Making Tax Digital for Income Tax - What You Need to Know

Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) is a new HMRC initiative designed to modernise the way self-employed individuals and landlords report their income. It requires businesses and landlords with qualifying income to maintain digital records and update HMRC each quarter using compatible software.

Who will be affected

Self-employed individuals and landlords with total qualifying income above:
£50,000 – from 6 April 2026
£30,000 – from 6 April 2027

Your qualifying income is the total income you receive in a tax year from self-employment and property. All other sources of income such as salary (PAYE) and dividends don’t count towards your qualifying income. HMRC will assess your gross income before you deduct expenses.

To assess your qualifying income for a tax year, HMRC will look at the Self-Assessment tax return that was submitted in the previous tax year. For example, to assess your qualifying income for the tax year 2026-2027, HMRC will look at the 2024-2025 tax return that was submitted by 31 January 2026.

What will change

Under MTD for ITSA, you will need to:

1. Keep digital records of your business and/or property income and expenses.
2. Submit quarterly updates to HMRC for self-employment and property income. If you have more than one self-employed trade or have both self-employment and property income, separate quarterly submissions are required for each source of income.
   1. Quarterly submissions are based on the calendar quarters of March, June, September and December
   2. The deadline for quarterly submissions is 1 month + 7 days after the end of the month (so Q1 covering the quarter ended 30 June would need to be submitted by 7 August)
3. Submit your tax return as normal by 31 January the following year.

What you’ll need

• Quarterly bookkeeping to provide accurate quarterly updates to HMRC.
• MTD-compatible software. Manual typing into HMRC’s online forms will no longer be allowed.

How we can help

• Review your position and confirm when you’ll be required to join MTD.
• Assist with getting you registered for MTD with HMRC.
• Help you set up or review your current accounting software for digital record-keeping. We would recommend using Xero, a cloud-based accounting software that is MTD compliant.
• Manage your quarterly submissions on your behalf.
• Provide training or support if you wish to maintain your own records.

Penalties

Penalties for late submissions by taxpayers within MTD will move to a points-based system, similar to the rules introduced for VAT in 2023. Under the points-based system, no financial penalty arises for the first late submission.

A penalty of up to £3,000 may be charged for each failure to keep or preserve adequate records in relation to a return. This includes failures such as not maintaining digital records or breaks in digital links within functional compatible software.

However, inaccuracy penalties do not apply to quarterly updates. This means that the system is more relaxed for, say, timing differences, if all of the information isn’t available when the quarterly submissions are due.

However, in the 2025 Autumn Budget, the Chancellor confirmed that there will not be any late submission penalties for quarterly updates during the 2026-27 tax year for MTD ITSA taxpayers required to join Making Tax Digital regime.

Please contact us to discuss your transition plan and ensure you’re ready for the April 2026 start date.