MTD for income tax – Now Required

What is Making Tax Digital for Income Tax?

Making Tax Digital (MTD) for Income Tax is a new way to report income from self-employment and property to HMRC. There will still be an annual tax return completed and filed, this will take into account adjustments, capital allowances, interest received etc.

MTD for Income Tax will require you to keep digital records and send quarterly updates of your income and expenses to HMRC using MTD for Income Tax compatible software. The idea behind this is that self-employed persons like yourself will be able to keep a closer eye on their finances and, more importantly, provide you with an estimate for how much tax you will need to pay when the time comes. Even though you will be required to file quarterly reports with HMRC, payment of tax will still be annual with any tax liability for a tax year due the following January, as is currently the case.

Who does this affect and when?

MTD for Income Tax is being introduced in phases and your eligibility depends on your qualifying income in the 2024/25 tax year.

The qualifying income is the gross income (before expenses and tax are deducted) that sole traders and landlords receive in a tax year from self-employment and property combined, they are not treated separately.

You will legally be required to use MTD for Income Tax from;
6 April 2026 if you gross income is over £50,000
6 April 2027 if you gross income is over £30,000
6 April 2028 if you gross income is over £20,000
Those of you with an income less than the above will not be required to join MTD for Income Tax and will continue to submit annual tax returns as you have been however you can join voluntarily if you wish.

What happens if I ignore this?
HMRC will be monitoring people’s income in the 2024/25 tax year so they will be aware who will be eligible from 6 April 2026.

There will be a points-based penalty system in place for late submissions of quarterly returns. For each missed submission a penalty point will be issued and once you meet a currently unspecified threshold you will receive a financial penalty.

What’s next?

If, after we have completed your 2024/25 tax return, we have identified you as someone with a gross income of over £50,000 we have a plan in place. Our main goal is to get eligible clients set up on compatible software as soon as possible so that you can get used to how it works before 6 April 2026 and you are ready and raring to go when the time comes. We cannot do this until we have completed your tax return for 2024/25 so if you have not got your books into us yet then please do not hesitate.

The software we use here is QuickBooks, our VAT registered clients have been using QuickBooks from as far back as 2018, which is when HMRC introduced MTD for VAT, meaning we have over 7 years of experience in the software.

Once we have identified that you will need MTD for Income Tax we will get you signed up to QuickBooks and provide you with a one-to-one lesson in how to use it. We will also provide you with ongoing support should you require any further assistance further down the road.

As QuickBooks wholesalers we can also provide subscriptions considerably cheaper than you may have seen advertised so you would be saving on taking out a subscription with us rather than an alternative software provider.

In closing, if you think your gross income may be over £50,000 in the 2024/25 tax year, and you have not yet done so, please get your paperwork into us as soon as possible.