Are you looking for more guidance on the new Making Tax Digital for income tax rules? April 2026 may feel far away for now, but it’ll be on us before we know it! In this Q&A style blog, our expert accountant Tommy Parker gives you the clarity you need to feel confident about upcoming changes.
Q: What is the difference between Making Tax Digital for VAT and Making Tax Digital for Income Tax?
Tommy: The main difference is that Making Tax Digital for VAT (MTD for VAT) applies to VAT-registered businesses, whilst Making Tax Digital for Income Tax (MTD for ITSA) applies to self-employed individuals and landlords with income over £50,000. MTD for VAT has been around since 2022, while MTD for ITSA is set to be introduced in April 2026, meaning qualifying income is based on the 2025/26 tax year onwards.
So while both schemes aim to improve accuracy and efficiency, MTD for Income Tax involves more frequent updates and applies to different income sources.
Q: Who will be affected by Making Tax Digital for Income Tax?
Tommy: Making Tax Digital for Income Tax will mainly affect self-employed people and landlords who earn over £50,000 a year from their business or rental income starting in April 2026. If you earn between £30,000 and £50,000, you’ll need to follow the rules from April 2027. This includes anyone who runs their own business or rents out property – or does both – as long as their combined income hits those thresholds.
The rules don’t apply to limited companies, partnerships, or people earning under £30,000 just yet. If you’re affected, you’ll need to keep digital records and send updates to HMRC every few months using approved software instead of doing one big tax return each year.
Q: How do I find HMRC recognised and MTD compatible software?
Tommy: HMRC provides an up-to-date list of software providers that are compatible with MTD.
Talking to an accountant to get advice for good software is also an option, especially as accountants will have real experience of working with them so can give you the pros and cons.
Q: Is Inside IR35 income classified as self-employment when it comes to MTD for ITSA?
Tommy: Inside IR35 is not classified as self-employment income in this case. for the purpose of this return, it’s classed as employment income which means you wouldn’t need worry about it when it comes to the qualifying threshold for MTD for ITSA, provided that your income tax and National Insurance Contributions are already being deducted at source.
Q: Should I be worried about the data I share with HMRC? What are HMRC’s intents with the data?
Tommy: HMRC are interested in the position you find yourself in – they want to know what you’re getting paid and that you’re paying them correctly, so it’s not about collecting data for malicious use. The intention is to keep you up to date with your submissions and ensure you have digital records. As an accountant, I’d always recommend keeping digital records rather than paper records as you’re less likely to lose important documents. It’s also easier to store and to make changes if needed.
Q: I’m putting a property up for sale which will reduce my rental income and take me out of the threshold. Does past rental income still act as the decision maker for if I need to register for MTD for income tax?
Tommy: Past rental income doesn’t have any effect on registering for MTD for income tax now. Whether or not you qualify for registration in April 2026 is based on what’s been filed for the 2024/25 tax year.
The likelihood, however, is that HMRC will send you a letter once you’ve completed your tax return which asks you to register for MTD for ITSA. This is because they will see that for the 2024/25 tax year, your income was over the £50,000 threshold. As with any registration forms, you’re able to give reasonable excuses as to why you shouldn’t register so in this case, you would give details that you have sold your property and will no longer be earning over the qualifying income amount.
In any case, my advice would be: don’t ignore the letter and hope the problem goes away! It’s best to inform HMRC of these things to avoid any confusion or penalties further down the line. If in doubt, speak to an accountant who will be able to guide you through the process.
Q: As a very small property letting business, will I need separate MTD software for this?
Tommy: If you own a small property letting business, for example is your total income is around £5,000 per year, you won’t need to complete anything. If, however, your self-employed income combined with your small property letting business income takes you over £50,000, you will indeed need two separate softwares to make your submissions.
The reason being at the moment you’re unable to do more than one submission through a singular software. That means you’d need to have two separate FreeAgent accounts set up, for example. This could well change in the near future and we may see the introduction of software that allows multiple submissions.
Q: Does dividend income count towards these thresholds?
Tommy: No, dividend income doesn’t count towards the £50,000. It’s only any self-employment income and landlord income that contributes.
Q: If I retire before April 2026, will my pension contribute to the £50,000 qualifying threshold?
Tommy: Not at all! As detailed above, qualifying income is made up of gross income from self-employment and property letting.
Q: Will MTD negate the need to complete self-assessment forms?
Tommy: No, MTD for Income Tax doesn’t completely replace the self-assessment tax return, but it changes how you report your income and expenses. Instead of submitting one annual return, you’ll send quarterly updates throughout the year using MTD-compatible software, plus a final declaration at the end of the tax year. This final declaration effectively replaces the traditional annual self-assessment form, but you still need to confirm your total income and tax liability. So, while the process is more digital and spread out, you still have to submit a yearly summary, just in a different format.
Q: Is MTD going to be applied to personal tax returns too?
Tommy: MTD for Income Tax currently applies mainly to self-employed individuals and landlords with income over certain thresholds, so it doesn’t cover all personal tax returns yet. If you earn income through a business or rental property and meet the income limits (starting at £50,000 in 2026), you’ll need to follow MTD rules for your income tax reporting. However, if you only have personal income from things like employment, savings, or pensions, MTD won’t apply to your tax return for now. HMRC may expand the scope in the future, but for now, most personal tax returns without self-employment or property income remain outside MTD.
Q: What happens if you have a self-employed partnership?
Tommy: Currently, MTD for Income Tax doesn’t apply to partnerships. Instead, the individual partners who are self-employed within the partnership will each be responsible for their own MTD obligations if their income from self-employment and property exceeds the relevant thresholds. So, while the partnership files a partnership tax return separately, each partner must keep digital records and submit quarterly updates using MTD-compatible software for their personal self-employed income. This means MTD affects the partners individually, not the partnership as a whole, though this may change in the future as HMRC expands the MTD rules.
Q: If I’m both a landlord and an employee at another company, would I just record my rental income and not my salary?
Tommy: Yes, exactly. If you’re not self-employed, your qualifying income comes from your rental income only. The only time you need to make HMRC aware of all your income is when completing your self-assessment tax return at the end of the tax year where you’ll include all forms of income.
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