Making Tax Digital: What’s on the horizon?

As more self-employed people and those with income from property begin to fall into the scope of Making Tax Digital for Income Tax (MTD for Income Tax), it’s important to have a clear understanding of whether you’ll be affected and the necessary next steps.

While MTD was first announced back in 2015, delays and changes to its rollout mean that so far, it’s only been mandatory for VAT-registered businesses.

However, from April 2026, it will become mandatory for self-employed people and landlords with an annual qualifying income above £50,000, with this threshold dropping over the subsequent two years.

Read on to find out exactly what MTD for Income Tax is and what you need to do if it affects you.

Making Tax Digital is designed to reduce inaccuracies through regular, digital record-keeping

The thinking behind MTD was to reduce manual errors and close the tax gap – the amount of tax due against that which goes unpaid.

According to gov.uk, the tax gap for self-assessment businesses is around 18.5%, or £5 billion.

As much of this can be attributed to manual errors, using software could remove some of these discrepancies, ensure businesses are paying the right amount of tax, and save time on correcting inaccuracies.

MTD is already in place for VAT-registered businesses, and the next steps are to roll it out to those on Income Tax self-assessment.

• • The first phase begins in April 2026 for those with a qualifying income above £50,000.
  • The next phase starts in April 2027 for those with a qualifying income above £30,000.
  • There may be further expansion, although this hasn’t yet been confirmed.

Making Tax Digital for Income Tax is about precise record-keeping, not paying more tax

There are three key elements involved with MTD for Income Tax, which you’ll need to consider.

1. Keeping digital records

You’ll need to record and store all your income and expenses using compatible software such as QuickBooks, Sage, or Xero. This can either be software that creates digital records or “bridging” software that connects to your existing records, such as spreadsheets or accounting tools.

If you usually use an accountant, speak to them about which software they’re using to make sure it’s compliant, and if there’s anything you need to do differently.

2. Sending quarterly updates

Instead of submitting one annual tax return, as you’ve been used to, you’ll now need to send a summary of your income and expenses to HMRC every quarter, directly from your software.

This doesn’t mean that you’ll be paying tax four times a year; simply that you’ll be updating HMRC more regularly.

3. Submitting a final declaration

This replaces the annual self-assessment return from the end of the tax year. Again, it needs to be submitted via your software and should include any other income sources, such as your pension or dividends.

Keeping abreast of whether you’re in scope of Making Tax Digital will help you be prepared

Even if you’re not self-employed, the new rules could still apply to you. This could be through consultancy or part-time work carried out during retirement, or through being a buy-to-let landlord.

These may feel like time-consuming tasks compared with your usual financial admin of preparing your self-assessment.

In reality, they probably will take some getting used to at first. However, as you become accustomed to providing more frequent records, you’ll likely find your record-keeping becomes much easier to manage.

If you don’t fall into the MTD for Income Tax bracket this year, there’s a good chance you may do so in the next cohort from April 2027, when the threshold will reduce to £30,000.

This means you’ll have some time to get organised, making sure you understand what needs to be done and putting any necessary changes in place.

There are certain exemptions even for those who qualify, but these are strict

Although MTD for Income Tax will be expected of most qualifying people, there will be exemptions for those considered “digitally excluded”.

This means it wouldn’t be reasonable to expect you to keep digital records. You can apply to HMRC for an exemption if you think you meet the criteria, which include:

• • Your age, health condition, or disability prevents you from using a computer, tablet, or smartphone
  • Your religious beliefs are incompatible with using digital communications or keeping digital records
  • You can’t get internet access at your home or business because of your location.

However, you can’t apply for an exemption simply because you’re unfamiliar with the software you need to use, or you think it will take extra time or be an additional cost for you.

Get in touch

HMRC has announced that it will be lenient with penalties during the 2026/27 tax year, but full penalties will take effect from 2027/28.

However, submitting quarterly returns from the outset is mandatory, and it’s a good idea to get into the right habits from day one.

If you’d like to talk to us about MTD for Income Tax, or any other aspect of your financial planning, we’ll be happy to help. Please email us at info@harperlees.co.uk or call 01277 350560 to find out more.

Please note

This article is for general information only and does not constitute advice. The information is aimed at individuals only.

All information is correct at the time of writing and is subject to change in the future.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate tax planning.