Making Tax Digital for individuals

Making Tax Digital (MTD) is part of Government plans to modernise the tax system. This has the effect of forcing digital records and submissions.

We have already seen the implementation of MTD for VAT. MTD for VAT effectively removed the ability to ‘re-key’ your VAT return boxes before submitting them to HMRC. This was a key part of the Governments drive with the aim of ‘reducing error’ and tax receipts lost as a result of error.

The next phase starting from April 2026 sees the role out of MTD for Income Tax (MTD for IT).

MTD for IT is a new way for sole traders and landlords to report their income and expenses to HMRC and will require individuals and businesses to:

• Keep digital records
• Use software compatible with Making Tax Digital
• Submit updates every quarter and submit a Final Declaration (instead of just one single annual tax return)

From 6 April 2026, some sole traders and landlords must use it, based on their total annual income from self-employment and property.

MTD for IT will be introduced in three phases:

• from April 2026, for those with qualifying income over £50,000
• from April 2027, for those with qualifying income over £30,000
• from April 2028, for those with qualifying income over £20,000

WHAT IS QUALIFYING INCOME

Your qualifying income is the total income you get in a tax year from self-employment and property.

As per HMRC, it is important to note that “All other sources of income reported through Self Assessment, such as income from employment (PAYE), a partnership or dividends (including those from your own company), do not count towards your qualifying income.”

Your qualifying income is also based on Gross income (aka turnover) before you deduct any expenses. Your qualifying income is based on your previous year’s tax return.

For those new to Self Assessment, HMRC have confirmed that:

“You do not need to start using Making Tax Digital for Income Tax until after you submit your first Self Assessment tax return.“

For more detail on qualifying income, see the following communication from HRMC.

https://www.gov.uk/guidance/work-out-your-qualifying-income-for-making-tax-digital-for-income-tax

HOW CAN WE HELP YOU WITH MTD

We can help you select and implement software to suit your needs and keep you compliant.

In addition, on an ongoing basis, we offer the following options:

· Maintain your records on your behalf; or

· You maintain your own records, we review before submission; or

· Supply you with discounted software to facilitate you keeping your own records and making your own submissions.

WHAT ARE THE ADVANAGES

Maintaining a well implemented digital record can be reduce admin whilst leading to a more accurate and timely record of your financial position. We expect the majority of businesses to achieve this using Cloud Accounting software.

WHAT IF I OWN AN INVESTMENT PROPERTY JOINTLY WITH SOMEONE ELSE

Your share of the property income will count as qualifying income. Therefore it is possible that owning a single property will result in multiple individuals having to make their own quarterly submissions under MTD for IT.

WHAT IF MY PROPERTY IS OVERSEAS

If you are UK tax resident and let a property out overseas this will still be counted towards your qualifying income.

WHAT ABOUT PARTNERSHIP INCOME

This is not currently included within the scope of MTD unless you receive disguised investment management fees or income based carried interest.

WILL THERE BE PENALTIES

Yes. HMRC have implemented a new penalty regime based on a points system. More detail can be found here: https://www.gov.uk/guidance/penalties-for-income-tax-self-assessment-volunteers