Making Tax Digital (MTD): 7 steps to help you prepare

From 6 April 2026, Making Tax Digital (MTD) for Income Tax Self-Assessment will become mandatory for self-employed individuals and landlords with a combined annual gross income (before expenses) of over £50,000 from any of these sources by reference to what was reported on their 2024/25 tax returns. This threshold will be lowered to £30,000 from 6 April 2027 based on income from their 2025/26 tax returns, and to £20,000 from 6 April 2028 based on income from their 2026/27 tax returns. If you are both self-employed and receive property income, it is the total gross income from both self-employment and property income sources.  

You can choose to follow the rules voluntarily, even if you are not legally required to do so. At the time of writing, partnerships and partnership income is not included in this requirement.  

HMRC will review 2024/25 self-assessment returns to identify individuals with gross income over £50,000 from self-employment and/or rental income. If this applies to you and you submit your tax return by 31 January 2026, you’ll receive a letter from HMRC in February 2026 confirming your obligation to comply with MTD from 6 April 2026.  

If you know you’ll need to follow the rules, start getting ready now rather than waiting for HMRC’s letter to come in. Doing so could leave you with little to no time to prepare for the significant changes. HMRC has a tool to help you check when you’re required to follow MTD.  

If you start being self-employed or receive rental income for the first time on or after 6 April 2025, your gross income will be annualised based on the income reported on the 2024/25 tax return to determine if you meet the criteria for MTD from April 2026. 

Exemptions to MTD

Taxpayers can apply for an exemption to opt out of MTD if:  

• It’s unreasonable or impractical for them to use electronic communications or keep electronic records due to reasons like age, disability, or location.  
• They are a practising member of a religious society whose beliefs prevent the use of electronic tools. 

The application process to apply for an exemption can be found here: Apply for an exemption from Making Tax Digital for Income Tax if you are digitally excluded.

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

• Non-resident companies  
• Trustees, executors, and administrators  
• Foster carers  
• Lloyds member, in relation to your underwriting business 
• Taxpayers with no National Insurance Number on 31 January prior to the start of the tax year 
• Taxpayers under insolvency procedures 

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 for those periods, with a Final Declaration (in place of the Self Assessment Tax Return) to be submitted after the end of the tax year once the taxpayer’s affairs have been finalised.  

HMRC are not providing their own software for this purpose, however, it is important that HMRC approved digital software is used. Choose from HMRC’s list of approved software providers.

WHEN ARE QUARTERLY SUBMISSIONS FOR MTD DUE?

The quarterly updates will be cumulative to also include the data from the quarters submitted before it, and must be submitted by the filing deadlines set out below:  

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

If you want your submission periods to align with month-end and your software supports it, you must elect this before submitting the first update of the relevant tax year. The election stays active until you choose to revert to standard periods. To revert, cancel the election in your software before submitting the first update of the tax year you want to switch back.  

Separate quarterly updates are required for each trade being operated by the taxpayer, and one combined submission made for all income from Land and Property. For jointly held property, only the taxpayer’s share of income (not expenses) must be reported but the flexibility is there to submit all data if available.  

A final end-of-tax-year Declaration, which will replace the current self-assessment tax return for taxpayers falling into MTD, will then need to be submitted to combine all sources of income, reliefs, and allowances to calculate the final tax liability.  This will continue to be due for payment by the normal 31 January deadline.  

There are currently no plans to change the timing of tax payments, and the current system of making payments on account and balancing payments due by 31 January and 31 July after the end of the tax year will remain in place for now.  HMRC have however recently announced that a new consultation will be published in early 2026 regarding the payment of tax. 

WHAT COUNTS AS QUALIFYING INCOME FOR MTD FROM APRIL 2026? 

Any income reported on the Self Employment and Land and Property pages on your tax return for 2024/25 will determine your MTD filing obligations from April 2026. 

If 2024/25 was the first year of receiving income from a qualifying source, the first years income is annualised for the purposes of working out whether you will be required to submit under MTD from April 2026. 

Income from a partnership is not included within MTD, neither is transitional profits being included on the tax return as a result of the basis period reform changes. 

Non UK residents only need to keep digital records and submit under MTD for Self Employment or Property income reportable on their UK tax returns. 

MTD PENALTIES – A NEW POINTS BASED SYSTEM

1 penalty point will be applied and notified to taxpayer for each late submission made. 

HMRC will maintain a separate points tally for each type of submission required they are required to make (Annual, quarterly, monthly) and a financial penalty of £200 will only be applied once a taxpayer reaches the relevant points threshold based on the type of submission being made. 

Submission frequency	Penalty threshold
Annual	2 points
Quarterly	4 points
Monthly	5 points

 

KEY REQUIREMENTS FOR MTD COMPLIANCE

To help you navigate the process smoothly, we’ve outlined the key actions you need to take to stay compliant and avoid any last-minute surprises.  

1. Use MTD-Compatible Software

You are required to use software that integrates with HMRC’s systems. The software must:  

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

2. Keep Digital Records

You must maintain digital records of:  

• Income  
• Expenses  
• VAT (if VAT-registered)  
• Tax adjustments  

3. Quarterly Updates

You must submit quarterly updates to HMRC for real-time tax tracking. For clarity, no payment of tax will be due at this point.  

4. Digital Links for VAT

For VAT returns, you must establish a clear digital audit trail, ensuring that there is no manual copying of data between systems.  

 

WHAT ARE THE BENEFITS OF MTD?

Making Tax Digital (MTD) isn’t just another filing obligation imposed on the taxpayer by HMRC. It comes with some useful benefits for businesses and self-employed individuals. Here are some of the reasons why it’s worth embracing: 

• Fewer Errors, Less Stress- digital records reduce errors from manual entry, lost paperwork, or miscalculations, making your tax figures more accurate and lowering HMRC penalty risks. 
• Saves Time on Admin- automated calculations and direct submissions reduce spreadsheet work.  
• Quarterly updates prevent last-minute tax filing stress.  
• Better Cash Flow Management- quarterly updates give you a clearer view of your tax liabilities, reducing surprises.  
• Easier VAT & Tax Filing- MTD-compatible software automates submissions with no data re-entry needed.  
• More Business Insights- Real-time financial data helps track profits, expenses, and growth opportunities, with some software offering forecasting tools for future planning.  
• Future-Proofing- Digital tax is here to stay, and MTD prepares you for future changes and keeps you ahead of the curve.  

Ultimately, MTD can make record keeping and reporting less of a headache and help you and your business stay organised. 

 

7 STEPS TO HELP YOU PREPARE FOR MTD?

Getting ready for 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- MTD for Income Tax starts in April 2026 for self-employed individuals or landlords earning over £50,000. It will be extended to those earning over £30,000 from April 2027 and over £20,000 from April 2028. 
2. Sign up for MTD- If you must comply with MTD from April 2026, you can sign up early online, choosing the 2026/27 tax year during sign-up. If you wish to be part of the testing process, choose the 2025/26 tax year.  
3. Choose MTD-Compatible Software- Use software that records transactions, generates reports and submits returns directly to HMRC. If you’re unsure, check HMRC’s list of approved software. 
4. Switch to Digital Records- Start recording income and expenses digitally. Many software packages allow you to snap photos of receipts and categorise expenses automatically.  
5. Plan for Quarterly Updates- Unlike the current system, MTD requires quarterly tax updates. Set reminders to stay on top of your submissions.  
6. Test the System Before It’s Mandatory- Start using MTD software now to get familiar with it and resolve any issues before it becomes mandatory. 
7. Stay Informed About MTD Changes- Keep an eye on HMRC for any changes to MTD rules or deadlines.  

Making the switch to MTD may seem challenging at first, but taking the time to get organised now will save you time and stress later.  

HOW CAN AAB HELP YOU?

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

• We will walk you through the upcoming changes and explain how and if they will impact you based on your personal circumstances. 
• We can recommend suitable MTD compatible software options relevant to your needs. 
• We will walk you through the process to ensure you are registered for MTD and agent authorisations put in place as needed so we can assist you when needed. 
• MTD Service packages to suit your needs: 
  • Installation and training delivery on suitable software platforms 
  • Monthly or Quarterly bookkeeping plus MTD submissions 
  • Quarterly MTD submissions 

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 Kirsty Ringland, Seamus McElvanna, Sarah Sargent or your usual AAB contact.