As accountants, one of our top priorities is keeping clients informed and prepared for upcoming changes. One such significant change is the rollout of Making Tax Digital for Income Tax (MTD for ITSA), which will have a large impact on the way many individuals and businesses report their income to HMRC.
In this blog, we’ll explain what MTD is, provide a detailed overview of MTD for Income Tax, and answer one of the most frequently asked questions: Who does Making Tax Digital for Income Tax apply to?
If you’re a landlord, sole trader, or have multiple different income streams, the following information is essential for staying compliant.
What Is MTD?
Making Tax Digital (MTD) is a UK government initiative aimed at transforming the tax system to make it more efficient, effective, and easier for taxpayers to comply with. At its core, MTD requires individuals and businesses to:
- Maintain digital records of their income and expenses
- Submit quarterly updates to HMRC using MTD-compatible software
- Replace the traditional annual self-assessment tax return with more regular, digital reporting
The first phase of MTD was introduced for VAT in 2019 and is now mandatory for nearly all VAT-registered businesses. The next major phase, MTD for Income Tax, is set to be rolled out in stages starting from April 2026.
What Is MTD for Income Tax?
MTD for income tax will replace the current self-assessment system for those who earn income through self-employment, property rental, or a combination of the two. It’ll replace the current self-assessment system that’s in place so instead of submitting a SATR once a year, you’ll be required to keep track of and record finances throughout the year. Important to note – your income will need to be above £50,000 to qualify for MTD.
This includes:
- Keeping digital records using MTD-compatible software
- Submitting quarterly updates to HMRC, reporting income and expenses every 3 months
- Submitting an End of Period Statement (EOPS) which finalises your income for the year plus any adjustments
- Completing a Final Declaration (replacing the current Self-Assessment return), which includes any additional income and calculates the final tax liability
This new process is designed to provide more real-time visibility of tax obligations, reduce errors, and simplify recordkeeping.
Who Does MTD for Income Tax Apply To?
MTD for Income Tax applies to individuals who:
- Are self-employed (sole traders)
- Are landlords with rental income from UK property
- Earn a total gross income of more than £50,000 per year from April 2026
Let’s break this down in more detail…
1. Self-Employed Individuals
If you’re a sole trader and your gross income (income before deducting any expenses or allowances) from self-employment is over the threshold (£50,000 from 2026), you’ll need to comply with MTD for Income Tax.
2. MTD for Landlords
If you’re a landlord and earn income from renting out UK property, MTD for Income Tax applies to you once your gross rental income exceeds the threshold. This includes income from residential lettings, commercial property, and furnished holiday lets.
MTD for landlords is super important as up until this point, you might not have considered yourself as a ‘business’. The new rules mean that you’ll now need to follow more business-like reporting rules in order to comply with MTD.
3. Multiple Income Streams
If you receive both self-employment and property income, HMRC will combine your gross income from both sources to determine whether MTD applies. For example:
- £30,000 from freelance consulting
- £25,000 from property rental
Total: £55,000, in which case MTD applies.
Who Is Exempt from MTD for Income Tax?
Not everyone has to comply with MTD. If you’re self employed and/or a landlord but your total gross income is under £50,000 per year, you won’t need to worry about moving to digital just yet. That being said, it’s a good idea to prepare either way, as from April 2027, the threshold will be lowered to £30,000.
Another exception is if you’re classed as digitally excluded, due to factors like age, disability, or lack of internet access. You can apply to HMRC for an exemption if this is the case, but approval isn’t automatic and needs to be justified with evidence.
MTD-Compatible Software: What You’ll Need
To comply with MTD for Income Tax, you’ll need to keep your records and submit your tax data using MTD-compatible software. This could be:
- A cloud accounting platform (e.g., QuickBooks, Xero, FreeAgent)
- A spreadsheet linked to bridging software
- A bespoke solution if you have complex reporting needs
Most importantly, software needs to be able to maintain digital records, submit quarterly reports and final declarations, and be able to communicate securely with HMRC’s digital systems.
For landlords and sole traders currently using manual spreadsheets or paper records, this will be a significant change and one that requires forward planning.
Why Start Preparing for MTD for Income Tax Now?
While the mandatory start date for MTD for Income Tax is April 2026, Future You might really thank Current You if you start preparing now!
Aside from needing time to choose and learn new software, the sooner you start digital recordkeeping, the sooner you might be able to uncover issues or gaps in your documents. It sounds trivial, but getting into the habit of keeping receipts and recording your finances throughout the year means you can avoid the stress and pressure that comes with last-minute submission panic. Not to mention, a lot less chance of errors and penalties this way.
As accountants, we recommend a soft launch approach: start keeping digital records now and make quarterly submissions voluntarily. This allows you to work out any teething problems before it becomes mandatory. It’s a win-win situation!
Final Thoughts
MTD for Income Tax is more than just a change in reporting, it’s a shift in how landlords and self-employed individuals manage their finances year-round. While the initial transition may seem daunting, the long-term benefits include better organisation, fewer surprises at year-end, and more accurate tax planning.
Whether you’re a landlord, sole trader, or someone with multiple income streams, if your earnings are above £30,000, this legislation will apply to you in the next couple of years. The good news? With the right tools and support, the transition doesn’t have to be difficult.
Need Help Getting MTD Ready?
We help clients across the UK prepare for MTD for Income Tax with personalised advice, software recommendations, and step-by-step guidance. If you’re unsure where to start, get in touch . After all, we’re here to make the process as smooth and stress-free as possible.
