The UK tax system is undergoing its biggest transformation in decades. Making Tax Digital (MTD) is HMRC’s initiative to modernise the digital tax system, making it simpler, more accurate, and fully digital. Whether you’re a landlord, sole trader, self-employed individual, or letting agent, here’s everything you need to know about MTD and how to prepare for digital tax returns.
What is Making Tax Digital for income tax?
MTD for Income Tax, also known as MTD for ITSA (Income Tax Self-Assessment). This changes how you report self-employment and property income. From now on, instead of filing one annual self-assessment tax return, you’ll:
- Keep digital records of income and expenses using MTD compatible software.
- Send quarterly updates to HMRC.
- Submit your final declaration digitally by January 31, each tax year.
This shift aims to reduce the tax gap, minimise administrative errors, and give you real-time visibility of your tax position.
Who needs to comply with Making Tax Digital and when?
Compliance with Making Tax Digital depends on your qualifying income:
- Over £50,000: Start from 6 April 2026.
- Over £30,000: Start from 6 April 2027.
- HMRC may lower the threshold to £20,000 in the future.
Key Deadlines
- 31 January: Final declaration, including any accounting adjustments, and tax bill payment due.
- Quarterly updates: Submitted via your chosen MTD software.
How to prepare for Making Tax Digital?
- Work out your qualifying income by including all self-employment and property income.
- Choose software that is MTD compatible. HMRC provides a list of approved providers.
- Register for MTD early to test the digital tax system
- Start digital record-keeping now
Benefits of Going Digital with MTD
- Fewer errors due to automated calculations in MTD compatible software.
- Better visibility of your tax position throughout the accounting period.
- Streamlined processes for agents and small businesses, and more.
While this article focuses on Income Tax, it’s worth noting that MTD for VAT is already in effect for VAT-registered businesses above the VAT threshold. For detailed instructions on Making Tax Digital, visit: Use Making Tax Digital for Income Tax – Guidance – GOV.UK
Additional Information
- Landlords and self-employed individuals should be aware that MTD will affect how they manage their rental income and business income. The new digital tax system aims to reduce the tax gap and minimise administrative errors by requiring electronic records and regular digital filing
- To comply with MTD requirements, you’ll need to use accounting software or bridging software that’s compatible with HMRC’s systems.
As the mandatory digital filing approaches, business owners and landlords must start preparing early. This includes:
- Familiarising yourself with MTD compatible software options
- Reviewing your current accounting practices
- Ensuring your digital records are up to date
- Understanding the new quarterly update process
- Being aware of potential late submission penalties
- Staying informed about compliance notices from HMRC
By embracing these changes and adopting the necessary digital tools, you’ll be well-positioned to navigate the new Making Tax Digital landscape efficiently and compliantly.
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