What is Making Tax Digital (MTD)?
Making Tax Digital (MTD) is part of HM Revenue & Customs (HMRC) wider digital strategy to make it easier for individuals, businesses and other organisations to ensure their tax affairs are in order.
The driving force behind MTD is the belief within HMRC that taxpayer errors result in a significant proportion of the tax gap – the difference between the tax paid and tax due and that poor record keeping is a major contributing factor to these errors.
MTD will therefore require businesses, other organisations and individuals to keep their records digitally, using either bookkeeping/accounting software or at the very least on spreadsheets. By doing so, HMRC believe that errors will be reduced and, with them, the tax gap.
Making Tax Digital for VAT has been in place since 2019, with all those VAT registered being required to do quarterly submissions via software such as Xero.
HMRC is now changing the way self-employed individuals and landlords report their taxes!
Making Tax Digital for Income Tax Self-Assessment (ITSA) is coming soon
What do you need to know?
From 6th April 2026 Making Tax Digital for Income Tax Self-Assessment is coming for the self-employed and landlords with relevant income over £50,000.
What does this change mean?
Under MTD, annual Self-Assessment tax returns will be replaced by quarterly reporting and a digital end-of-year submission.
You will be required to:
- Report your income and expenses quarterly to HMRC using compatible digital software
- Maintain digital records - paper records will no longer be accepted
- Submit an ‘End of year final declaration’ - this will replace your traditional tax return
Who is affected and when?
This change will apply to self-employed individuals and landlords with annual income above specific thresholds:
From 6th April 2026:
All those who are self-employed or landlords with relevant total income over £50,000.
From 6th April 2027:
All those who are self-employed or landlords with relevant total income over £30,000.
From 6th April 2028:
All those who are self-employed or landlords with relevant total income over £20,000.
What counts as relevant income?
Relevant income is your total gross income from self-employment and/or property rental before expenses.
If you receive £50,000 or more in rental income, even if you have a mortgage and expenses of £40,000 you will need to comply.
What if you have other income?
If you receive other income such as PAYE salary, dividends, pensions or investment income this will need to be declared and included in your final submission at the end of the tax year.
How do you prepare for MTD for Income Tax?
Whilst April 2026 may seem some time off, you will need to prepare for the change and you will need to consider if you are:
- Going to complete the quarterly returns yourself using digital accounting software such as Xero or more specialist landlord software such as Hammock.
OR
- If you would like us as your professional advisers to complete the quarterly returns on your behalf
We will assist with completing your end of year final declaration and as part of this we will look to ensure it takes into account all income, as well as allowable expenses and deductions.
As you will appreciate the introduction of MTD for income tax will increase administration and require more of all our time. We would therefore kindly ask that you discuss with us how you would like to manage the reporting changes so that we can ensure we are well prepared and placed to look after you and all our clients as the new process and reporting is introduced.
Why you shouldn’t wait
Whilst you may think the need to do something is some time off, there are a host of benefits of acting sooner, not least peace of mind. These include:
- You are not under pressure when the changes kick in
- You can spread the learning curve out with no last-minute panics
- You can start benefiting from the financial visibility and planning this offers sooner
- We are better placed to support you
We are here to help
We appreciate the introduction of Making Tax Digital for income tax might be daunting and yet another administrative headache. As your professional adviser we are on hand to support you. In the run up to its introduction we will ensure we keep you informed of any changes and developments, along with further details of the services we provide. In the meantime, if you have any queries or questions, please speak to your usual Streets contact, email info@streets.uk or contact your local office.
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