Making Tax Digital for Income Tax: What You Need to Know
Making Tax Digital for Income Tax (often referred to as MTD ITSA) is a significant change in the way many sole traders and landlords will keep records and report their income to HMRC. The intention behind the change is to improve accuracy, encourage more timely bookkeeping, and move the tax system closer to real time information.
What This Means for You
MTD for income tax represents a fundamental shift from annual Self Assessment to quarterly digital reporting. If you're a sole trader or landlord with income above certain thresholds, you'll need to adapt your record-keeping and reporting practices.
When MTD for Income Tax Comes Into Effect
The rollout of MTD for income tax is phased. It begins from 6 April 2026 for individuals with higher levels of income, followed by a further phase one year later.
Phase 1
6 April 2026
Applies to individuals with total self-employed and/or property income of £50,000 or more
Phase 2
6 April 2027
Applies to individuals with total self-employed and/or property income of £30,000 or more
Important Note
At the present time, individuals with income below £30,000, partnerships and limited companies are not yet required to join. HMRC is expected to provide further guidance for these groups in the future.
Who MTD Applies To
MTD for income tax applies to individuals who receive income from:
Self-Employment
Income from running your own business or trade
Property Rental
Income from renting out residential or commercial property
Combination
Both self-employment and property rental income
Income Threshold Calculation Example
The income threshold is based on gross income, not profit. Here's how it works:
This would mean MTD for income tax applies from April 2027.
Keeping Records Under MTD
You will need to keep digital accounting records using HMRC compatible accounting software. This software must be capable of maintaining your records and submitting quarterly updates and annual declarations directly to HMRC. Manual record keeping alone will not meet the requirements.
Digital Record Keeping Requirements
- Use HMRC-compatible accounting software
- Maintain records digitally throughout the year
- Submit updates directly from your software to HMRC
- Keep records for at least 5 years
What Must Be Reported Each Quarter
Each quarter you will need to submit a summary of:
Total Income
Total income for the period
Allowable Expenses
Business or property expenses
Adjustments
Any adjustments required for that period
Important: These updates provide HMRC with an approximate in-year position. They do not calculate your final tax liability. They are intended to keep HMRC informed throughout the year.
Quarterly Reporting Periods and Deadlines
There will be four reporting periods each tax year. The standard periods and deadlines are:
| Quarter | Period Covered | Submission Deadline |
|---|---|---|
| Q1 | 6 April to 5 July | 5 August |
| Q2 | 6 July to 5 October | 5 November |
| Q3 | 6 October to 5 January | 5 February |
| Q4 | 6 January to 5 April | 5 May |
End of Period Statement
End of Period Statement (EOPS)
After the end of the tax year, an End of Period Statement must be submitted. This is where year end adjustments, relief claims and finalised figures are confirmed.
The EOPS allows you to make any necessary adjustments to your quarterly submissions and claim any reliefs or allowances that apply to your full year position.
Final Declaration
Final Declaration
A Final Declaration will then replace the current Self Assessment tax return. This declaration confirms your complete taxable income and calculates the final tax due for the year.
This is the official submission that determines your final tax liability for the year and replaces the traditional Self Assessment tax return.
Key Considerations
Software Readiness
Ensure you are using, or preparing to use, suitable accounting software that is approved for MTD.
Record Keeping Habits
Regular bookkeeping will become essential to meet quarterly reporting deadlines.
Multiple Income Streams
Each source of business income will require separate quarterly submissions.
Agent Access
Your accountant will still be able to file on your behalf if they have access to your digital records.
Summary
MTD for income tax represents a major shift in how self-employed individuals and landlords interact with HMRC. If your combined gross business and property income exceeds £50,000, these requirements apply from April 2026. If it exceeds £30,000, the requirements follow from April 2027. Quarterly digital reporting, the End of Period Statement and the Final Declaration will replace the current annual Self Assessment process.
Preparing early by reviewing software options, improving bookkeeping practices, and understanding the new deadlines will help ensure a smooth transition.
Need Guidance on Preparing for MTD?
If you would like guidance on preparing for MTD for income tax, please feel free to contact us. We are here to support you through this transition and ensure you're fully prepared for the new requirements.
Key Takeaways
- MTD for income tax applies from April 2026 for income over £50,000 and April 2027 for income over £30,000
- You must use HMRC-compatible digital accounting software to maintain records
- Quarterly updates must be submitted within one month of each quarter end
- An End of Period Statement and Final Declaration replace the traditional Self Assessment
- Early preparation with software selection and improved bookkeeping is essential