–27, £30,000 for 2027–28, and £20,000 thereafter), you are not required to comply.
- Digital exclusion If you are unable to use digital tools due to age, disability, or location, you may apply for an exemption by notifying HMRC and receiving confirmation.
- Other exemptions These include trustees, non-resident companies, non-UK domiciled individuals (for their foreign businesses), those without a National Insurance number by the relevant date, and individuals providing qualifying care.
What about new businesses?
For businesses established on or after 6 April 2025, the digital start date will be 6 April in the tax year following the year in which the first Self-Assessment return is due.
Record-Keeping and corrections
You must maintain digital records that include financial details, item descriptions, amounts, and transaction dates. These records must be kept from your digital start date until the business ceases. Any errors or omissions should be corrected as soon as possible, with updates reflected in your next quarterly submission.
Summary
Making Tax Digital for Income Tax marks a significant shift in how self-employed individuals and landlords manage their tax affairs. If you are affected, it is important to prepare by ensuring you have suitable software and understand your new obligations. If you have any questions or would like support in getting ready for MTD, please contact our team for expert advice.
