Making Tax Digital (MTD for Income Tax) — What’s Changing & What You Need to Know

What is MTD for Income Tax (MTD for ITSA)?

Making Tax Digital (MTD) is the HMRC initiative to modernise the UK tax system by moving from annual, paper-based reporting to more frequent digital reporting. While MTD for VAT is already fully in force, the next phase is extending digital requirements to income tax for sole traders and landlords. Under MTD for ITSA, affected taxpayers will need to:

• Keep digital records of income and allowable expenses

• Use software compatible with MTD for bookkeeping and reporting

• Submit quarterly updates of income and expenses to HMRC

• File an end-of-year declaration / final submission through the software This replaces (or more accurately complements) the current Self Assessment process by spreading data reporting throughout the year rather than one annual submission.

Timeline of Changes: April 2026 & April 2027 (and beyond)

Here’s what is scheduled (and based on current HMRC / Government announcements). Be aware that legislation is still being finalised, and HMRC continues to engage with stakeholders as the rollout approaches. 

Effective Date	Income Threshold	Who Becomes Mandated / Included	Key Requirements
6 April 2026	Gross qualifying income over £50,000	Sole traders / landlords whose combined income from self-employment + property exceeds this threshold	Must keep digital records, submit quarterly updates, and file final declaration via software
6 April 2027	Gross qualifying income over £30,000	The scope expands to include those with income between £30,000 and £50,000	Same digital record-keeping, quarterly updates, final declaration as above
April 2028 onward (planned)	Possibly gross income over £20,000	Further expansion to lower-income taxpayers (exact rules subject to statutory legislation)	Full digital reporting obligations like those already described

Impacts, Preparation & How We Can Help

What it means for taxpayers:

• Instead of one annual tax return, you’ll need to share quarterly updates of your income and expenses — essentially providing rolling snapshots of your year-to-date position

• Record-keeping must be digital and compatible with HMRC’s approved software. You can’t rely solely on manual ledgers or spreadsheets that can’t interface with MTD systems

• The final year-end declaration (i.e. your “tax return”) must be submitted through your software, integrating all quarterly updates and reconciling to your overall tax liability

• Penalties for late submission or non-compliance will shift to a points-based system, which may change how defaults or delays are handled.

Key steps to get ready:

1. Evaluate your income projectionEstimate whether your combined self-employment + property income will cross the £50,000 threshold (or the future £30,000 threshold) so you know when you’ll be required to move to MTD.

2. Choose compatible softwareSelect accounting / bookkeeping software that is MTD-certified and supports quarterly updates, ledger maintenance, and final declarations. Some will allow bridging or integration with existing systems. 

3. Migrate or digitise existing recordsConvert your historic data (income, expense records) into digital format and ensure it integrates smoothly with your MTD software system.

4. Sign up or registerWhen notified or when eligible, sign up for MTD for ITSA via HMRC, linking your tax agent (if you have one) to the system. 

5. Train & adapt processesBuild new practices to record transactions digitally in real time, reconcile accounts quarterly, and monitor compliance.

6. Review software capabilities regularlyAs legislation evolves, software providers may update functionalities (for example, to support end-to-end filing). Stay vigilant. 

How We Can Help You Prepare

Assessment & ForecastingWe’ll evaluate whether your income places you in scope for 2026, 2027 or beyond, and forecast how this will affect your tax load and cash flow.

Software Recommendation & SetupWe advise, compare, and help you deploy MTD-compliant software (or bridging tools) that suits your business structure and workflows.

Data Migration & CleanupWe assist in converting historic transactional data into digital form, verifying integrity, and ensuring smooth imports into your new system.

Quarterly Reporting SupportWe’ll help you set up the processes for quarterly submissions, reconcile your data, and ensure each update is accurate.

Final Declaration & Year-End ReconciliationAt year-end, we’ll help reconcile the quarterly updates into a final submission, ensuring that your tax liability is correctly computed.

Ongoing Monitoring & UpdatesAs legislation, HMRC rules or software requirements evolve, we monitor changes and keep your system compliant.