Making Tax Digital for Income Tax / Individuals
HMRC are in the process of introducing radical changes to record keeping and reporting, which will impact on the majority of individuals and businesses. It’s under the umbrella of Making Tax Digital.
It’s part of a bigger process to modernise tax collection and utilise information from various sources, including your bank. Undoubtedly it’s the start of a process to move towards “real time” tax collection.
Making Tax Digital ( MTD ) places a higher burden on the taxpayer in terms of administration and maintaining proper books and records. Essentially, many taxpayers will be required to keep records digitally, in specified formats, and will be required to submit digital reports to HMRC every quarter. You will also need to submit a summary report each year, as now (your tax return).
It’s definitely the end of “shoebox accounting”, and at worst, it’ll be like doing a tax return five times a year.
Coming April 2026…
Making Tax Digital For Income Tax
Making Tax Digital for Income Tax is a new way of reporting income and expenses if you’re a sole trader or landlord. Making Tax Digital for Income Tax will become mandatory in phases, starting from 6 April 2026.
Under the new way of reporting, sole traders and landlords must use compatible software that creates and stores digital records of their business income and expenses, sends quarterly updates to HMRC and submits a tax return and pays tax due by 31 January the following year.
It’s 4 sets of mandatory quarterly reports plus a return to pull in all your other income and expenditure at the end.
You’ll need to use Making Tax Digital for Income Tax soon if all the following apply:
- you’re an individual registered for Self Assessment
- you get income from self-employment or property, or both
- your qualifying income is more than the threshold*
What is included in your qualifying income?
Your qualifying income is the total gross income that you get in a tax year from self-employment and property BEFORE you deduct expenses.
All other sources of income reported through Self Assessment, such as income from employment (PAYE), a partnership or dividends (including those from your own company), do not count towards your qualifying income.
For example, your gross income (income before you deduct expenses) could be:
£50,000 PAYE income from employment
£25,000 from rental income
£27,000 from self-employment income
In this example, your total qualifying income would be £52,000.
Why You Need To Act Now
How HMRC will assess your qualifying income
To assess your qualifying income for a tax year, HMRC will look at the Self Assessment tax return that you submitted in the previous tax year.
For example, to assess your qualifying income for the tax year 2026 to 2027, they’ll look at the tax return that you’ll submit by 31 January 2026. This tax return is for the tax year 2024 to 2025.
After your return is submitted, they’ll check if your qualifying income is more than £50,000. If it is, they’ll let you know when you must start using Making Tax Digital for Income Tax.
The government has announced they will also bring partnerships into scope of Making Tax Digital for Income Tax at a later date.
What will happen by 6 April 2026
You need to submit your Self Assessment tax return for the 2024 to 2025 tax year by 31 January 2026.
- HMRC will review your return and check if your qualifying income is more than £50,000.
- If it is, they will write to you and confirm that you must start using Making Tax Digital for Income Tax by 6 April 2026. We can do this on your behalf.
- We will recommend software software that works with Making Tax Digital for Income Tax and authorise it. Or you can use another system you are comfortable with.
Thresholds
If your qualifying income is more than £50,000 in the 24/25 tax year you need to start using Making Tax Digital for Income Tax from 6 April 2026
If your qualifying income is more than £30,000 in the 25/26 tax year you will need to start using Making Tax Digital for Income Tax from 6 April 2027
If your qualifying income is more than £20,000 in the 26/27 you are likely to need to start using Making Tax Digital for Income Tax from 6 April 2028
How Addicus Can Help You with Making Tax Digital
- We can work out if/when you’ll be impacted by these changes
- Prepare a well-crafted tax return for the preceding year and help you understand which items of paperwork to retain and how
- Recommend appropriate software (primarily Quickbooks or Xero – normally at a substantial discount to subscribing directly) if you wish to capture your ongoing information yourself. Alternatively we can do this for you using our powerful commercial tools. In most cases the cost will be broadly the same. If you’re already using software we can utilise what you’re already doing.
- Provide guidance on how to use the software
- Prepare and submit your quarterly returns
- Prepare and submit your ongoing self-assessment tax returns