What is Making Tax Digital (MTD) for Income Tax?
Making Tax Digital for Income Tax (MTD IT) is a new government drive to modernize how self-employed individuals and landlords report their business and property income. The aim is to replace the traditional self-assessment tax return with a digital system, where income and expenses are recorded and submitted throughout the year, not just at the end.
MTD requires:
- Digital record-keeping
- Using compatible software
- Submitting quarterly updates
When Do the New Rules Start?
From April 2026, MTD for Income Tax will be mandatory for individuals with:
- Gross annual income over £50,000 from self-employment and property letting.
- Those earning between £30,000 and £50,000 will be included by April 2027.
- It’s expected that people earning £20,000 to £30,000 will need to comply by July 2029.
Who Will Be Affected?
MTD will affect:
- Self-employed individuals (sole traders, freelancers, etc.)
- Landlords (those earning income from property rentals)
It doesn’t apply to limited companies for now.
If your combined income from self-employment and property exceeds £20,000, you will need to comply.
What Does Compliance with MTD Mean?
- You will have to maintain a digital Record-Keeping system
- You’ll need to keep digital records of your income and expenses.
- This means using accounting software or apps instead of paper records or basic spreadsheets.
- HMRC doesn’t provide software but will list compatible providers.
- You will need to file Quarterly Updates
- Instead of filing once a year, you’ll need to submit quarterly updates to HMRC.
- These updates should include total income and expenses for each period.
- The periods are:
- 6 April to 5 July (due by 7 August)
- 6 July to 5 October (due by 7 November)
- 6 October to 5 January (due by 7 February)
- 6 January to 5 April (due by 7 May)
- You will need to file a Final Declaration
- You will still need to submit a final declaration by 31 January each year (the usual deadline for self-assessment).
- This will replace the traditional self-assessment tax return and will summarize your taxable profit for the year.
What About Paying Tax?
The deadline for paying tax will stay the same – 31 January after the end of the tax year. This includes payments on account due on 31 January and 31 July.
How Will I Know if the Rules Apply to Me?
HMRC will send letters to those who need to follow the new rules. They’ll start with individuals earning over £50,000 in the 2024-2025 tax year. It’s best to start preparing now rather than wait for the letter.
What Does This Mean for My Record Keeping?
MTD requires regular record-keeping. You’ll need to update your records weekly or monthly instead of leaving it all until the end of the year. Good bookkeeping helps you avoid last-minute surprises and makes the filing process smoother.
How Can I Make Reporting Easier?
If your turnover is under £90,000, you can use the “three-line approach” for your quarterly updates. This means you only need to report:
- Total income
- Total costs
The system will automatically calculate your profit.
To make reporting easier, use a business bank account (e.g., Monzo, Starling, Mettle, Tide) which often includes built-in bookkeeping tools. Please ensure you keep business transactions separate from personal ones by using a dedicated business account.
Do I Need an Accountant?
If you’re unsure about the new rules, it’s best to consult a qualified accountant like Skyrock Accountants. They can guide you through the first few reporting periods, and you may be able to do the filings yourself after that.
While there may be extra costs for using software or spending time on record-keeping, an accountant can help you transition smoothly.
What About Current Self-Assessments?
Self-assessments due under the old rules still need to be filed, including the 2025/2026 tax return (due by 31 January 2027). Even though MTD updates start in August 2026, the tax return for that year must still be filed under the old system.
To avoid stress, it’s a good idea to file the 2025/2026 return early. Remember, tax payments are not due until January 2027.
It Sounds Complicated. What Should I Do?
Yes, the new rules can seem complicated, and there are still some things HMRC needs to finalize. However, a qualified accountant can help you navigate the changes and make the process easier.
Who can Help?
For more information, visit the HMRC website.
If you’re confused or need assistance, a trusted accountant can explain the new rules and help you make the transition smoothly.
Ransford Grey, Managing Director of Skyrock Accountants, offers affordable accountancy services to self-employed individuals. He helps small business owners embrace technology to handle tax returns with ease.
For more questions, visit: skyrockaccountants.co.uk
