Making Tax Digital for Income Tax – important update

The first tranche of businesses mandated to use the system comes into effect from 6 April 2026 and with that, the compliance burden on businesses within MTD IT will be much greater than it was outside it.

Those individuals with combined turnover of £50,000 from self-employment and letting (based on figures in their 2024/25 tax return) are the first who have to join MTD IT, which will involve keeping digital records and making quarterly reports of income and expenses to HMRC using MTD IT-enabled software.

The quarterly reports must be made up to 5 July, 5 October, 5 January and 5 April, irrespective of the business’s accounting year-end. There will also be a ‘finalisation statement’ to be submitted by 31 January following the tax year. Those mandated in 2026/27 will also need to be filing a tax return for 2025/26 by 31 January 2027. This will not be part of MTD IT, so such taxpayers will have to deal with the old and new HMRC filing rules in the same year.

HMRC are meant to have written to all those mandated from 6 April 2026 to tell them that they will need to comply with MTD IT rules. However, it is reported that many affected taxpayers have not yet received a letter! By mid-March, only about 10% of those who should be using MTD IT from April 2026 had signed up to the system, although this will no doubt increase as the 6 April approaches.

The good news is that, as confirmed in the Autumn Budget, taxpayers joining MTD IT from April 2026 will not be penalised for late filing in the first year. This relaxation will not apply to those cohorts who are subsequently mandated to join, such as those with turnover (in 2025/26) of £30,000, who will have to comply with MTD IT from 2027/28.

Important though it is, MTD IT is not the only tax change of which to keep abreast. For those owning companies, on page 2 we explain the imminent changes to the corporation tax rules on overdrawn shareholder loan accounts, an area into which HMRC often enquire. We look at the tax rises that are coming on property and savings income in a year’s time. These will make income tax calculations even more complicated, as we explain in the recent article.