Making Tax Digital for Income Tax
Making Tax Digital for Income Tax changes the way that self-employed individuals and landlords report their earnings to HMRC. If you are wondering how this might affect you and your business, Associate Kenneth Logan brings you the story so far along with a guide to the new rules.
Making Tax Digital – what has happened so far?
Making Tax Digital (MTD) is a government initiative that sets out a bold vision for the UK to have “one of the most digitally advanced tax administrations in the world”. It promises to “transform tax administration so that it is easier for taxpayers to get their tax right”.
The first stage of Making Tax Digital, MTD for VAT, was introduced in 2019. It requires owners of VAT-registered businesses with VATable sales above the VAT threshold (currently £90,000) to keep digital records and use MTD compatible software to submit their VAT returns electronically. These rules were extended in April 2022 to include all VAT-registered businesses.
MTD for Income Tax, previously referred to as MTD for Income Tax Self-Assessment, is the second stage of Making Tax Digital and will replace the current system of annual Self-Assessment tax returns. MTD for Income Tax will come into effect in April 2026 for self-employed individuals and landlords with qualifying income of more than £50,000 a year. Qualifying income is the total gross income that an individual will get in a tax year from self-employment and property.
MTD for Income Tax – what are the changes?
The most significant change under the MTD for Income Tax rules is that instead of sending a Self-Assessment tax return to HMRC once a year, those affected will have to submit four quarterly updates about their business income and expenses. At the end of the tax year, they will also have to send a final declaration, which will equate to a ‘digital tax return’. This will have similarities with the current Self Assessment tax return, the format of which is still to be confirmed by HMRC.
MTD for Income Tax – who does it affect?
Initially, MTD for Income Tax will only affect self-employed business owners and landlords with a total business and/or property income above £50,000 per year. These individuals will have to follow MTD for Income Tax rules from 6th April 2026.
MTD for Income Tax will come into effect in April 2027 for self-employed individuals and landlords with a qualifying income of more than £30,000, and by the end of the parliament (2029 at the latest) for those with qualifying income over £20,000 a year.
What do I have to do?
If you’re a self-employed business owner and/or landlord and you are affected by MTD for Income Tax as outlined above, you’ll have to take the following actions by 6th April 2026.
1. Keep digital records
Under MTD for Income Tax, you’ll need to keep digital records of all your business income and expenses, including all your income from self-employment or property. It’s a good idea to start doing this as soon as possible so that you have plenty of time to prepare. You can keep digital records using accounting software such as Xero.
2. Send quarterly updates
Once you’re signed up to MTD for Income Tax, you’ll need to send a summary of your business income and expenses to HMRC every three months using MTD compatible software such as Xero.
The deadlines for submitting quarterly updates will be the same for everyone who has to follow the MTD for Income Tax rules. From the start of the tax year on 6th April, these deadlines are:
– 7th August
– 7th November
– 7th February
– 7th May
This means that 7th August 2025 will be the first submission deadline for those self-employed individuals and landlords affected by MTD.
3. Finalise your business income
At the end of the tax year, post 5th April, you’ll need to finalise your Income Tax position and submit a final declaration that replaces the current Self-Assessment tax return. This process lets you confirm that the updates you’ve sent are correct, and to make adjustments for accounting and tax purposes. In addition, other non-MTD sources of income and/or relevant reliefs will be reported at this stage. As with the current Self-Assessment process, you’ll have to submit the final declaration and pay the tax you owe by 31st January of the following year.
The information in this article is based on published HMRC guidance as of February 2025. However, to find out more about MTD for Income Tax and how it could affect you directly, please contact a member of the team at any of our JRW Hogg & Thorburn offices for help and advice.
