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 introduces quarterly digital reporting alongside your existing obligations. It does not remove the requirement to submit a Self Assessment tax return, and tax payment dates remain unchanged. 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 two further phases in the following years as the income threshold is gradually lowered.
Phase 1
April 2026
Applies to individuals with qualifying self-employed and/or property income exceeding £50,000
Phase 2
April 2027
Applies to individuals with qualifying self-employed and/or property income exceeding £30,000
Phase 3
April 2028
Applies to individuals with qualifying self-employed and/or property income exceeding £20,000
Important Note
Qualifying income refers to gross income from self-employment and property activities before expenses are deducted. HMRC will generally determine whether you fall within the regime based on the information already reported through your Self Assessment tax returns.
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 | 7 August |
| Q2 | 6 July to 5 October | 7 November |
| Q3 | 6 October to 5 January | 7 February |
| Q4 | 6 January to 5 April | 7 May |
Self Assessment and Payment Dates Remain Unchanged
MTD for income tax does not remove the requirement to submit a Self Assessment tax return. You will still need to file your Self Assessment return by the usual deadline of 31 January following the end of the tax year, in addition to the new quarterly updates.
Equally, MTD changes how information is reported, but it does not change when tax is paid. The existing payment deadlines of 31 January and 31 July continue to apply.
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
At the end of the year a Final Declaration confirms your complete taxable income and calculates the final tax due. This works alongside your Self Assessment return rather than removing it.
Importantly, MTD does not abolish Self Assessment. Your Self Assessment tax return must still be submitted by the usual 31 January deadline, and your tax payment dates remain the same.
Our Recommended Solution: QuickBooks
As part of the transition to Making Tax Digital for Income Tax, we are recommending QuickBooks as our preferred bookkeeping solution for affected clients. QuickBooks is fully compatible with HMRC's Making Tax Digital requirements and provides a simple and cost-effective way to maintain digital records and meet the new quarterly reporting obligations.
QuickBooks through our partnership
Access HMRC-compatible software with full support from our team.
£180
per year licence fee
Whilst MTD compliance is one of the key benefits, QuickBooks offers a range of additional features that can help you manage your business more effectively:
Real-time financial reporting
Instant access to Profit and Loss reports, Balance Sheets, debtor and creditor reports, and cash flow information throughout the year.
Professional invoicing
Create and send professional invoices, track outstanding payments, send reminders and improve cash collection.
Bank feeds and automation
Connect directly to most UK bank accounts to automatically import transactions, reducing manual data entry and keeping records up to date.
Receipt capture
Use the mobile app to capture and store receipts and purchase invoices digitally, maintaining accurate records whilst reducing paperwork.
By adopting QuickBooks now, clients can become familiar with the software well before the MTD deadlines take effect, and benefit from more proactive support throughout the year including tax liability estimates, cash flow planning and tax planning opportunities.
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 qualifying gross business and property income exceeds £50,000, these requirements apply from April 2026; if it exceeds £30,000, they follow from April 2027; and if it exceeds £20,000, they apply from April 2028. Quarterly digital reporting, the End of Period Statement and the Final Declaration sit alongside the existing Self Assessment process rather than removing it — your Self Assessment tax return must still be submitted by the usual deadline, and the tax payment deadlines of 31 January and 31 July remain unchanged.
Preparing early by adopting suitable software such as QuickBooks, 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 qualifying income over £50,000, April 2027 for income over £30,000, and April 2028 for income over £20,000
- You must use HMRC-compatible digital accounting software, such as QuickBooks, to maintain records
- Quarterly updates must be submitted by the 7th of the month following each quarter end
- Quarterly updates, the End of Period Statement and Final Declaration are in addition to — not a replacement for — your Self Assessment tax return, which must still be submitted by the usual deadline
- Tax payment dates of 31 January and 31 July remain unchanged