Making Tax Digital (MTD) for Income Tax is part of the UK government’s broader effort to modernise and digitise the tax system, transforming how taxpayers interact with HM Revenue & Customs (HMRC). This initiative is aimed at reducing errors, improving efficiency, and making the process of managing tax obligations easier and more transparent. It represents a significant shift from traditional paper-based systems to a fully digital method of record-keeping and reporting.
Key Features of MTD for Income Tax
- Eligibility Criteria: MTD for Income Tax applies to self-employed individuals and landlords whose annual income is expected to exceed £50,000 in 2026/27 with the threshold dropping to £30,000 from 6 April 2027. The threshold ensures that the system targets taxpayers with significant income while exempting smaller-scale earners from the new requirements. The new rules have only been introduced for individuals and do not apply to trusts.
- Digital Record-Keeping: Taxpayers are required to maintain their financial records digitally using HMRC-approved software. This includes income, expenses, and other relevant financial data that contribute to the calculation of taxable income.
- Quarterly Updates: Instead of submitting tax information annually, taxpayers must send updates to HMRC every three months. These updates provide a real-time snapshot of income and expenses, helping to reduce year-end errors and miscalculations.
- Compatible Software: Taxpayers must use software compatible with HMRC’s systems. Numerous providers offer software solutions tailored to MTD, ensuring that all aspects of tax reporting comply with the new regulations.
Implementation Timeline
The first phase of MTD for income tax starts on 6 April 2026. The first quarterly updates, for the quarter 6 April to 5 July 2026, will be due on 7 August 2026. The first final declaration for the tax year 2026/27, will be due on 31 January 2028.
If a business is trading at 5 April 2025, it will be required to comply with MTD income tax from 6 April 2026 if it exceeds the £50,000 turnover threshold in the 2024/25 tax year (i.e. the decision will be based on the 2024/25 tax return due to be filed on 31 January 2026).
New businesses and those that exceed the turnover threshold for the first time will be required to comply with MTD income tax from the start of the third tax year (i.e. if a business first exceeds the turnover threshold in 2026/27, they will, unless there is late notification, be required to comply with MTD income tax from 6 April 2029).
What you need to do to prepare
Before you can make any other decisions, it is important to know what you will need to do:-
- If you are self-employed and have no other income that falls into the MTD for Income Tax regime then you will need to keep digital records and submit updates for your self-employment business.
- Alternatively, if you are a landlord as well as having a self-employment business then you will need to keep two sets of digital records – one for the rental business and the other for your self-employment. You will then also need to submit two sets of quarterly updates. If you have more than one trade, a UK or an overseas property business will need to keep multiple sets of digital records and submit multiple updates.
- Decide how you will keep digital records and submit quarterly updates
Once you understand the requirements, you then need to decide how you are going to meet these obligations. You could either choose to do the record-keeping and in-year reporting yourself or you could appoint an accountant or tax adviser to do this for you. If you are already using accounting software then you sure find out whether this is MTD for Income Tax compliant.
If you decide to appoint an accountant to assist you then you should agree how this will work, for example:-
- Will you provide paper receipts and invoices; or
- Will you scan the information and provide it to them digitally?
- Choose software (if required)
If you are already using software that is MTD for Income Tax compliant then you will not need to purchase any additional software. Equally if you have appointed an accountant to do everything, including creating your digital records, then you will not need anything further.
However, if you wish to handle some or all of the process yourself then it is important that you choose software that meets the needs of your business. For example, if you need to keep digital records for more than one self-employment or property business then make sure it supports that. You should also consider whether your chosen software can provide other benefits that would support your business.
Conclusion
Praxis is here to help you prepare for MTD for Income Tax and provide ongoing support once you are in the regime. Whether you need an end-to-end service, from setting up and maintaining your digital records to submitting your end-of-year return, or assistance in setting up your own software, we are here to support you every step of the way. Let us help you ensure compliance and make the transition to MTD for Income Tax as smooth as possible.
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