Getting Ready for Making Tax Digital (MTD)

Making Tax Digital (MTD) is HMRC’s initiative to digitalise and modernise the UK tax system. Following the introduction of MTD for VAT in 2019, HMRC has now announced the second stage of their MTD rollout: Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA).

What is MTD for Income Tax?

From April 2026, MTD for ITSA will come into effect for many self-employed individuals and landlords across the UK. If you fall into this group, it’s important to understand what’s changing and how to prepare. Under MTD for ITSA, affected taxpayers will need to:

• Keep digital records of income and expenses.
• Use compatible software to submit updates to HMRC.
• Send quarterly summaries of their income and expenses.
• File an end of year digital tax return.

Who is Affected?

Initially, MTD for ITSA will apply to:

• From April 2026, self-employed individuals and landlords with combined income from those sources of more than £50,000.
• Income from self-employment and/or property of between £30,000 and £50,000 will be mandated from April 2027.

If your income from self-employment and property is below £30,000, you won’t be required to follow the new rules just yet, but HMRC is expected to expand MTD in future years.

Key Changes for You

1. Quarterly Submissions: You’ll need to submit a summary to HMRC of your income and expenses every three months. These are not ‘mini tax returns’ but help HMRC keep a running view of your income.
   
   
2. Digital Record-Keeping: You’ll need to use HMRC-approved software to keep and submit your financial records. Spreadsheets may still be used, but they must link with bridging software that can connect to HMRC’s systems.
   
   
3. Year-End Filing Still Required: At the end of the tax year, you’ll still finalise your income with a digital tax return – similar to what’s currently done with your Self-assessment tax return.

How to Prepare

• Check Your Income Threshold: Determine if and when you’ll be affected based on your combined annual income from self-employment and property.
• Go Digital: If you’re not already using accounting software, now is the time to explore your options. We can help you choose software that fits your needs and complies with MTD requirements.

Final Thoughts

MTD for Income Tax is a significant change, but it also offers opportunities to streamline your record-keeping and gain clearer insights into your business finances. Transitioning early gives you time to get comfortable with digital tools and avoid last-minute stress.

Although the frequency of reporting is going to change, the timing of tax payments will not. The current system of payments on account and balancing payment by 31st January after the tax year is expected to remain in place for the foreseeable future.

If you have any questions or want help getting started with digital record-keeping, feel free to get in touch. Call us on 01904 655202 or email enquiries@hghyork.co.uk. Alternatively, take a look at our Cloud Accounting page or Specialist Tax page.