MTD for Income Tax: What you need to know
GW
What is Making Tax Digital (MTD)?
Making Tax Digital (MTD) is a government initiative aimed at transforming the UK tax system. It seeks to make tax administration more effective, efficient, and easier for taxpayers through the implementation of digital record-keeping and tax reporting.
MTD requires landlords and sole-traders to maintain digital records and submit their tax returns using compatible software. Bascially, bookkeeping will become mandated for small businesses!
Key Benefits of MTD for Income Tax
MTD offers several advantages to taxpayers. One of the primary benefits is the reduction of errors in tax submissions, thanks to improved accuracy in record-keeping. This can lead to fewer audits and discrepancies.
Another significant advantage is the ease of access to tax information. With digital records, taxpayers can quickly access their financial data, leading to more informed financial decisions and timely tax submissions. HMRCs plan is to keep you updated with what tax you are expected to pay, during the year you are working through. So you are able to plan and save for those tax bills way in advance.
Streamlined Tax Processes
Using MTD-compatible software, businesses can automate many tax-related processes, saving time and reducing the burden on administrative time/staff. This streamlined approach can enhance productivity and allow businesses to focus on growth and development.
Who Needs to Comply with MTD?
MTD for Income Tax is mandatory for landlords and self-employed individuals over certain thresholds. As of April 2026, businesses with an annual turnover above £50000 are required to comply. However, the scope is expanding to include more taxpayers over time, and expand to Partnerships and Corporation Tax in the future.
How to Prepare for MTD
Preparing for MTD involves several steps. First, ensure that your financial records are digitalized and up-to-date. This may involve transitioning from paper records to digital formats using accounting software.
- Choose MTD-compatible software that suits your business needs - whether that is accounting software such as xero, or bridging software if you wish to use spreadsheets.
- Train yourself/ your staff on how to use the new software effectively. Or hire a professional.
- Regularly update your financial records to maintain accuracy - at minimum quarterly.
- Know when you have to enrol for MTD!
FAQ's
When do I need to comply?
Remember, MTD IT only applies to Landlords and Sole-traders at the moment, who trade in goods and/or services. Only this portion of the tax payers income needs to be over the annual thresholds below -
From April 2026 where total combined turnover was more than £50,000 in tax year 2024-25. You will be processing 26-27 tax year.
From April 2027 where total combined turnover is more than £30,000 in tax year 2025-26. You will be processing 27-28 tax year.
From April 2028 where total combined turnover is more than £20,000 in tax year 2026-27. You will be processing 28-29 tax year.
If you have other income streams such as PAYE or Dividends, these would be added to your final return.
What do I need to send?
Like VAT returns, you will be required to update your accounts quarterly (at minimum), and send a quarterly report to HMRC of your income and expenses for each business. You do not need to account for personal use or simplified expenses at this point, this will be done on your final return. So, get your books fully up to date, and send that information, 4 times per year.
Then, once the tax year is compelted, you have until the 31 January (9 months) to file your final full return. HMRC will compile everything you have sent them, and this is where you add any other income streams and make adjustments to the data that has been sent.
Do I have to pay quarterly like VAT returns?
No!
You are not required to pay anything, but you may want to use the submissions and estimations to save for your tax. You will only be required to pay on the 31 Jan following the tax year you are processing (9 months after the tax year end). You may also have to make a payment on account at the same time if applicable.
What is a payment on account?
When you have to pay over £1000 in tax, you will also be required to pay towards your next tax year.
So, on the 31 Jan, you will need to pay your £1000 tax, plus a POA of £500. So a total payment of £1500.
The following 31 July, you will be required to pay the second POA of £500.
This means, buy the following Jan 31, you will pay/receive a balancing payment, and then pay another POA towards the next tax year.
What are the submission deadlines?
Whether you choose to file according to the tax calendar, or yearly calendar, the submission deadlines are the same, and you will have 4-5 weeks to process your data and file.
Tax year quarters:
Q1: 6 Apr – 5 Jul = Due 7 Aug
Q2: 6 Jul – 5 Oct = Due 7 Nov
Q3: 6 Oct – 5 Jan = Due 7 Feb
Q4: 6 Jan – 5 Apr = Due 7 May
Calendar quarters:
Q1: 1 Apr – 30 Jun = Due 7 Aug
Q2: 1 Jul – 30 Sep = Due 7 Nov
Q3: 1 Oct – 31 Dec = Due 7 Feb
Q4: 1 Jan – 31 Mar = Due 7 May
If you are using calendar quarters, you must opt in when submitting your return.
What if I file late?
HMRC are introducing a penalty points system, a bit like points on a driving licence.
Please see the gov.uk website for the latest information. It is not available as of today's date.
I am VAT registered, but my quarters do not line up?
You cannot changed MTD IT dates, but you can opt to change your VAT quarters to match, which will make it easier for you
I have more than one business. Will I need software for each?
That depends on the software you wish to use. Some softwares have explored ways to have all your income coming into one peice of software, where you can then select what business the income/ expense is for, and this pulls through into MTD reports seemlessly.
For others, you may want to keep it separate. You do not have to use the same software for each business if you do not want to.
But, you will need to submit separate MTD reports for each business.
If you have multiple properties in the UK, these can be submitted together.
I am worried about how much this is going to cost me
There are options out there to keep your costs down.
You do not have to have a professional submit your quarterly updates, but you may want to keep one on board to submit your final return once the year is complete.
In terms of software, there are affordable options out there, and also free ones.
If you are using bridging software for submitting spreadsheets, there are free versions available.
If using software, you are more likely to incur a charge, but the process will save you time.
Final thoughts
Personally, I am excited for MTD! Bookkeeping is not an admin task, it is highly important in providing insights into your business finances. The more often you delve into your books, the more you will learn from it. So, I think that forcing small business to mandate their books, will be invaluable to them!
It also prompts clients to keep on top of things rather than leave it till 9 months after the year end, where you can see 'how you did'. Now you can see 'how you are doing!'
You will be given tax estimations on every return which can help you prepare better for your tax bill instead of getting a shock and worrying about paying it.
I do not think MTD is going to make anyones life harder. I think it is a positive change and should be embraced.
If you are looking to complete your accounts yourself, I can coach you through my DIY Books service in how to use Xero effectively, and how you can submit your own quarterly reports.
And if you are looking for a professional to help you, I am more than happy to. This is my bag!