What is Making Tax Digital?
Making Tax Digital (MTD) is part of HMRC’s ongoing programme to modernise and simplify the tax system. It will already be familiar to VAT-registered businesses and sole traders who have been making MTD returns since 2019.
It means taxpayers must keep digital records and submit quarterly tax returns using MTD compatible software.
The countdown is on for the next phase of MTD
The next phase of MTD is income tax self assessment and HMRC are now writing to taxpayers to inform them if they are affected. The mandatory deadline for landlords, sole traders and the self-employed with an annual income of £50,000 is April 2026. This means that:
- from April 2026 you will be no longer be able to use HMRC’s website to file your returns.
- you will need to keep digital records using MTD-compatible software, such as those provided by Xero, QuickBooks and Sage.
- you will need to submit quarterly updates and a final declaration that includes all other taxable income by 31 January every year.
Those with an annual income of £30,000 or more will be pulled into the MTD net from April 2027. This drops to £20,000 from April 2028.
What do I need to do differently for MTD for Income Tax?
If you are affected, you will need to do the following:
- Digital record-keeping: You must maintain accurate digital records of all business and property income and expenses using MTD-compatible software
- Quarterly submissions: You will need to submit income and expense information to HMRC every three months. These are cumulative over the tax year, so you will be able to make adjustments to correct any previous submissions in future updates. These are the quarterly update deadlines:
- 6 April to 5 July – due by 7 August
- 6 April to 5 October – due by 7 November
- 6 April to 5 January – due by 7 February
- 6 April to 5 April – due by 7 May
- Final declaration: In your final declaration, you must report additional income sources like investments or savings and submit any claims for relief. This declaration, along with the payment, is due by January 31st following the end of the tax year. This replaces the traditional Self Assessment tax return and ensures all income sources are accounted for.
What you should do now to get ready for MTD
It is a good idea to start making preparations for the transition now and consider signing up to the service early. The main benefit being that you can test your system and iron out any problems ahead of the mandatory deadline and before any penalties are levied for late returns and errors.
Steps to help you get started with MTD:
- Check if you are affected by combining your income from self employment and property. To find out more about qualifying income visit the .Gov website. Don’t forget to include income from jointly owned properties too. If you have complex arrangements and need help calculating your income, we are here to help!
- Establish your mandatory start date. If your qualifying income is £50,000 or more, your mandatory start date is April 2026, which lowers to £30,000 in April 2027 and then £20,000 in April 2028.
- If you are a new business, you don’t need to use the MTD service until you have filed your very first tax return. (If you have been trading for less than 12 months, HMRC will estimate your 12 month income in order to decide whether you are caught by MTD)
- Are you keeping digital records and is your software is MTD compatible? Check here for an up to date list of HMRC checked software. If not, we can help, speak to us today.
- Check if you are eligible to sign up to MTD early here. If you are a client of Hillier Hopkins and we act as your agent, please speak to your usual contact for advice.
There are a few conditions when you may be exempt from MTD, find out more here or speak to us if you’re not sure.
