Making Tax Digital for Income Tax

You may have heard of Making Tax Digital (or MTD) over the past few years, since HMRC launch MTD for VAT back in April 2019.

This was the introduction of submitting your VAT return digitally using compatible software like Xero or QuickBooks.

Since its introduction, we now move towards the next phase of Making Tax Digital, which related to Income Tax.

This will be mandatory in the following implementation stages:

• 6^th April 2026: for those with qualifying income over £50,000
• 6^th April 2027: for those with qualifying income over £30,000.
• 6th April 2028: for those with qualifying income over £20,000.

As of 6th April 2028, all individuals earning over £20,000 annually will be required to comply with Making Tax Digital for Income Tax.

What do these changes mean for you? 

Below, we’ve set our what these changes will mean for you, the actions that you need to take, along with important dates for your diary.

We understand there is a lot of new information to digest here so should you have any questions, or want to speak to a member of the Whyfield team, please get in touch.

Step 1: Does this apply to me?

You will need to use Making Tax Digital for Income Tax if you are an individual registered for self-assessment and:

• You have income from self-employment and/or property (referred to as qualifying income).
• Your total qualifying income is £30,000 or more.

Total income received means income before any deductions for expenses or taxes, it does not mean profit made. It does not include income from employment, dividends, partnerships or savings.

Step 2: When do I need to start taking action?

If the qualifying income reported to HMRC on your 2024/25 tax return is over £50,000, you will be required to use MTD from 6^th April 2026. Please go straight to step 3.

Important notes:

If you start trading or receiving rental income part way through the tax year, you will need to gross up your earnings to estimate a full year’s worth of income when considering if you need to comply with MTD from 6^th April 2026.

Example:

‘Self-employment started on 1^st October 2024 and the turnover reported on your 2024/25 tax return was £27,000, which covered the period 1^st October 2024 to 31^st March 2025.

This was a 6-month trading period so you would need to divide £27,000 by 6 and multiply this by 12 to give you a grossed up ‘annual turnover’. In this case you would be sitting at around £54,000, if you had traded for the full 12 months, and would therefore need to use MTD from 6^th April 2026.’

If this is you, please go to step 3 to see what your next steps are.

Please note that this will not affect your tax or turnover reported on your tax return, it is only being used to work out if you need to comply with MTD from 6^th April 2026.

For those of you who are not receiving income at those thresholds for 2024/25 please go to step 4 to see if you will fall into Phase 2.

Step 3: My qualifying income is over £50,000. What action do I need to take before 6^th April 2026?

• Firstly, you will need to complete and submit your 2024/25 tax return to HMRC before 31^st January 2026.
• If your qualifying income exceeds £50,000, HMRC will write to you to confirm that you’ll need to start using MTD by 6^th April 2026.
• Compatible software will need to be set up, if not already used, and MTD authorised within it.
• You will need to have signed up for Making Tax Digital for Income Tax.

As agents we are able to support you through the whole process including software set ups, authorisations and sign-ups.

What happens after 6^th April 2026?

You may need to change the way that you report your income and expenses to HMRC along with maintaining digital records.

Quarterly submissions, in line with the tax year, will need to be made using compatible software to report your income, expenses, and profit from your self-employed or rental business. In addition, a Final Declaration at the end of the year must be made that includes all other taxable income.

Quarter 1 will cover the period 6^th April to 5^th July with a filing deadline of 7^th August with the remaining periods following this pattern. It will be possible to elect for calendar quarters such as 1^st April to 30^th June, the deadline for submission does not change with this election.

This means that rather than collating your information on an annual basis, you will need to keep it up to date more regularly.

Digital records can be kept either in software or spreadsheets, paper records will no longer meet legal requirements.

The payment dates for tax will remain the same as under Self-Assessment, payable by 31^st January each year with payments on account for the following year due 31^st January and 31^st July where applicable.

Step 4: My qualifying income is over £30,000.  What action do I need to take before 6^th April 2027?

• Firstly, you will need to complete and submit your 2025/26 tax return to HMRC before 31^st January 2027.
• If your qualifying income was £30,000 or more HMRC will write to you to confirm that you will need to start using MTD by 6^th April 2027.
• Compatible software will need to be set up if not already used and MTD authorised within.
• You will need to have signed up for Making Tax Digital for Income Tax.

FAQs

Can I apply for an exemption?

If your income is under £30,000 you are automatically exempt.

Once you are in the MTD system ,you will only then become exempt if your qualifying income falls below the £30,000 threshold for three consecutive tax years.

You may be able to apply for an exemption from using MTD for Income Tax if either of the following apply to you:

1. It isn’t practical for you to use digital software to keep digital records or submit them – this may be due to your age, disability, location or another reason
2. You are a practising member of a religious society whose beliefs are incompatible with using electronic communications or keeping electronic records.

What is the penalty regime for non-compliance?

Penalties for late submissions and late payment will be calculated on a points-based system. One point will be received each time a submission deadline is missed which will then accumulate until a threshold is reached what is the threshold?, at which point a £200 penalty will be issued. Any further late or missed submission from that point onwards will result in an immediate £200 penalty also.

You will be able to ‘reset’ your position after a set period of compliance, which will be four quarterly updates, or two end of year returns, as well as having submitted all returns for the previous 24 months.

Tips for navigating MTD for Income Tax

• You might consider setting up or using a separate bank account for your self-employed or rental business so that it will be much easier to distinguish between business and personal transactions within the software.
• HMRC are allowing people to sign up voluntarily ahead of it becoming mandatory to allow people to get used to the new system. There are a few criteria that you must meet to be able to do so which can be found here, and on the below HMRC link.
• Speak to your accountant or bookkeeper to get a plan in place so that you can be sure you understand your new obligations and what this looks like for you and your business.

Sign up voluntarily for Making Tax Digital for Income Tax – GOV.UK

As always, if you have any questions or you’d like further support, please get in touch.

Give us a call on 01872 267 267, email us contact@whyfield.co.uk, or message us on WhatsApp 0777 49 39 111