Making Tax Digital for Income Tax (MTD IT)

Making Tax Digital for Income Tax (previously known as MTD ITSA) will apply from April 2026 and will affect landlords and sole traders whose gross self-employment income from these sources is above £50,000.

From April 2027, the threshold will lower to £30,000 and then reduces again to£20,000 from April 2028. Affected businesses will be required to file quarterly digital returns using MTD compliant software instead of one annual return.

MTD IT is expected to be extended to partnerships in the future, but no date has yet been set.

What Will Change?

When MTD IT becomes mandatory, those affected will be required to:

• keep digital accounting records in a software or spreadsheet (paper records will be insufficient)

• submit quarterly updates to HMRC and finalise their annual tax position at year end

Quarterly updates can be submitted to HMRC using MTD compatible software

What Will Not Change?

MTD IT will not change:

• underlying income tax rules (other than those which support paper records)

• the amount of detail which needs to be submitted

• the filing and payment deadlines

What will MTD IT mean for you and your business?

When Does It Start?

The first quarterly return for the period April 6 to July 5, 2026 will be due on August 7, 2026.

The final declaration for tax year 2026/27 will be due on January 31, 2028

If a business is trading at April 5, 2025 it will need to comply with the new rules if it exceeds the £50k threshold in the 2024/25 tax year (i.e. it will be based on what is filed on January 31, 2026).

Any new business that exceeds the threshold for the first time must comply with MTD IT from the start of the third tax year (i.e. if they exceed the threshold in 2026/27, they will be required to comply from April 6, 2029).

If the relevant period is less than 12 months, a determination must be made proportionally on a time or other just and reasonable basis.

Dates

Standard quarters will be:

• April 6 to July 5

• April 6 to October 5

• April 6 to January 5

• April 6 to April 5

Businesses will be able to elect for calendar months:

• April to June

• April to September

• April to December

• April to March

(note - quarterly updates are cumulative)

Deadlines for quarterly updates are fixed as:

• August 7

• November 7

• February 7

• May 7

(electing for calendar months will give an additional 5 days to file)

Updates can be submitted up to 10 days early where the information for the quarter is complete.

Knowing the key dates and deadlines for MTD IT will reduce the risk of fines & penalties

Reporting Details

As per the current self-assessment system, businesses with annual turnover below the VAT threshold are eligible to use the 'three-line accounts' method - reporting simply income, expenses and profit or loss.

Separate returns must be submitted for each business. For example, a sole trader with a separate property business will submit eight quarterly updates.

If a landlord has income from both UK and overseas properties, this will be treated as two single businesses and eight quarterly updates will need to be submitted.

It will be possible to amend earlier updates to correct omissions, duplications or other errors.

After the fourth quarterly update there will be a year end finalisation process which will bring all the submitted information together.

Leaving MTD IT

To avoid frequent changes as income fluctuates, a taxpayer will leave MTD IT when gross income falls below the threshold for three consecutive years.

Next Actions for Affected Businesses

For clients who are unsure if they will be affected by MTD IT changes we recommend:

1. Assess your income - determine if your qualifying income is likely to meet the thresholds
   

2. Embrace digital record keeping - transition from paper records and spreadsheets to MTD IT compliant software as this will be fundamental to compliance
   

3. Understand quarterly reporting - ensure you understand key dates and deadlines
   

4. Consider using a qualified accounting service - ask for training, benefit from professional advice, and reduce the risk of fines and penalties

   
   

Summary

Making Tax Digital for Income Tax (MTD ITSA) changes how self-employed people and landlords do their taxes. You'll need to keep digital records and submit income and expenses to HMRC every three months, instead of just once a year. This starts from April 2026 for those with higher earnings.

Don't go it alone – an accountant can help you set up the right software and handle these new digital reports, saving you stress and potential penalties.

Points to note:

As MTD is a new policy taxpayers must be aware that the rules and legislation may continue to change.

This document is a simplified helpsheet and careful research should be completed if you are unsure.

Need more information? Contact us today to find out more.

Verifiable Accounts - qualified accountants providing accounting, bookkeeping, tax and business advisory services.