What does Making Tax Digital mean? 

Making Tax Digital for Income Tax will require self-employed individuals and landlords to keep digital records and send simple quarterly updates to HMRC.

HMRC have said that these changes will help:

• To reduce the chance of taxpayers making errors
• Taxpayers have up to date, accurate information to help with business planning
• To move tax records onto one new system supporting wider improvements now, and in the future, so HMRC can deliver a better customer experience
• To make sure everyone pays the right amount of tax, so that more money can go to funding public services, like the NHS, and supporting growth across the UK.

Who needs to comply and when? 

MTD for Income Tax will require self-employed individuals and landlords to keep digital records and send quarterly updates of income and expenses to HMRC via third party software. 

MTD IT becomes mandatory from April 2026 for individuals with combined income from self employment and/or property over £50,000. 

MTD IT becomes mandatory from April 2027 for individuals with combined income from self employment and/or property over £30,000. 

Later – The government will expand the rollout of MTD to those with (self-employment and/or property) incomes over £20,000 by the end of this Parliament and will set out the precise timing for this at a future fiscal event.

Which income is included in the MTD thresholds test for MTD for IT mandation?

The income thresholds are based on total combined turnover (not profit) from self-employment and/or property income. 

Personal income from other sources such as employment (PAYE), dividends, or bank interest does not count towards MTD mandation.

The “current year minus 2” rule determines which tax return is used when assessing when a taxpayer is mandated. 

This means your  MTD status in any given year is based on the trading from two years prior. 

MTD mandation in April 2026 is based on the 2024/25 self-assessment return, which must be submitted by 31 January 2026. 

MTD mandation in April 2027 is based on the 2025/26 self-assessment return, which must be submitted by 31 January 2027 and so on. This provides stability and means a taxpayer’s status doesn’t change during the year.

What are quarterly updates?

• Quarterly updates are unadjusted summaries of Income and Expenses.
• Every 3 months, MTD software will total the digital records and produce summaries for each income and expense category. These summaries are known as MTD quarterly updates. 
• You’ll submit these from software each quarter 

•      You do not need to make any adjustments before sending quarterly updates

Digital Record and Digital Links 

Digital records for MTD Income Tax are records of ‘financial information’ included in a quarterly update. 

As a minimum, the detail the digital record should consist of is: 

Dates 

Amount 

Category

A digital record is created once the underlying financial information contained in the business records is entered into software/application. 

That software/application then becomes part of the “Functional Compatible Software” set

What you will need to remember

• You will need to use Making Tax Digital for Income Tax from 6 April 2026 if you have a qualifying income of more than £50,000 in the current 2024 to 2025 tax year 

• You must have MTD approved software. Any movements of digital records between systems, for example from record keeping software to submission software must also be digital. All approved products are listed on our software choices page on gov.uk 

• Quarterly updates will be simple summaries of income and expenses generated from digital records in software. This simplifies the end of year tax return process 

Can spreadsheets still be used?

Yes, spreadsheets can be used to keep digital records for MTD ITSA, but you will also need digitally linked bridging software to submit information to HMRC. So yes for keeping and storing the digital records but extra linked software will be needed to enable the filing. This is called bridging software.

Do I need to keep digital scams/copies of invoices and receipts?

No, digital images of invoices or receipts aren’t needed – But this can be helpful! However, you do need to digitally record and store 1. the date, 2. the amount, and 3. tax category for each transaction. This info is called a “digital record” of the transaction. All transactions should have a digital record in MTD.

Are penalties changing in MTD for IT?

A fairer penalties system is being introduced alongside MTD. 

The changes aim to simplify both late submission and late payment penalties, making them fairer and more effective. 

Therefore, for MTD for Income Tax, there will be new late submission penalties and late payment penalties. The new penalties system is a new fairer regime designed to focus on persistent non-compliance rather than the occasional slip up.

Late submission penalties work on a points-based system. 

For each obligation submitted late taxpayers will receive a penalty point until they reach the penalty point threshold (4 points) – which will trigger a financial penalty. A £200 fine will be applied after reaching the 4-point threshold, and penalty points will expire 2 years after the missed submission, provided all future submissions are made on time. 

Late payment penalties are built around the idea that the sooner you pay, the lower the penalty rate will be. If taxpayers are late paying the outstanding balance, a first and second late payment penalty will be issued at set times past the deadline, calculated on a % the tax owed.

Summary of MTD for income tax:

Businesses keep digital records 

Quarterly updates of income and expense sent to HMRC using software 

Simplified end of year process supported by increased auto population 

Key dates for turnover levels to fall under the new requirements:

April 2026: over £50k

April 2027: over £30k 

By the end of this parliament (possibly April 2029): over £20k

There is a new interactive tool on gov.uk

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