Making Tax Digital (MTD) for Income Tax – What You Need to Know

The UK government’s Making Tax Digital (MTD) initiative aims to modernize tax reporting by requiring self-employed individuals and landlords to maintain digital records and submit tax returns electronically. Originally planned for earlier implementation, MTD for Income Tax Self Assessment (ITSA) will now roll out as follows:

MTD for ITSA – Implementation Timeline

✅ From 6 April 2026:

• Self-employed individuals and landlords with annual gross income exceeding £50,000 must comply with MTD requirements.

✅ From 6 April 2027:

• The threshold lowers to include those with annual gross income over £30,000.

🔜 Future Expansion:

• The UK government has signaled plans to further reduce the threshold to £20,000, though no official date has been confirmed.

Key Requirements Under MTD for ITSA

✔️ Digital Record-Keeping

• Affected taxpayers must use MTD-compatible software to maintain digital records of all income and expenses related to self-employment and property rentals.

✔️ Quarterly Updates

• Instead of one annual tax return, taxpayers must submit quarterly income and expenditure reports to HMRC.

✔️ End-of-Period Statement (EOPS)

• An annual declaration to confirm the accuracy of reported data and make any necessary adjustments.

✔️ Final Declaration

• A conclusive submission replacing the traditional Self Assessment tax return, summarizing total income and tax liability.

Understanding the £50,000 Threshold – Gross vs. Net Income

The £50,000 MTD threshold is based on gross income—that is, total income before deducting expenses. This includes:

📌 Self-Employment Income: Total revenue earned before business expense deductions.
📌 Property Rental Income: Total rental income received before deducting maintenance, mortgage interest, or other costs.

Example:

• Self-Employment Income: £30,000
• Property Rental Income: £25,000
• Total Gross Income: £55,000

Since the gross income exceeds £50,000, the taxpayer must comply with MTD from 6 April 2026.

📢 Important: Even if net profit (after expenses) is below £50,000, MTD compliance is still required if gross income meets the threshold.

How to Prepare for MTD for ITSA

🔍 1. Assess Your Income

• Check if your gross income meets the threshold for mandatory MTD compliance in 2026 or 2027.

🖥 2. Choose MTD-Compatible Software

• Select HMRC-approved software to digitally record transactions and submit tax updates seamlessly.

💡 3. Consider Voluntary Early Adoption

• Even if you’re not yet required to comply, adopting MTD early can help you get familiar with the system and avoid last-minute adjustments.

🔗 4. Stay Updated on Future Changes

• HMRC plans to extend MTD to lower income brackets, so keeping track of updates ensures smooth compliance.

📌 For comprehensive guidance, visit HMRC’s official Making Tax Digital resources.