Understanding MTD for Income Tax
What is Making Tax Digital (MTD) for Income Tax?
Making Tax Digital (MTD) for Income Tax is the next step in the government’s plan to make tax reporting simpler and more accurate. From April 2026 qualifying individuals will need to report their personal income through compatible software and comply with new rules.
Under MTD IT the current self-assessment regime will be replaced with 4 quarterly submissions throughout the tax year and a final declaration made by the 31st January the following year, the same final deadline as self assessment is currently. Individuals will need to keep digital records and submit their returns through compliant bookkeeping software.
The move to MTD reporting can seem daunting for sole traders and landlords who have no experience of cloud accounting and getting to grips with the new systems now will greatly streamline your first year of reporting.
HMRC's aim with MTD IT
The aim of the Making Tax Digital changes is to improve reporting accuracy and simplify record keeping for businesses and individuals. By keeping your accounting records on MTD compliant software and submitting frequent returns to HMRC you can have a clearer picture of your tax liability and HMRC will be able to keep track of peoples income in a more detailed manner.
Who needs to comply with MTD for Income Tax?
From April 2026 Making Tax Digital for Income Tax will be phased in for landlords and sole traders earning above £50,000. This threshold will decrease to £30,000 in 2027, and drop further to £20,000 in 2028.
The thresholds are based off the total turnover from all rental and self-employed income, including foreign property income as well as UK rental income. Even if you do not earn more than the threshold from one of these sources alone it is important to know the level of your income from each of these qualifying sources as it is the total amount that decides if you are obliged to enrol in MTD IT.
Even if you do not meet the threshold you can opt to enrol yourself in MTD IT and follow the same reporting in preparation for when you will need to.
What are the key requirements of MTD IT?
The key reporting change that is being introduced with MTD IT is the requirement to submit quarterly updates to HMRC detailing your income and expenses for each period. These submissions must be made using MTD compliant software and cannot be typed in from spreadsheets or physical working papers. The quarterly submissions will be due on the 7th of August, November, February and May each tax year.
At the end of each tax year a final declaration will be due to HMRC by the 31st January of the following year, in line with the current deadline for Self Assessment Tax Returns. This final declaration must also contain all other sources of income that you have received over the course of the tax year, such as PAYE income and dividends, and will replace the standard Self Assessment process. This declaration must also be made from your MTD software.
MTD compatible software
Choosing the right software is vital to ensure that you are compliant with the new Making Tax Digital rules. There are plenty of available options but you should ensure that you choose a software that will allow you to make not only your quarterly submissions, but also the final declaration to HMRC.
If you are obligated to report on MTD then it is worth looking into the right software for you. Your accountant should be able to advise you on the best fit as well as guide you through keeping your records digitally.
Features to look for in MTD IT software
The right MTD software should have these key things to help you with your record keeping:
- HMRC approval: HMRC have compiled a list of approved software for MTD IT which you can view here.
- Real time bank feed: You should be able to link your business bank account straight to your software. This lets you bring in your bank payments and records automatically.
- Multi-stream record keeping: The software should let you keep digital records for each of your income sources.
- Quarterly reporting and final declaration submission
If you are unsure on which software will suit you best then you should speak to your accountant who should be able to recommend a software that will be the best fit for you.
MTD for sole traders
Sole traders that are obliged to register for MTD IT should begin to prepare for the new rules now to ensure compliance with the new rules. While the move to MTD brings challenges there are also some benefits from moving to digital record keeping
The biggest change for sole traders will be the need to keep digital records throughout the year using cloud accounting software. If you have not used online accounting systems before this will be a big change in the way that you keep your records. However, one of the advantages of keeping digital records is that you will be able to gain real time insights into your business and can use the features of software to stay on top of their invoicing and expenses.
Another advantage of using good cloud accounting software is that you will be able to see live tax estimates, helping you to ensure you keep enough money back to pay your tax bill.
Landlords and property owners
Landlords with UK and foreign property rental will fall under the scope of MTD IT based on their qualifying income. If you expect to make more than £50,000 in 2026/27 from all of your rental and sole trade income, you will need to register by April 2026. If you earn over £30,000 or £20,000, you need to follow the rules by April 2027 and April 2028 respectively.
One complication of the rules for landlords is that UK and Foreign rental income will need to be reported separately and therefore if you have both your quarterly reporting requirements will double to 8 submissions throughout the year with a final declaration that encompasses both following the year end.
Looking for support for Making Tax Digital for Income Tax?
At Sherwin Currid we appreciate that the transition to Making Tax Digital for Income Tax can seem overwhelming. We offer a comprehensive service to those needing to make MTD IT submissions to ensure that you meet your filing deadlines. For more information on how Sherwin Currid can support you please see our page on MTD for Income Tax here.
If you wish to discuss how we can help you meet the new MTD requirements please get in touch to arrange an initial consultation.