The UK tax landscape is changing, and from April 2026, Making Tax Digital for Income Tax (MTD for IT) will become a reality for many self-employed individuals and landlords. This is part of HMRC’s wider digital transformation, aiming to modernise tax administration, reduce errors, and streamline the tax reporting process. 

It follows the successful introduction of MTD for VAT, which has already improved compliance and reduced errors for many businesses. MTD for IT aims to bring similar benefits to sole traders and landlords, ensuring that tax records are accurate, up to date, and submitted in a timely manner.

If you run your own business or let property, it’s important to understand how these changes will affect you, what you need to do, and by when.

Who will be affected by MTD for IT and when?

MTD for IT will be rolled out in phases, with different income thresholds determining when you must comply:

• From 6 April 2026: Sole traders and landlords with qualifying income over £50,000 (based on the 2024/25 tax return).
• From 6 April 2027: Those with qualifying income over £30,000 (2025/26 tax return).
• From 6 April 2028: Individuals with qualifying income over £20,000 (2026/27 tax return).

HMRC will notify you if you are mandated to join MTD for IT based on your most recent tax return.

What is ‘Qualifying Income’?

Qualifying income is your gross income (turnover) from self-employment and property combined, before expenses are deducted. HMRC uses the figures reported in the ‘income’ boxes of your tax return to determine whether you exceed the threshold.

Does Qualifying Income include VAT?

If you use the Cash Basis for your tax return, you may include VAT in your income and expense figures. However, if VAT is included, HMRC will count it as part of your qualifying income. To avoid artificially increasing your income for MTD for IT, it’s best not to use VAT-inclusive figures in your tax return.

Are there exemptions for low transaction volumes?

No. If your qualifying income exceeds the thresholds, you will be mandated to comply with MTD for IT, regardless of how many transactions you have.

What do I need to do if I am mandated?

If you are mandated, you must:

• Keep digital records in MTD-compatible software.
• Submit quarterly updates to HMRC summarising your business income and expenses. Each quarter, you will need to enter details of every income and expense item into your software.
• Submit an end-of-year tax return using MTD-compatible software, where you finalise your tax position and declare any other income sources (employment, savings, dividends).

Will I need to make quarterly tax payments?

No, the current payment schedule remains unchanged. You’ll continue to make payments on account on 31 January and 31 July, with a balancing payment due by 31 January following the end of the tax year.

What are the Easements for lower turnover and jointly held property?

For businesses with turnover below £90,000:
You can send totals for ‘income’ and ‘expenditure’ to HMRC each quarter, instead of detailed categories. However, you must still enter each item of income and expense into your MTD-compatible software, simply categorising them as either ‘income’ or ‘expenditure’.

For jointly held property income:
If your property business income is below the threshold, you can enter a single income figure each quarter and a single annual total expenses figure in quarter 4. If you incur residential property finance costs (e.g., mortgage interest), you must create a separate digital record for these and send them separately from other expenses, even if using the easement.

How will MTD for IT work alongside quarterly VAT Returns?

MTD for IT quarterly updates have set periods, typically ending on 5 July, 5 October, 5 January, and 5 April. You can elect to use ‘calendar quarters’ ending on 30 June, 30 September, 31 December, and 31 March. VAT quarters may end on different dates, so if your VAT and MTD for IT periods do not align, it may be worth changing your VAT stagger to simplify your reporting.

What happens if I don’t comply?

Once mandated, you must comply with MTD for IT requirements. A new penalty regime will be introduced for late filing and late payment, with financial penalties applied if you miss quarterly or annual submission deadlines. Penalties for errors will apply to the end-of-year tax return, not the quarterly updates. HMRC also has the power to issue penalties of up to £3,000 per quarter if you do not keep digital records. Guidance on how these powers will be used is still pending.

What should you do next?

If you’re likely to be affected by MTD for IT, now is the time to start preparing. Review your current record-keeping systems, consider whether you need to upgrade your software, and familiarise yourself with the new requirements.

If you have any questions or need support with Making Tax Digital for Income Tax, please get in touch. We’re here to help and to keep you compliant!