Making Tax Digital (MTD) for Income Tax

by Ankita Mathurvaishya, in ,

Making Tax Digital (MTD) is HMRC’s initiative to modernise the tax system for self-employed individuals and landlords. Under MTD, you must keep digital records of all business income and expenses and use approved software to submit information to HMRC. Specifically, you will make quarterly updates of your income and expenditure and a final year-end declaration, instead of (or alongside) the Self-Assessment return. The goal is more accurate, real-time tax reporting.

Who needs to use MTD and from when?

MTD for income tax applies in phases to sole traders and landlords whose combined qualifying income (from self-employment and property) exceeds the thresholds. In practice:

  • From 6 April 2026 – if your qualifying income (gross income before expenses) is over £50,000 in the 2024/25 tax year.
  • From 6 April 2027 – the threshold falls to £30,000 (based on 2025/26 income).
  • From 6 April 2028 – the threshold falls to £20,000 (based on 2026/27 income).

Above these amounts, MTD becomes mandatory. If your qualifying income is lower, you are not required to join (though the government may extend MTD to lower incomes in future). HMRC reviews each year’s tax return to determine if you cross the relevant threshold; if so, they will notify you when to start MTD. Business partnerships will be brought into MTD later; for now, only individuals (including sole traders and landlords) are within the scope.

Qualifying Income (definition and example)

Qualifying income is the sum of all gross income from your self-employed businesses and property rental in a tax year. It is measured before any expenses are deducted.

  • Includes: Self-employment turnover and all property rents (UK or foreign), at gross value.
  • Excludes: PAYE wages, dividends, pension income, partnership profits, and the standard rent-a-room or property allowances.

HMRC’s Advance Letters about MTD

In 2025, HMRC began sending letters to certain taxpayers as an early warning about MTD. These letters (sent spring–summer 2025) target individuals whose 2023/24 tax return shows qualifying income over £50,000. The letters are intentionally high‑level and don’t yet require any action – they are simply to alert you that you may fall into MTD soon. Importantly, receiving a letter does not by itself force you to sign up immediately. Your actual MTD obligation is determined by your 2024/25 tax return. In other words, HMRC will look at your next year’s income to see if you exceed the threshold, and then tell you exactly when MTD starts.

Filing Obligations under MTD

Once in MTD, you have three key obligations: digital record-keeping, quarterly updates, and a year-end declaration.

Throughout, payment deadlines remain unchanged. You still pay tax by 31 January after the year-end (and make any payments on account by 31 January and 31 July) as before. HMRC’s focus is on how you report your figures, not on changing when you pay.

HMRC is introducing a new points-based penalty system for MTD ITSA. If you miss a deadline, you get a penalty point. Once you hit a certain number of points, you’ll be fined.

These points reset after a period of good behaviour, but it’s better not to get them in the first place.

Staying in MTD and Other Requirements

Once you become subject to MTD, you stay in it for at least three tax years, even if your income later falls below the threshold. In practice this means you should be prepared to keep filing quarterly updates and your year-end declaration each year. Your Self Assessment agent, if you have one, can continue to help as before

Remember also that the final MTD declaration covers all your income: you must still account for non-business income (employment, pensions, dividends, capital gains, etc.) in that year-end filing. Any cashflow or payment-on-account requirements (or penalties for missing deadlines) are the same as under Self Assessment.

In short, under MTD you still follow the usual tax calendar and keep digital records — the difference is you now submit them quarterly through the MTD system.

Conclusion

Making Tax Digital marks a significant shift in how individual taxpayers manage their tax affairs. For high-net-worth individuals with complex income structures, the move to digital record-keeping and quarterly reporting represents both a compliance challenge and an opportunity for better financial oversight.

However, it’s important to remember that MTD is still evolving. While HMRC has provided core guidelines and timelines, some details—particularly around edge cases (unusual or extreme situations) and the final structure of the digital system—remain in development.

We anticipate greater clarity in the coming months, especially as software providers, tax agents, and HMRC prepare for the 2026 rollout.