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Making Tax Digital For Income Tax

In this article, we will take a closer look at Making Tax digital (MTD) for Income Tax. In particular the self-employed and landlords. We will be writing a series of articles with this being 2 of 5.

For a FREE consultation call us now on 0161 879 7175.

Close-up of a calculator and a printed income sheet with handwritten notes, representing preparation for Making Tax Digital for Income Tax

Making Tax Digital (MTD) is a UK government initiative, developed with HMRC, to modernize the tax system. Initially, it focused on VAT to improve efficiency and ease for taxpayers. Now, MTD is expanding to include Income Tax, affecting self-employed individuals and landlords significantly.

Background to MTD So Far

Originally launched in 2019, MTD targeted VAT-registered businesses first. It required digital record-keeping and VAT returns submitted via compatible software. This change aimed to reduce errors and simplify the tax process. Building on this success, the government is introducing MTD for Income Tax to further update tax administration.

What Is Changing Under MTD for Income Tax?

Under the new rules, the traditional annual Self-Assessment return is being replaced. Instead, affected taxpayers must:

  • Keep Digital Records: Use MTD-compatible software to record all business income and expenses digitally.
  • Submit Quarterly Updates: Every three months, send HMRC a summary of income and expenses through the software.
  • Final Declaration: At year-end, submit a final declaration confirming the reported data and any adjustments.

Once enrolled in MTD for Income Tax, you will submit quarterly business summaries through approved software. For example, FreeAgent is on HMRC’s list of compatible providers. Therefore, you can use FreeAgent to comply with MTD and meet submission requirements.

The deadlines for quarterly updates are uniform for all participants. Starting from 6th April, the deadlines fall on:

  • 7th August
  • 7th November
  • 7th February
  • 7th May

Who Will MTD for Income Tax Affect?

The rollout of MTD for Income Tax will be phased in stages:

  • From April 2026: Those self-employed or landlords earning over £50,000 annually must comply.
  • From April 2027: The threshold lowers to £30,000 annual income.
  • Taxpayers must submit quarterly updates summarizing this financial information electronically to HMRC.
  • Future Plans: The government plans to reduce the threshold further to £20,000, though dates remain unconfirmed.

Requirements Under the New Rules

To comply with MTD for Income Tax, individuals must:

  • Keep Digital Records: Maintain updated digital records of all business transactions using compatible software.
  • Submit Quarterly Updates: Provide HMRC with a summary of income and expenses every quarter.
  • End-of-Period Statement: After the final quarter, submit a statement confirming the completeness and accuracy of information.
  • Final Declaration: By 31 January following the tax year, submit a declaration including all personal income and reliefs.

Conclusion

MTD for Income Tax marks a major change in tax management for landlords and self-employed people. By adopting digital record-keeping and regular submissions, taxpayers can simplify processes and reduce mistakes. If you are affected, begin exploring compatible software now. Familiarize yourself with new rules before deadlines approach.