What is Making Tax Digital?
Making Tax Digital (MTD) is a government initiative to simplify the UK tax system. Although this is yet to be confirmed as it has been postponed for several years, all clients should be aware.
MTD for Income Tax Self Assessment (ITSA) is HMRC’s commitment to modernising the way small businesses handle their tax and reducing tax lost to error.
Originally announced at Budget 2015, and following formal consultation in 2016, HMRC implemented the first phase of MTD from April 2019 for VAT-registered businesses. Building on the successful introduction of MTD for VAT, the government announced in December 2022 that MTD for ITSA will be introduced for businesses, self-employed individuals and landlords.
Important dates for MTD for Income Tax
All landlords and self-employed individuals earning above the income threshold of £50,000 will be eligible from April 2026.
All landlords and self-employed individuals earning above £30,000 will be eligible from April 2027.
What does this mean to you?
Making Tax Digital (MTD) will exploit the opportunities offered by digitalisation to make it easier for everyone to get tax right. Many other countries have already done this or have digital systems in development.
Errors in handling tax affairs contribute to the tax gap — the amount of tax that is due but goes unpaid. The tax gap for Self Assessment businesses is around 18.5%, or £5 billion. Using software to keep digital records and make regular updates has been shown to reduce the potential for error and time spent making corrections, and thus support business productivity.
Digitalising the service will bring you benefits by:
- reducing the risk of unintentional errors
- saving time when you come to submit your end-of-year tax return
- supporting wider productivity and less time managing paperwork through use of digital tools
- enabling HMRC to better tailor services to individuals
Who is eligible?
Who will need to use the service from 6 April 2026
You’ll need to use Making Tax Digital for Income Tax from 6 April 2026 if all of the following apply. You:
- are an individual registered for Self Assessment
- get income from self-employment or property, or both, before 6 April 2025
- have a qualifying income of more than £50,000 in the 2024 to 2025 tax year
Your qualifying income is the total income you get in a tax year from self-employment and property. All other sources of income reported through Self Assessment, such as income from employment (PAYE), a partnership or dividends (including those from your own company), do not count towards your qualifying income.
How HMRC will assess your qualifying income?
To assess your qualifying income for a tax year, HMRC will look at the Self Assessment tax return that you submitted in the previous tax year.
For example, to assess your qualifying income for the tax year 2026 to 2027, HMRC will look at the tax return that you need to submit by 31 January 2026. This tax return is for the tax year 2024 to 2025.
Who will need to use the service from 6 April 2027
You’ll need to use Making Tax Digital for Income Tax from 6 April 2027 if all of the following apply. You:
- are an individual registered for Self Assessment
- get income from self-employment or property, or both, before 6 April 2025
- have a qualifying income of more than £30,000 in the 2025 to 2026 tax year
If you become a sole trader or a landlord after 6 April 2026
You do not need to start using Making Tax Digital for Income Tax until after you have submitted your first Self Assessment tax return, but you can choose to voluntarily sign up at any time.
What do you need to do?
You need to send in your accounting records as usual in order for us to submit your Self Assessment tax return for the 2024 to 2025 tax year by 31 January 2026.
HMRC will then review your return and check if your qualifying income is more than £50,000.
If it is, HMRC will write to you and confirm that you must start using Making Tax Digital for Income Tax by 6 April 2026.
These are the following steps you will then need to follow:
1. Obtain MTD compatible software (we will use MTD compliant software in house)
2. Keep up-to-date digital records
3. Make submissions every quarter
4. Submit end-of-year statementOnce signed up for MTD, we will need to send updates to the HMRC every 3 months. These updates are summaries of your business income and expenses.
These quarterly submissions will need to be made within one month of the end of that quarterly period. If you don’t submit by this deadline, you may have to pay a penalty.
As a result, with more admin involved, there is likely to be an increase in fees. Should you have any queries, please do not hesitate to contact us.