Everything You Need to Know About Making Tax Digital (MTD) for Income Tax:

The Complete Guide

The introduction of Tax Digital (MTD) for an Income Tax Approach is swift and therefore, a wave of change for UK self-employed and landlords.

The government explains the system schedule and most important requirements officially taking place in April 2026. If you are someone affected by MTD income tax, understanding the impact is very important to ensure that you are ready for changes.

In this blog we’ll take a closer look at what MTD means, who can influence it and prepare for future reforms.

What is the MTD for Income Tax?

MTDs in income tax (formerly known as MTD ITSA) affect people who earn income from independence and/or property.

Starting in April 2026, people with gross incomes above 50,000 GBP from these sources must meet the MTD requirements. For those earning gross incomes of more than 30,000 GBP, MTD will be required from April 2027.

The Fall 2024 budget also showed that MTD will be expanded for income tax with total revenues above 20,000 GBP, but no exact implementation date has been set.

The MTD represents a major change in income tax, but the underlying tax rules and registration deadlines remain the same.

Digital Record Maintenance:

Traditional paper files no longer meet legal requirements. You must digitally manage your financial records with accounting software or the appropriate tables.

Send quarterly renewals:

Instead of filing your annual tax return, send your quarterly renewals to HMRC. These updates must be sent via compatible software that has access to the HMRCSPI platform. Quarterly updates include an overview of your income and expenses.

Fill in tax positions at the end of the year:

After the final quarterly renewal of the tax year, you must complete the final year-end process, including adapting to accounting and tax changes.

Getting compatible software:

 You must use commercial MTD compatible software to send information to the HMRC. HMRCS paper and online self-assessment tax returns are only available to people outside the MTD recording area.

The Current State of MTD Implementation

Since April 2022, all VAT companies have had to comply with the MTD rules for filing VAT declaration. This includes using MTD compliant software or digital links to manage data records and create quarterly updates in HMRC.

Considering that slightly less than half of UK businesses are VAT-registered, a considerable number of self-employed individuals and small business owners have yet to fully engage with digital tax reporting. The transition may present a steeper learning curve for businesses not currently VAT-registered or using MTD-compliant accounting software. However, proactive preparation can ensure a more seamless transition.

Looking Ahead: MTD for Income Tax Self-Assessment (ITSA)

The subsequent phase of the MTD rollout involves Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA), being introduced incrementally.

From April 2026: MTD for ITSA becomes compulsory for sole traders and landlords earning over £50,000 annually.

From April 2027: The income threshold reduces to £30,000 annually for sole traders and landlords, expanding the scope of required compliance.

What does the transition to MTD mean to your company?

Digital Records:

Companies are no longer allowed to keep records on paper. This includes digitally recording individual transactions (e.g. income and expenses).

You can also keep physical documents (such as invoices), but you need to make sure that all transactions are digitally recorded.

Quarterly renewal:

Instead of filing your annual tax return, you must send a quarterly renewal to HMRC. These renewals include the total number of income and expenses from independence or real estate business.

Final Year:

After submitting your fourth quarterly update, you must complete your annual tax position, similar to the current self-assessment tax declaration process. Get used to compatible software: To maintain your MTD for income tax, you must use software that is compatible with your system. HMRC promises that free software is available to small and medium-sized businesses. So make sure you have access. Even if you are using a spreadsheet, you will still need to link to MTD compatible software via the API.

Write down your transaction digitally:

If you don’t have it, start the data record now. Keep an accurate, current digital record of your income, expenses and other related transactions. This saves you the time you have to submit quarterly updates.

Exceptions include:

Partnership (not included yet, but can be introduced at a later date) Trusts, land, non-resident companies

Taxpayers with income from qualified care relief. Please check admission criteria and make sure you apply for exemptions if necessary.

Taxaccolega is here to make your transition to Making Tax Digital (MTD) smooth and stress-free. Our experienced team provides personalized tax advice, ensuring you optimize your business’s financial efficiency while avoiding costly mistakes. With ongoing support, transparent pricing, and expert guidance, Taxaccolega gives you the tools and knowledge to navigate the digital tax landscape and focus on growing your business.