What Is MTD for Income Tax and What’s Changing
Making Tax Digital (MTD) for Income Tax requires unincorporated business owners and landlords with gross income above certain thresholds to:
- keep digital records,
- use compatible software,
- submit quarterly updates to HMRC. (gov.uk)
Key thresholds:
- From 6 April 2026, those with income over £50,000 from self-employment or property must comply. (gov.uk)
- From April 2027, the threshold lowers to £30,000. Eventually, a further threshold of £20,000 will apply (date to be confirmed). (gov.uk)
Practical Steps to Ensure Compliance
- Assess your income sources: Include both self-employment and property income. If combined gross income above threshold, you’re in scope. Include profits before deductions.
- Get digital record-keeping systems ready: Must track categories of expenses and income; record finance costs such as mortgage interest separately for property income. Use software tools that are listed as “compatible” by HMRC. (gov.uk)
- Quarterly updates: Plan for reporting every quarter, not once a year. Need to send period summary data (income, expenses, totals) via MTD-compatible software.
- Stay aware of exemptions: Some classes, like ministers of religion, certain entertainers or people permanently overseas, are exempt or deferred until at least April 2029. (gov.uk)
- Prepare ahead for penalty regime: HMRC is refining penalties for late digital submissions and returns. Build buffer into schedules and alert systems. (gov.uk)
Example
Jane is a landlord with incomes from two properties and also freelances as a web designer. Her gross income from self-employment and property together totals £55,000 in financial year 2025-26. She must from April 2026:
- use digital record-keeping software,
- send quarterly updates,
- file year-end submission via compatible software. If her records are missing separated finance cost entries for mortgages or mixed income categories, she may be penalised.
Benefits and Challenges
Benefits:
- smoother cashflow management as updates spread over year,
- easier year-end filing,
- clarity and audit resilience.
Challenges:
- software costs & learning curve,
- accurate categorisation and records (especially for mixed incomes),
- risk of missing deadlines and facing penalties.
Checklist to Stay Compliant
- Confirm whether your income sources and amounts bring you into MTD scope.
- Choose HMRC-recognised software before April 2026. Test run for dummy data.
- Set reminders for quarterly update filing dates.
- Maintain separate records for income sources, especially where property, self-employment overlap.
- Track finance costs separately; ensure joint property income correct categorisations.
Being proactive about MTD for Income Tax compliance now ensures you avoid penalties and stress. For self-employed individuals and landlords, it’s about updating processes, sharpening record keeping, and choosing the appropriate software.