Making Tax Digital for Income Tax:

What is it and what does it mean for taxpayers?

Making Tax Digital (MTD) is a new reporting system by HM Revenue and Customs (HMRC) designed to encourage digital record keeping and help reduce errors. Here is a detailed look at the main points of MTD for Income Tax and how it can actually be a benefit to taxpayers.

Income in excess of £50,000

From April 2026, individuals who are under self-assessment and have a total turnover of qualifying income in excess of £50,000 will be required to submit quarterly updates, along with a final declaration.

Income in excess of £30,000

From April 2027, individuals who are under self-assessment and have a total turnover of qualifying income in excess of £30,000 will be required to submit quarterly updates, along with a final declaration.

Income in excess of £20,000

From April 2028, individuals who are under self-assessment and have a total turnover of qualifying income in excess of £20,000 will be required to submit quarterly updates, along with a final declaration.

Qualifying income is that from self-employment and/or rental income. It is the amount of total turnover, meaning the amount before any deductions such as expenses.

If you start receiving such income part way through the tax year, HMRC will use this to estimate the annual total and determine if your income exceeds the MTD threshold.

If you jointly own a property, this will be your share of the rental income received and not the total.

Under MTD for Income Tax, taxpayers are required to submit updates to HMRC every three months. These cumulative quarterly updates will summarise income and expenses, providing a near real-time view of tax liabilities. The standard update periods are based on the tax year, and updates must be submitted within one month after the end of each quarter. This means the deadlines are:

The payment dates for tax under MTD remain the same as the current Self-Assessment system. Tax is payable by 31 January following the end of the tax year, with payments on account due by 31 January and 31 July for the following year.

Rather than receiving a fine immediately after missing a deadline, a points system has been introduced. Taxpayers will receive one point when missing a submission deadline, once they hit the threshold of four points, a £200 penalty will be issued. For any further late submissions
another £200 penalty will be issued. To ‘reset’ the penalty points, two full years of compliance is required.

HMRC are currently reviewing the criteria for exemptions and exiting MTD. As it stands, you can only exit if your qualifying income remains below the annual threshold for three consecutive years. Please refer to the section ‘Thresholds’ above to see which threshold applies to each year MTD is being implemented.

Transitioning to MTD for Income Tax can be challenging, and there are several common mistakes to avoid:

Making Tax Digital for Income Tax represents a significant shift towards a more modern and efficient tax system. By understanding the thresholds, reporting requirements, payment dates, penalties, common mistakes, and the process for exiting, taxpayers can better prepare for this transition. Embracing digital record-keeping and timely updates will not only help in complying with HMRC’s requirements but also provide a clearer picture of your tax liabilities throughout the year.

If you have any questions or need further assistance, please contact us and our Tax team will be happy to help!