Let’s Break This Down Together...
Keeping on top of your tax can feel like a full-time job especially with new rules like Making Tax Digital (MTD) for Income Tax. You might be wondering what it means for you, when it starts, and what you need to do.
This article walks you through everything from who MTD applies to, how to get your digital records in order, to the software tools you’ll need. We’ll also cover deadlines, exemptions, and how to stay compliant without the stress.
By the end, you’ll know exactly how to get prepared and feel confident about the changes ahead. Let’s dive in.
MTD for Income Tax: What It Is and Why It’s a Big Deal
MTD for Income Tax Self Assessment is HMRC’s initiative to make tax digital. Instead of filing one annual tax return, you’ll need to keep digital records and send quarterly updates to HMRC, followed by a final assessment tax return at the end of the year, replacing the traditional self assessment tax return.
The assessment system is the structured process for submitting yearly tax returns, and Making Tax Digital (MTD) changes how this system works by introducing digital record-keeping and more frequent reporting.
The aim is to make tax more accurate and easier to manage. No more scrambling for receipts at the last minute or trying to remember what happened 10 months ago.
It’s currently scheduled to start from April 2026 for sole traders and landlords with gross income above the relevant MTD threshold of £10,000. The relevant MTD threshold is based on your gross income from self-employment and property, and qualifying income is defined as your gross income before any deductions.
MTD Benefits: Why the Change Matters
Making Tax Digital for income tax is more than just a new way to file your self assessment tax returns it’s a step towards a smarter, more efficient tax system. By switching to digital records and submitting quarterly updates, self employed individuals and landlords can expect greater accuracy in their income tax position. This reduces the risk of errors that can lead to unexpected tax bills or penalties.
With MTD for income tax, you’ll have a clearer, up-to-date view of your tax position throughout the year. This means you can make informed decisions about your finances, spot opportunities to claim allowances, and avoid last-minute surprises. The digital approach also streamlines the process, cutting down on paperwork and the administrative burden for both taxpayers and HMRC.
Accessing your tax digital information online makes it easier to keep track of your income, payments, and any outstanding liabilities. Regular quarterly updates encourage you to stay on top of your records, so you’re always aware of where you stand. Ultimately, making tax digital aims to create a more user-friendly, modern system that benefits everyone involved.
How to prepare for MTD for Income Tax Self Assessment
First, check if MTD applies to you. If your combined income from self-employment and property is over £10,000 annually, you’ll need to comply. Both property income and self employment income count towards this threshold.
Start looking at MTD-compatible software options. There are many choices, from simple apps to comprehensive accounting packages. Make sure the software helps you meet income tax requirements and ensures you are capturing all relevant data for tax purposes.
Begin keeping electronic records now, even if it’s not yet mandatory. This gives you time to get comfortable with new systems before they become a requirement. Keeping electronic records and maintaining accurate financial data is essential, including reconciling bank statements and tracking transactions through your bank account.
MTD Readiness: Are You Prepared?
Getting ready for MTD for income tax means more than just knowing the rules it’s about making sure your systems and habits are up to the task. Start by reviewing your current record keeping methods. Are you still using paper receipts or outdated spreadsheets? Now is the time to consider upgrading to MTD compatible software or accounting software that can handle digital records and quarterly updates with ease.
Check that your chosen software is approved by HMRC and fits your needs, whether you’re a sole trader, landlord, or have multiple income sources. If you’re unsure, a tax adviser can help you select the right solution and guide you through the setup process. Don’t forget to ensure you have a reliable internet connection and a device that can access your digital records whenever you need them.
Familiarize yourself with the MTD requirements, including how to keep digital records, when to submit quarterly updates, and how to file your final declaration at the end of the tax year. By taking these steps now, you’ll be well-prepared for the transition and can avoid any last-minute stress or penalties.
Digital tools you'll need
You’ll need an MTD-compatible software product to submit your quarterly updates to HMRC. This software must connect directly to HMRC’s systems and enable you to file quarterly updates. When choosing a solution, check whether your software provider is approved by HMRC and supports all required features for Making Tax Digital.
Cloud-based accounting solutions offer advantages like automatic updates and access from anywhere. Many also include helpful features like receipt scanning and automatic bank feeds. Make sure to select a software product that is compatible with MTD requirements and can handle digital records for different income sources.
If you prefer using spreadsheets, you’ll need “bridging software” that can take your spreadsheet data and submit it in the correct format to HMRC.
Free options are available, though paid software typically offers more features and support. HMRC maintains a list of approved software providers on their website.
Some businesses may be eligible to join the HMRC testing phase, which allows early access to test your software and processes with specialist support.
Getting your record-keeping in order
Under MTD, you’ll need to record each transaction digitally. This includes all income, expenses, capital expenditure, capital gains, other taxable income, and other information needed for your tax return. For tax purposes, it is important to keep electronic records of all transactions, including capital expenditure and capital gains, to ensure accurate reporting and compliance.
Start by reviewing how you currently track income and expenses. Are you using paper records, basic spreadsheets, or nothing at all?
Set up categories for different types of income and expenses that match those on the tax return. Be sure to also track other taxable income and capital gains as part of your digital records. This makes it easier to complete your quarterly updates.
Consider using apps that let you photograph receipts and automatically add them to your accounts. This saves time and reduces the risk of losing important documents.
Develop a routine for updating your records regularly. Weekly updates are often easier to manage than trying to catch up at the end of each quarter.
Quarterly Updates & Exemptions
MTD for income tax replaces the annual tax return with quarterly updates. You’ll report your income and expenses every three months, using the following schedule: April–June, July–September, October–December, and January–March. Each quarter’s update must be submitted by the 7th day of the following month so, for example, the April–June update is due by 31 July.
At the end of the tax year, a final declaration is still required. This acts like a year-end summary, confirming your income and any reliefs or allowances you’re claiming. The deadline for submitting the final declaration is 31 January after the tax year ends, and it must be done through your HMRC account.
This quarterly approach spreads the admin throughout the year, helping to reduce the stress of one big January deadline. But not everyone will need to follow these rules. If you’re digitally excluded perhaps due to a disability, poor internet access, or religious grounds you may qualify for an exemption.
To apply, you’ll need to show HMRC that using digital tools isn’t reasonably practicable in your case. If you think you’re eligible, it’s important to contact HMRC early to stay compliant while respecting your individual circumstances.
Support, Penalties & Final Prep
Understanding MTD can feel overwhelming, but you don’t have to go it alone. Tax advisers and agents can help set up your digital records, choose the right MTD-compatible software, and ensure your quarterly updates and final declaration are submitted correctly and on time.
Agents can also guide you through the exemption process if you’re digitally excluded, and ensure you claim all available reliefs. If you’re unsure about your obligations, expert advice can help you avoid costly mistakes and keep your tax affairs running smoothly.
Staying compliant is crucial. Missing deadlines or failing to keep proper digital records can lead to penalties. HMRC uses a points-based system for late submissions, and once you reach the threshold, you’ll face a £200 fine, with further fines for continued delays.
To avoid this, keep your records updated, use HMRC-approved software, and stick to all key deadlines. Starting your preparation early can make the transition easier and more manageable.
Although change can be daunting, MTD offers long-term benefits like clearer financial tracking and reduced admin. With the right tools and support, adapting to the new system can actually make tax easier in the long run.
