20th March 2026Making Tax Digital for Income Tax

The UK tax system is undergoing its biggest change in decades. From April 2026, self‑employed individuals and landlords will start moving over to Making Tax Digital for Income Tax Self-Assessment (MTD ITSA). The aim is to modernise tax administration, reduce errors, and improve real‑time visibility over tax.

What is MTD for Income Tax

Making Tax Digital for Income Tax, or MTD for ITSA, replaces the traditional annual self-assessment tax return, with a new digital reporting system for self-employed individuals and landlords. Taxpayers above a threshold will need to:

• keep digital records of income and expenses
• submit quarterly updates to HMRC
• complete a Final Declaration after the year‑end

Who is affected?

Anyone whose combined turnover from property and self-employment exceeded £50,000 in the 2024/25 tax year will need to move to the new MTD ITSA system unless an exemption applies.

The turnover thresholds drop to £30,000 from April 2027 for entries in the 2025/26 tax year and further again to £20,000 from April 2028 for entries in the 2026/27 tax year.

Exemptions

MTD exemptions fall into two categories: automatic exemptions and exemptions by application.

Automatic exemptions apply to some groups including companies, partnerships and those lacking mental or physical capacity. Furthermore, certain groups, such as Ministers of Religion, Lloyds underwriters, and those in receipt of allowances such as the Married Couple’s Allowance or Blind Person’s Allowance, are also exempt from MTD until at least Summer 2029. This exemption is automatic if declared on 2024/2025 Tax Return, otherwise, a formal application is required.

Some with qualifying income over £50,000 also have a one-year deferral option to April 2027. These include, trust/estate income recipients, taxpayers who filed residence supplementary pages, individuals who made averaging claims, and those claiming qualifying care relief such as foster carers.

Conversely, “digitally excluded” taxpayers or non-resident entertainers must formally apply to HMRC to secure their exempt status.

Applying for exemptions

Taxpayers can apply for MTD exemption via phone or post, either directly or through an agent, with those mandated for April 2026 urged to apply immediately.

HMRC typically responds within 28 days and until an exemption is officially granted in writing, taxpayers remain legally required to follow all MTD digital record-keeping and reporting requirements.

Leaving MTD for Income Tax 

You can leave MTD ITSA if:

• your qualifying income falls below the threshold for three consecutive tax years, or

• you cease self-employment or property letting entirely, or

• you joined voluntarily and choose to opt out

If the trade or letting cessation is reported on the 2024/25 tax return, no further action is required. If the income ceases after that year, taxpayers may still need to comply until the quarter of cessation and must notify HMRC so removal can be applied.

A drop in qualifying income does not automatically absolve a taxpayer from their MTD obligations, unless trade or letting business has ceased. The requirement to remain within MTD for three years still exists.

Digital record keeping 

MTD ITSA requires self-employed individuals and landlords to record every transaction using HMRC compatible software including the date, amount and category. Any transactions you categorise as “expenses” should be  allowable expenses  under existing tax rules.

There are two main types of software:

• Bridging software. You can link this to a spreadsheet which details all your transactions. You can manually fill in this spreadsheet once a quarter.

• Bookkeeping Software (such as Xero, Sage, Freeagent, Quickbooks) that creates digital records of your transactions as they occur. You can link this software to your current account and import transactions automatically.

More information can be found on the government’s website, and choice is likely to be dependent on personal preference, cost and user interface.

Simplification options 

HMRC has introduced several measures to reduce the reporting burden:

• Three-line accounts for annual turnover from self-employment or property income is below the VAT threshold of £90,000.

• Joint owners of property income can report just their gross income every quarter and delay reporting expenses until their final declaration.

• Retailers can report gross daily takings figures rather than recording every individual sale.

From 6 April 2024, the cash basis is default, meaning records reflect money actually received or spent. While these simplifications help, landlords often face unique complexities, ranging from how to treat jointly held properties to the implications for overseas landlords.

How should you prepare?   

Preparing early will reduce stress and ensure a smooth transition.

• Register for MTD:  via the Government Gateway if you meet the threshold before April 2026.

• Consider opening a dedicated bank account for your business you need to categorise for HMRC.

• Choose MTD-Compatible Software that suits your needs and preferences.

What happens if you miss deadlines?  

HMRC will use a points based system for late submissions, with separate penalties for late payments.

The good news is there’ll be no penalties for late quarterly filings in the first year, as long as your final declaration is correct.

How can we help? 

Our experts are on hand to guide you through every stage of the transition to MTD for Income Tax. We can also offer solutions to assist with the preparation of MTD filings. Please contact us to find out more.