MTD for Income Tax: Are You Ready for April 2026?

From April 2026, a major change is coming for sole traders and landlords. HM Revenue & Customs (HMRC) will make Making Tax Digital for Income Tax Self-Assessment (MTD for IT) mandatory for individuals whose qualifying income exceeds £50,000.

You may hear it called MTD for IT or MTD for ITSA - they mean the same thing. Either way, this is the biggest structural change to income tax reporting since Self-Assessment began. While it introduces new obligations, it also offers an opportunity to improve how you manage your finances.

Who Will Be Affected - and When?

From 6^th April 2026, MTD for IT will apply to individuals whose combined self-employment and property income exceeds £50,000, based on their 2024/25 tax return.

Qualifying income includes:

• Sole trader income
• UK property rental income
• Foreign property income

It does not include:

• Employment income (PAYE)
• Dividends
• Savings income
• Profit share from partnerships or LLPs (currently exempt)

Importantly, the £50,000 threshold relates to income, not profit, and it applies to the combined total of self-employment and rental income.

The government has indicated that the scope of MTD will widen:

• From April 2027 - likely threshold of £30,000
• From April 2028 - potentially £20,000

Although these thresholds may change, the direction is clear: digital quarterly reporting is becoming the norm.

What Will You Need to Do?

Under MTD for IT, the traditional annual Self Assessment return will be replaced with:

• Four quarterly updates
• An End of Period Statement (EOPS)
• A Final Declaration

The Final Declaration replaces the current tax return and must be submitted by 31^st January following the end of the tax year. For 2026/27, that will be 31^st January 2028.

Quarterly Deadlines (First Year Example)

If you fall within the rules from April 2026, your deadlines will be:

• Q1: 6^th April – 5^th July 2026 → due 7^th August 2026
• Q2: 6^th April – 5^th October 2026 → due 7^th November 2026
• Q3: 6^th April – 5^th January 2027 → due 7^th February 2027
• Q4: 6^th April – 5^th April 2027 → due 7^th May 2027

By default, quarters align with the tax year (from 6^th April). If you prefer to report from 1^st April, you must elect in advance.

What Information Is Submitted?

A common concern is that HMRC will see every individual transaction. That isn’t the case. Quarterly updates contain summary totals of income and expenses, grouped into familiar accounting categories similar to those already used in your tax return.

Key points to note:

• The first three quarterly submissions require no tax adjustments
• Transaction-level data is not submitted
• Adjustments (such as disallowable expenses or accruals) can be made during the year or finalised in the last submission

The Final Declaration is where your figures are reviewed, adjusted and confirmed.

Software Is Mandatory

HMRC will not provide its own free filing system for MTD for IT. You must use compatible digital software to maintain records and submit updates.

Recognised platforms such as Xero and QuickBooks allow you to:

• Keep digital records of income and expenses
• Submit quarterly updates directly to HMRC
• Ensure compliance with current regulations

If you have more than one business or property source, you must file separate quarterly updates for each self-employment, UK property business and foreign property business.

While this may sound more complex, digital systems often simplify the process by keeping records organised throughout the year.

The Hidden Advantage

Although MTD for IT is driven by regulation, it can deliver real business benefits.

Maintaining up-to-date digital records means:

• Greater visibility of profitability during the year
• More accurate tax forecasting
• Better cashflow planning
• Fewer last-minute surprises in January

For many business owners, the annual rush to compile records becomes less stressful when bookkeeping is kept current. Quarterly discipline often leads to smoother year-end reporting.

Penalties: What Happens If You’re Late?

The penalty system is changing alongside MTD.

For quarterly submissions:

• No penalty for the first late submission
• £200 for the second late submission
• £200 for each subsequent late submission

For late payment of tax:

• No penalty within 15 days after 31^st January
• 3% penalty after 15 days
• A further 3% after 30 days
• From day 31 onwards, an additional 10% penalty accrues daily until payment

In short, while reporting becomes more frequent, payment deadlines remain critical.

What About Paying the Tax?

For now, tax payment dates stay the same:

• 31^st January (balancing payment and first payment on account)
• 31^st July (second payment on account)

Changes to the payment timetable are expected from 2029, but nothing has yet been finalised.

Not Sure If It Applies to You?

If you are uncertain whether MTD for IT affects you, you can attempt to register early with HMRC to confirm your position.

As a practical guide, if your combined self-employment and rental income exceeded £50,000 on your 2024/25 tax return, you should begin preparing now.

Final Thoughts

MTD for Income Tax is more than a compliance update - it represents a shift towards real-time, digital reporting. For some, it may initially feel like added administration. For others, particularly those already using cloud accounting software, the transition should be manageable.

Preparation will make the difference. Establishing strong digital record-keeping now will ease the move to quarterly reporting and reduce future disruption.

Taking advice early and reviewing your year-end position ahead of time can make the transition far smoother.

If you operate a franchise and would like tailored advice on MTD for Income Tax, along with support for your year-end accounts, speak to the team at the dt group.