Making Tax Digital (MTD) for Income Tax
It has been confirmed that Making Tax Digital (MTD) for income tax will be phased in for self-employed individuals and landlords from April 2026.
What is MTD for Income Tax?
MTD is a mandatory requirement being introduced for eligible individuals (self-employed and landlords) to keep digital records and report their income and expenses to HMRC quarterly, instead of filing just a single Self-Assessment tax return each year.
From April 2026, if your gross turnover, rents or a combination of the two are greater than £50,000 then your income and expenses will need to be reported digitally to HMRC every quarter with an annual reconciliation also being completed (which we expect to be similar to the annual tax return).
From April 2027, the threshold will drop to £30,000 and it was confirmed in yesterday's Spring Statement that MTD for income tax will be made mandatory for the self-employed and landlords with gross income of more than £20,000 from April 2028.
Digital records
MTD for income tax will require self-employed businesses and landlords with qualifying income to keep digital records and file quarterly updates through an HMRC compatible software. HMRC have said that they will not be producing their own software and so individuals who will be affected by the new legislation need to choose a suitable commercial software package or use tailored spreadsheets and bridging software.
If you are not already using a software to maintain digital records or have any questions and would like some help, please get in touch with the office to discuss your particular circumstances, solutions, pricing and the support available well in advance. We have already partnered with providers such as Xero and Quickbooks (QBO) and have bridging software solutions to help manage the ongoing MTD transition, which started with VAT submissions several years ago.
What happens next?
From April 2025, HMRC will be writing to individuals whose 2023 / 2024 Self-Assessment tax returns reported gross income from self-employment and rental sources that was close to (or over) £50,000. Receipt of this letter will indicate that you are expected to comply with the new Making Tax Digital for Income Tax rules in the near future - Don’t panic but please speak with us asap if you receive an HMRC letter regarding MTD or expect your circumstances to meet the criteria described above, whether you receive a letter of not over the coming months!