The starting date of Making Tax Digital for Income Tax (MTD) is less than a year away and with its additional administration and cost for the taxpayer, it is the single biggest change to the taxpayers’ reporting obligations since the introduction of self-assessment. Preparation is key and hopefully the following will assist.
Who is included?
MTD Tax will become mandatory for sole traders and landlords in phases starting from 6 April 2026.
The starting date is dependent on the individual’s gross income before expenses are deducted and is mandatory in phases starting from 6 April 2026 as detailed below:
• From 6 April 2026: the gross income threshold from these sources is more than £50,000.
• From 6 April 2027: the gross income threshold from these sources is more than £30,000.
• From 6 April 2028: the gross income threshold from these sources is more than £20,000.
The government announced the expansion of MTD to include sole traders and landlords with income over £20,000 from April 2028 in the Spring Statement at:
Modernising the tax system through Making Tax Digital – GOV.UK
The threshold test applies to the combined gross income of an individual’s trade(s) and property income, including overseas property income. For example, an individual with trading sales of £30,000 and £21,000 gross rental income, must report under MTD from 6 April 2026.
Who is excluded?
In addition to those below the thresholds, partnership members including LLPs are outside MTD in respect of their partnership income.
Where partners are in receipt of sole trade or rental income outside the partnership, the normal rules apply. Limited companies are excluded.
Automatic exemptions and exclusions (where an application is required) are listed at:
Find out if you can get an exemption from Making Tax Digital for Income Tax – GOV.UK
Technical note: Modernising the tax system through Making Tax Digital – GOV.UK
The registration process.
Before 6 April 2026, HMRC will identify from the 2024-25 filed tax returns, individuals with qualifying income of more than £50,000.
They will write to the individual to confirm that they must start using MTD by 6 April 2026.
The individual or you as agent must find software that works with MTD and authorise it.
The individual or you as agent must sign up for Making Tax Digital for Income Tax.
Before 6 April 2027, the same process will apply to tax returns filed for 2025-26, where the qualifying income is between £30,000 and £50,000.
HMRC’s online tool to check if an individual is within MTD is at:
Find out if and when you need to use Making Tax Digital for Income Tax – GOV.UK
HMRC guidance on working out an individual’s qualifying income is at:
Work out your qualifying income for Making Tax Digital for Income Tax – GOV.UK
What is involved?
MTD has three key parts, namely digital records, quarterly updates, and the end of year return.
MTD requires digital records of the amount, category and date of income/expenses relating to the individual’s self-employment and/or property business to be kept in some form of software.
HMRC guidance on software that works with MTD is at:
Find software that works with Making Tax Digital for Income Tax – GOV.UK
Reporting and sending quarterly updates.
Updates of income and expenses are required by HMRC every three months, more frequent updates may be sent. The summaries are known as quarterly updates.
The reporting periods are either standard update periods which align to the tax year end or calendar update periods.
The calendar update period ends on the last day of the month and are simpler if the accounting period ends on 31 March.
There is no requirement to make accounting or tax adjustments when sending an update.
HMRC’s guidance on how and when to send updates and what is included is at:
Use Making Tax Digital for Income Tax – Send quarterly updates – Guidance – GOV.UK
End of year tax return: adjustments after sending the final quarterly update.
The digital tax return will pre-populate with income and expenses from filed quarterly updates. MTD users are excluded from using HMRC software to file SA tax returns from 6 April 2026.
Other sources of income that need to be reported in SA must instead be included in the digital return at the end of the tax year through MTD software, alongside any necessary accounting adjustments, tax adjustments and claims to reliefs and allowances, please see the links at:
Use Making Tax Digital for Income Tax – Finalise your Income Tax position – Guidance – GOV.UK
Technical note: Modernising the tax system through Making Tax Digital – GOV.UK
Due dates for MTD
The existing SA due dates and payment options are not changing under MTD.
When the qualifying income falls below the threshold
Where an individual’s qualifying income drops to £30,000 or less, exemption is given where the income is at or below £30,000 (at the moment) for three consecutive years. This is based on filed tax returns, or quarterly updates where the annual return filing deadline has not passed.
Penalties for late submission.
Late submissions penalties within MTD will move to a points-based system.
When a filing deadline for quarterly updates and year end submissions is missed, a point is received. A £200 penalty is issued on reaching a set threshold, any other late filings will trigger a further £200 penalty. The penalty position is reset following a set period of compliance.
The right of a review and appeal will be available against a point given or penalty charged.
The existing SA penalty regime will continue to apply for those outside MTD.
Further details from HMRC are at:
Penalties for late submission – GOV.UK
Penalties for late payment and interest harmonisation.
For ITSA taxpayers, the changes apply as they come within MTD.
For all other ITSA taxpayers outside the scope of MTD, the changes will apply after the introduction for MTD taxpayers.
Further details, including the right of review and appeal are at:
Penalties for late payment and interest harmonisation – GOV.UK
Sign up your client.
HMRC’s agents step by step guide on how to use MTD is at:
Making Tax Digital for Income Tax as an agent: step by step – GOV.UK.
This includes guidance on how to sign up your client, please see:
Sign up your client for Making Tax Digital for Income Tax – GOV.UK
Further guidance and Regulations.
Further guidance from HMRC within their agent toolkit is at:
Agent toolkit – Get ready for Making Tax Digital for Income Tax
The Association of Tax Technicians have several helpful articles including their FAQ on MTD at:
Making Tax Digital for Income Tax | The Association of Taxation Technicians
The updated and original regulations are at:
