HMRC will be introducing Making Tax Digital for Income Tax in phases from April 2026 which will change the way some business owners submit tax returns. In the following article, our tax team highlight who Making Tax Digital for Income Tax will affect and what you need to know ahead of the implementation of these changes.
What is MTD?
Making Tax Digital (MTD) for Income Tax is a key part of HMRC’s plan to make it easier for individuals and businesses to get their tax right and keep on top of their affairs.
The main goals of MTD are to reduce the tax gap, minimise errors, and streamline the tax process by requiring digital record-keeping. Essentially, it is a new way to report income from self-employment and property to HMRC more regularly.
MTD for Income Tax will have three key components – digital records, quarterly updates and a year-end declaration. The year-end declaration will be similar to the current self-assessment tax return, which will include year-end tax adjustments for the sole trade/rental income sources and include disclosure of other sources of income and gains.
For those that fall into the regime for MTD for Income Tax, you will be required to keep digital records and send quarterly updates of your income and expenses to HMRC, using compatible software.
Who will be affected?
The government has announced that sole traders or landlords with income from self-employment and/or property will need to use MTD for Income Tax from April 2026 onwards, where their combined gross income (before expenses) from these sources exceeds certain thresholds as follows:
- April 2026 onwards – Sole Trade/ Rental Turnover exceeding £50,000
- April 2027 onwards – Sole Trade/ Rental Turnover exceeding £30,000
- April 2028 onwards – Sole Trade/ Rental Turnover exceeding £20,000
As it stands, MTD for Income Tax will not apply in respect of any partnership profits or trust income.
At this moment the payment dates for tax will not be affected and these will remain on 31st January and 31st July for the foreseeable future. If it is likely that MTD for Income Tax will apply to you, you may receive a letter from HMRC in the next few weeks.
Further information from the ICAEW regarding MTD for Income Tax can be found here: TAXguide 01/25: MTD income tax | ICAEWTAXguide 01/25: MTD income tax | ICAEW
What you should do next
To prepare for these changes, it is important to start considering how you will manage your digital records and ensure you have the necessary software in place. With the increased volume of information that HMRC will have access to because of MTD, it is vital to ensure that the quarterly information submitted is accurate as HMRC will use MTD for income tax as an additional method to scrutinise your records.
Our Business Services and Tax teams can support you through this transition and will be in contact with existing clients to discuss their specific requirements and provide guidance on a tailored solution. If you have any questions regarding MTD or are seeking further information, get in touch with a member of our team today.
