What is Making Tax Digital for Income Tax?
MTD for Income Tax is HMRC’s new system for reporting Income Tax. Instead of submitting one annual Self Assessment tax return, affected taxpayers will need to:
- Keep digital records of their income and expenses
- Send quarterly updates to HMRC using MTD-compatible software
- Submit an End of Period Statement (EOPS) and a Final Declaration at the end of the year
HMRC report that the main goals of MTD for Income Tax are to make tax reporting more accurate and efficient while reducing errors and the tax gap.
Who will be affected?
You’ll need to follow the MTD for Income Tax rules if:
- You are self-employed (e.g. a sole trader)
- You are a landlord with UK property income
- Your combined income from these sources exceeds the threshold
Note: Income from pensions, dividends, or employment is not included in the threshold.
When does it start?
As of the latest update from HMRC:
- From April 2026, MTD for Income Tax will apply to self-employed individuals and landlords with a total annual income of over £50,000
- From April 2027, it will extend to those with income over £30,000
- From April 2028, it will further extend to those with income over £20,000
- HMRC is still reviewing how and when it will apply to partnerships and those with income below £20,000
If you fall within MTD for Income Tax from April 2026, the first quarterly update will be due on 7 August 2026.
New businesses and those that exceed the turnover threshold for the first time will be required to comply with MTD for Income Tax from the start of the third tax year (ie, if a business first exceeds the turnover threshold in 2026/27, they will, unless there is late notification, be required to comply with MTD for Income Tax from 6 April 2029).
What should you 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.
Our team can support you through this transition and if you are an existing client, we will be in contact over the coming months to discuss your specific requirements and provide guidance on a tailored solution.
Common Questions
Q:Will I still need to file a tax return?
MTD replaces the annual Self Assessment with quarterly updates, plus an end-of-year finalisation. However, the Final Declaration under MTD serves a similar function to the current Self Assessment.
Q:What if I have multiple income streams?
You’ll need to keep digital records and submit quarterly updates for each qualifying source of income e.g. self-employment and property.
This means that if you do have both sources of income you may require two separate software solutions to manage this.
Q:What happens if I don’t comply?
HMRC will introduce a points-based penalty system for late submissions and payments.
There are no late submission penalties for late quarterly updates during the voluntary testing phase of MTD for Income Tax.
When MTD for Income Tax becomes mandatory from April 2026, one penalty point will apply for each missed submission deadline. A financial penalty will only be charged once the points threshold of 4 points is reached.
Q:Will I need to make tax payments quarterly?
The government is not changing how payments of tax are collected.
Income tax will continue to be due by the 31 January following the end of the tax year with payments on account being due by 31 July and 31 January (if these are applicable).
Q:Can I submit quarterly records to HMRC direct via my online portal?
You cannot submit quarterly information direct via your HMRC government gateway login.
HMRC require that a third partly MTD compatible software is used to make the quarterly submissions.
HMRC will not be providing their own software solution but will provide a database of MTD approved software
Q:Can I report under MTD for Income Tax before I am required to?
HMRC are allowing voluntary sign up to MTD for Income Tax if you are a sole trader or landlord even if your income is below the required thresholds.
Partnerships cannot currently sign up and currently no timetable has been introduced for general partnerships to join MTD for Income Tax.
Need Help Getting Ready?
Transitioning to MTD for Income Tax might feel like a big change, but you don’t have to go it alone. We’re helping our clients with:
- MTD-compliant software setup and training
- Quarterly bookkeeping and submission services
- End-of-year final declarations
- Ongoing advice tailored to your situation
Over the next few months, we will be contacting our clients directly to discuss this in more detail so that you are ready before the above mandatory dates.
If you do have any questions about Making Tax Digital for Income Tax and how you can start to get prepared, then please contact your CFW Partner.
If you are looking for an accountant to support you through this transition then please contact us for an initial consultation.
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