Making Tax Digital for Income Tax: What You Need to Know
Making Tax Digital for Income Tax (or MTD IT as it's often called) is coming, and it's going to change how many sole traders and landlords handle their tax affairs.
The good news? We're here to help you through it. The less good news? It starts from April 2026, so it's worth getting prepared. Let's break down what you need to know in simple terms.
What exactly is MTD IT?
Put simply, MTD IT means keeping digital records of your income and expenses, then sending regular updates to HMRC through compatible software. It is part of HMRC's plan to modernise the tax system.
Does this affect me?
MTD IT will apply to you from April 2026 if you're:
Self-employed and/or a landlord with income over £50,000 a year
The timeline
April 2026: If your income is over £50,000 annually
April 2027: If your income is over £30,000 annually
April 2028: If your income is over £20,000 annually
The thresholds are based on your total turnover (that's your gross income before expenses) not your profit.
HMRC will decide with group you fall into based on your 2024/25 tax return, so the tax return you submit by January 2026 will determine when you need to start keeping digital records.
What records will I need to keep?
You'll need to track:
All your income
Your business or property expenses
Bank transactions linked to your business or rental properties
These records are stored in compatible software and submitted electronically to HMRC via the software.
How often do I need to report?
Rather than one annual tax return, you'll need to send:
Four quarterly updates throughout the year
An End of Period Statement to wrap up the tax year
A Final Declaration to confirm everything and confirm your tax bill
Which software should I use?
You'll need MTD-compatible software — there are several options out there including Xero, QuickBooks, Sage and FreeAgent.
We recommend Xero as it's user-friendly but we're happy to discuss which might work best for you and don't worry, we can help you get set up.
What if I don't comply?
HMRC can issue penalties for late submissions or not keeping proper digital records. Best to avoid that headache by getting prepared early!
Do I still need to do Self Assessment?
Not quite — MTD IT essentially replaces your annual Self Assessment. Your Final Declaration through the software will feel very similar to your current tax return, just submitted differently.
What should I do now to prepare for MTD IT?
The good news is you've got time to get ready.
Here's what we'd suggest:
Check your timeline: look at your 2024/25 turnover to see when you will need to start MTD IT.
Choose your software: many offer demos and free trials so you can get a feel for how they work.
Get your records in order: now is a great time to start reviewing your records and processes.
Practice: get your records together quarterly so you start getting into the habit.
Seek help: see if now might be the time to invest in some help.
How can we help?
We know this might feel like a lot to take in. That's why we're here to guide you through the whole process.
We can provide:
Advice on choosing the right software for you.
Setting up your chosen software.
Help with quarterly and year end submissions.
Support to make sure you are fully compliant
.
Remember, there is plenty of time to get ready, and we'll be with you every step of the way.
Please note: all stats are accurate at time of writing.
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