Are You Prepared For The Changes Coming To Making Tax Digital (MTD)?

From 6 April 2026 Making Tax Digital (MTD) for Income Tax Self-Assessment will become mandatory for self-employed individuals and landlords with income from these sources in excess of £50,000.

From 6 April 2027, this will be extended to apply where income exceeds £30,000 with a further reduced threshold of £20,000 expected in the future (precise timing to be confirmed).

What is MTD for Income Tax?

Under MTD, taxpayers who are subject to Income Tax on profits from their trade, profession, vocation or property business will be required to keep their accounting records electronically and will be required to file a quarterly return to HMRC with details of their income and expenditure with a final declaration submitted after the end of the tax year once the taxpayer’s affairs have been finalised. It is important that HMRC approved digital software is used – HMRC have a list (still growing) of approved providers to help with this requirement.

The quarterly updates will be cumulative and will cover the following periods set out below which must be submitted by the filing deadline:

Quarter	Reporting Period	Reporting Period (calendar quarter)	Filing deadline
1	6 April – 5 July	1 April – 30 June	7 August
2	6 July – 5 October	1 July – 30 September	7 November
3	6 October – 5 January	1 October – 31 December	7 February
4	6 January – 5 April	1 January – 31 March	7 May

 

When are updates for MTD due?

The first quarterly update under MTD for Income Tax will be due for filing by 7 August 2026, covering the quarter ending on 5 July 2026 or 30 June 2026 where a calendar quarter election is in place.

Separate quarterly updates will be required for each trade or property business carried on by a taxpayer. Where property is held jointly, the reporting requirements have been relaxed to allow only the taxpayers share of property income (and not expenses) to be reported in their quarterly updates.

A final end-of-year tax return will then bring together all sources of income, reliefs and allowances to determine the final tax liability. This will be due by the normal self-assessment deadline of 31 January following the end of the relevant tax year.

There are currently no plans to change the timing of tax payments and the current system of payments on account and balancing payment due by 31 January after the end of the tax year will remain in place.

6 key requirements for MTD

To help you stay on top of things, we’ve pulled together a clear breakdown of what you need to do to meet MTD’s requirements and avoid any last-minute surprises.

1. Use MTD-Compatible Software

Businesses and self-employed individuals must use software that connects to HMRC’s systems. This software should:

• Keep digital records of income and expenses
• Submit tax returns directly to HMRC
• Provide updates throughout the year

2. Keep Digital Records

You must maintain digital records of:

• Sales and income
• Business expenses
• VAT records (if VAT-registered)
• Adjustments to tax calculations

3. Quarterly Updates

Businesses must send HMRC quarterly updates. This helps track tax liabilities in real time.

4. Who Needs to Comply?

• VAT-registered businesses with turnover above £85,000 (already required).
• Self-employed and landlords with turnover £50,000 (from April 2026).
• Self-employed and landlords with turnover £30,000 (from April 2027).

5. Digital Links for VAT

For VAT returns, businesses must ensure a clear digital audit trail between records and submissions – no manual copying of data between systems.

6. Penalties for Non-Compliance

HMRC is introducing a points-based penalty system, where repeated failures could lead to fines.

If you’re unsure whether MTD applies to you or need help choosing the right software, it’s best to check HMRC’s guidance or speak to an accountant. Need more details on a specific part?

What are the benefits of MTD for you?

Making Tax Digital (MTD) isn’t just another HMRC rule—it actually comes with some useful benefits for businesses and self-employed individuals. Here’s why it’s worth embracing:

1. Fewer Errors, Less Stress

– Digital records reduce mistakes from manual entry, lost paperwork, or miscalculations.

– Your tax figures are more accurate, reducing the risk of HMRC penalties.

2. Saves Time on Admin

– Automated calculations and direct submissions mean less time spent on spreadsheets.

– No more last-minute scrambling to file your tax return—quarterly updates keep you on track.

3. Better Cash Flow Management

– With quarterly updates, you get a clearer picture of your tax liabilities throughout the year.

– This means fewer surprises when it’s time to pay HMRC.

4. Easier VAT & Tax Filing

– MTD-compatible software streamlines VAT and tax returns, making submission smoother.

– No need to re-enter data—your software handles it for you.

5. More Business Insights

– Real-time financial data helps you track profits, expenses, and growth opportunities.

– Some software even offers forecasting tools to help plan ahead.

6. Future-Proofing

– Digital tax is here to stay, and MTD prepares you for further tax system changes.

– Going digital now keeps you ahead of the curve.

Ultimately, MTD can make reporting less of a headache and help your business to businesses stay organised.

Exemptions

If it is not reasonable or practical for a taxpayer to use computers or the internet, they may be digitally excluded and can apply for an exemption to opt out of MTD. This will apply to taxpayers if:

• For any reason it is not reasonably practicable for the person or partner to use electronic communications or to keep electronic records. This may be due to age, disability, location or another reason.
• They are a practising member of a religious society or order whose beliefs are incompatible with using electronic communications or keeping electronic records.

The application process to apply for an exemption is not yet available.

The following are automatically exempt from MTD for Income Tax and will not require to apply for exemption:

• Non-resident companies
• Trustees, executors and administrators
• Foreign businesses of non-UK domiciled individuals
• Foster carers
• Those with no National Insurance Number

How can you effectively prepare for MTD ?

Getting ready for Making Tax Digital (MTD) doesn’t have to be a last-minute panic. Here’s how to prepare effectively and stay ahead of the changes:

1. Check If MTD Applies to You

– If you’re VAT-registered, MTD for VAT is already mandatory.
– If you’re self-employed or a landlord earning over £50,000, MTD for Income Tax starts in April 2026.
– If you earn over £30,000, it starts in April 2027.

2. Choose MTD-Compatible Software

You need software that can record transactions, generate tax reports, and submit returns directly to HMRC.
If you’re unsure, check HMRC’s list of approved software.

3. Start Keeping Digital Records

– Get into the habit of recording income and expenses digitally—no more paper receipts!
– Some software lets you snap photos of receipts and automatically categorise expenses.

4. Plan for Quarterly Updates

– Unlike the current system, MTD requires quarterly tax updates, so get used to reviewing finances regularly.
– Set calendar reminders to keep on top of your submissions.

5. Test the System Before It’s Mandatory

– If possible, start using MTD-compatible software now, even if you’re not yet required to. This gives you time to iron out any issues before HMRC makes it compulsory.

6. Stay Informed About MTD Changes

– HMRC occasionally updates rules and deadlines—keep an eye on their website.

Switching to MTD might seem like a hassle at first, but getting organised early will save you time and stress in the long run. If you have any questions about the changes or how they might affect you please do not hesitate to get in contact with Seamus McElvanna, Tracy Dickson or your usual AAB contact.