Making Tax Digital for Income Tax: What It Means and Who It Affects
Making Tax Digital (MTD) for Income Tax is the most significant change to the UK tax system in a generation. Designed to modernise tax reporting and reduce errors, it marks a shift away from annual tax returns to a more real-time, digital-first approach.
If you’re a sole trader, landlord, or self-employed individual, this change could affect how you run your business, manage your records, and interact with HMRC.
Here’s what you need to know.
What Is MTD for Income Tax?
MTD for Income Tax is part of the wider Making Tax Digital programme — a government initiative aimed at making tax easier, more efficient, and less prone to error.
Under this new system, individuals will be required to:
Keep digital records using HMRC-approved software
Submit tax information every quarter instead of annually
Send a final end-of-year declaration to confirm their tax position
This replaces the current Self Assessment process for those within scope.
Who Will Be Affected?
You will need to comply with MTD for Income Tax from April 2026 if:
You are self-employed or receive rental income (UK or foreign)
Your combined turnover from these sources exceeds £50,000
If your total turnover is between £30,000 and £50,000, you’ll be required to join the scheme from April 2027.
Those earning between £20,000 and £30,000 are currently outside the mandate but may be brought into the scheme in future years, according to HMRC.
❗ Important note: Turnover means total income before expenses. Even if your profit is low, you may still fall within scope if your gross income exceeds the threshold.
What Will Be Required of You?
Once you’re within the MTD threshold, you will need to:
Use MTD-compatible software to keep digital records of your income and expenses.
Send quarterly updates to HMRC for each source of income (e.g., self-employment and rental).
Submit a final end-of-year statement by 31 January following the end of the tax year.
If you have more than one qualifying income stream, you may need to submit multiple updates — for example:
4 submissions for self-employment
4 submissions for rental income
1 combined year-end declaration
That’s up to 9 or 10 tax filings per year compared to one Self Assessment today.
What’s the Timeline?
April 2025: HMRC begins sending letters to those within scope based on their 2023/24 tax returns
April 2026: MTD for Income Tax begins for individuals earning over £50,000
April 2027: MTD begins for individuals earning over £30,000
Future years: A possible rollout for individuals earning between £20,000–£30,000
Why Is HMRC Doing This?
According to HMRC, tax errors cost the UK billions every year — many of them unintentional, due to manual record-keeping or late submissions.
MTD is designed to:
Reduce tax errors
Give individuals and businesses real-time visibility into their tax position
Streamline HMRC’s systems with modern, digital processes
But it’s not just about HMRC. There are real benefits for taxpayers too.
Why MTD Could Be a Good Thing for Your Business
While many see MTD as “yet another compliance burden,” it can be a powerful opportunity if used well.
Here’s why:
Real-time financial insight: Quarterly updates mean you’ll have better visibility over your profits and tax position throughout the year.
No more last-minute surprises: With regular updates, you can plan for your tax bills instead of scrambling in January.
Better decisions: Cleaner records and more frequent reviews help you spot patterns, plan investment, and grow more strategically.
Improved access to finance: Up-to-date financial data makes it easier to secure loans or funding.
Modern tools save time: Most MTD-compatible software offers automation, bank feeds, and app integrations that reduce admin and streamline your processes.
How Exchange Can Help
At Exchange Accountants, we don’t just help you “stay compliant.”
We work with you to make MTD work for your business.
We recommend the best MTD software for your situation
We help you get set up and trained
We manage your quarterly updates and year-end submission
We keep you ahead of HMRC deadlines and help you avoid penalties
We offer planning advice to ensure your reporting supports profitability, not just compliance
Need Help Navigating MTD?
We’ve built a full MTD Resource Hub to help you understand what’s coming and what to do next.
Or you can Book a Discovery Call to speak with a member of our team and get tailored advice.
MTD is coming — but with the right advice, you can be ready. In fact, you might even be better off for it.
