What Is MTD for Income Tax?
Making Tax Digital for Income Tax (MTD for ITSA) is a major overhaul of how sole traders and landlords will record income and file returns. Under this system, those with combined gross income from self-employment and property over certain thresholds must:
- keep digital records via HMRC-recognised software;
- submit quarterly updates of income and expenses;
- complete an end-of-year return, which will use these quarterly updates plus HMRC-held data. (gov.uk)
Who’s Affected When
| Tax year | Qualifying income threshold | Mandatory start date |
|---|---|---|
| 2024-25 | Gross income over £50,000 | From 6 April 2026 (gov.uk) |
| 2025-26 | Gross income over £30,000 | From 6 April 2027 (gov.uk) |
| 2026-27 | Gross income over £20,000 | From 6 April 2028 (gov.uk) |
"Qualifying income" refers to total gross receipts from self-employment and property before costs or deductions. (gov.uk)
New Penalty Regime – But with Grace for Early Adopters
- Submissions not meeting the deadline lead to penalty points. Once an individual accrues 4 points, a financial penalty (usually £200) is applied. (gov.uk)
- Those joining MTD from 6 April 2026 won’t incur penalty points for their first 4 quarterly updates, giving time to settle into the new system. (assets.publishing.service.gov.uk)
- Late payment penalties become more proportionate, based on how long payments are late (regime announced in Autumn Budget 2025) rather than harsh fixed penalties. (gov.uk)
How to Prepare Today
- Check your latest Self-Assessment return — is your combined gross self-employment + property income over £50,000 for 2024-25? If yes, you’re in scope from April 2026. (gov.uk)
- Choose compatible software that supports:
- digital record-keeping;
- quarterly summary submissions;
- calendar quarter options if your accounting period ends 31 March. (developer.service.hmrc.gov.uk)
- Register early. HMRC is writing to those likely to be affected so you know ahead of time. Agents should start signing up clients now. (gov.uk)
- Stay on top of updates and guidance, including changes to penalty schedules and draft legislation. HMRC issues interim guidance and technical specifications for mandatory payrolling, benefits-in-kind, and other compliance items. (gov.uk)
Practical Examples
- Emily is a landlord; her 2024-25 property income is £25,000 and she also has £30,000 self-employment income. With a combined total of £55,000, she must use MTD from 6 April 2026.
- David is a sole trader earning £45,000 in 2024-25 and no property income. He’s under the £50,000 threshold, so he’s not mandated until April 2027 if his income crosses £30,000 in 2025-26.
Actionable Tips
- Keep records digitally now, even if you’re not yet mandated—you’ll save time later.
- Use the “calendar quarter” election if your accounting year is 1 April-31 March to align with software deadlines and avoid small date adjustments. (developer.service.hmrc.gov.uk)
- Consider seeking advice from an agent or accountant, especially if you have mixed income sources or foreign properties.
By preparing in advance, those affected will avoid penalties, reduce stress when legislative changes take effect, and benefit from a smoother, more transparent way of managing their tax affairs.