You’ve Received Your Letter from HMRC — What’s Next?
If you’ve recently received a letter from HMRC about Making Tax Digital (MTD) for Income Tax, you’re not alone. HMRC has started writing to sole traders and landlords with combined turnover over £50,000 to prepare them for major changes starting from April 2026.
But what does it mean for you — and what should you do next?
First, what is MTD for Income Tax?
MTD is HMRC’s drive to modernise the UK tax system, moving away from yearly paper tax returns toward real-time, digital reporting. From April 2026, individuals with qualifying turnover over £50,000 from self-employment, UK property, or foreign property income will be required to:
Keep digital records
Submit quarterly updates to HMRC
Submit a final year-end declaration
This will change the way millions of people manage their tax affairs.
What Happens After You Receive the Letter?
The action you need to take depends on your current situation. Here’s how it breaks down:
1. I’m NOT VAT registered and NOT using MTD-compliant software
- You will need to start keeping digital records and using HMRC-recognised software well before April 2026.
- You’ll also need a separate business bank account to streamline income and expense tracking.
2. I’m NOT VAT registered but ALREADY using MTD-compliant software
You’re ahead of the game — but you’ll need to adjust your bookkeeping and submissions to meet quarterly deadlines for each income stream.
3. I’m VAT registered but NOT using MTD-compliant software
You’ll need to upgrade your software to one that supports both VAT and Income Tax under MTD rules. This is crucial to remain compliant across both taxes.
4. I’m VAT registered and already using MTD-compliant software
Great start! However, you will still need to prepare for additional quarterly submissions for Income Tax — separate from your VAT obligations.
Practical Steps to Take Now
✅ Review your turnover to check if you’re definitely in scope for MTD.
✅ Enable online banking if you haven’t already — this is key for digital bookkeeping.
✅ Open a dedicated business account if you’re currently mixing personal and business finances.
✅ Choose or review your accounting software to ensure it’s fully MTD-ready (we recommend Xero, FreeAgent, or similar HMRC-approved platforms).
✅ Book a discovery call with a professional — like Exchange Accountants — to create a plan tailored to your business.
Not Sure What to Do Next?
Don’t panic — there’s still time to get ready. Whether you’re a client of Exchange or not, we’re here to guide you through every step of the MTD journey. We’ll help you understand what’s required, set up the right systems, and avoid penalties later on.
Book a discovery call here.
