Making Tax Digital for Income Tax
HMRC’s phased rollout of Making Tax Digital for Income Tax (MTD) is now underway, and the changes will fundamentally change how sole traders and landlords record, report, and manage their tax obligations.
Below is a summary to help prepare for the transition and understand what the new requirements will mean.
A Modernised Approach to Tax Reporting
MTD for Income Tax is part of HMRC’s continued programme to modernise the UK tax system, moving the current annual Self Assessment process into a digital, more streamlined model. Instead of relying on a single yearly return, taxpayers will keep digital records throughout the year and submit quarterly summaries to HMRC using approved software. The aim is to reduce errors, improve transparency, and encourage timely tax compliance.
Under MTD, digital record-keeping is central. Taxpayers will need to record the details of each transaction – including date, amount, and nature – using software compatible with HMRC requirements.
Who Will Be Affected?
The new rules apply to self employed individuals and landlords whose income exceeds specific thresholds. Limited Companies, Partnerships, LLPs, and Trusts are not currently included.
The rollout will occur in stages:
- From April 2026 for individuals with gross qualifying income above £50,000.
- From April 2027 for those earning above £30,000.
- From April 2028 for individuals with income above £20,000.
Gross qualifying income refers to total income before expenses from all relevant sole trade and property businesses, including the individual’s share of jointly owned property.
What Will Change?
Once within scope, taxpayers will need to:
- Maintain digital records.
- Submit quarterly updates using MTD compatible software.
- Complete a final declaration replacing the annual tax return.
These quarterly submissions are cumulative, meaning they include figures for the year to date.
A crucial aspect of preparing for MTD is selecting suitable software early. HMRC publishes a list of approved providers ranging from simple applications for straightforward affairs to full accounting platforms like Xero and QuickBooks.
Exemptions and Digital Exclusion
Some individuals may apply for exemption on the grounds of digital exclusion. HMRC may accept an exemption where a person’s age, disability, health condition, location, or religious beliefs make it unreasonable for them to use digital tools.
How We Are Supporting Clients
Our support includes engagement with individual clients to review their requirements, sharing Q&A materials, offering guidance on choosing software solutions, and recommending reporting solutions. We can provide a range of support for MTD, including initial assistance with set up, through to a full MTD reporting service.
Our aim is to help clients make a smooth transition by ensuring they understand the requirements, timelines, and actions needed to remain compliant ahead of the statutory deadlines.
Please get in touch with us if you have any questions or would like further support in preparing for these changes – MTD@gwayre.co.uk
