MTD for Income Tax

MTD for Income tax is a fundamental shake up of the self assessment system and will change the way the self employed and landlords report their income to HMRC.  

 

HMRC wants everyone to report their income digitally, which means that tax payers need to keep digital records instead of paper ones, and that means using software to keep records of income and expenses.  

 

HMRC also wants tax payers to report their income quarterly, as opposed to just once per year on the usual self assessment return. This doesn't mean paying the tax quarterly, that will remain due in January and July as it is now, but the quarterly updates reporting the income give the tax payer, and HMRC, an indication of how much tax will be due at the year end.  

 

There will be a final return done at the year end which will replace the traditional self assessment return. This will involve adjusting the information reported in the quarterly updates for accounting and tax purposes, declaring other sources of income and claiming allowances and reliefs. This process will have the same deadline as the current self assessment return (31st January after the end of the tax year). 

 

MTD for Income Tax is ulltimately going to apply to all sole traders and landlords but it is being phased in over the next few years.  

 

The exact date a taxpayer has to start depends on their qualifying income. Qualifying income is gross income (e.g. income before taking off any expenses), from a trade or property.  

 

If your qualifying income is £50,000 or more you will need to start in April 2026. Anyone with qualifying income between £30,000 - £50,000 will have to start in April 2027 and anyone will income between £20,000-£30,000 starts in April 2028.  

 

That means if you are self employed earning for example £55,000 you will need to start to get ready for April 2026, which is less than a year away. 

 

It's also worth noting that qualifying income can come from more than one source e.g. you might have £30,000 self employed income and £20,000 rental receipts, meaning you'd have to start reporting quarterly.  

 

If you think this affects you then you'll need to firstly get set up on some software to make sure that from April 2026 you are keeping digital records and you're able to submit quarterly returns. Some examples of software you could use include Xero, Quickbooks, FreeAgent and SAGE.  

 

Once set up you'll then need to decide whether you are going to submit your quarterly returns yourself or get a bookkeeper or accountant to help you.  

 

The next step is to get your 2024-25 self assessment return filed ASAP so you can check your income level and when you'll qualify for MTD.  

 

Then you can choose your software and either set it up yourself or get help to do that. We can help set it up if you decide to work with us.  

 

Then start keeping your records digitally! That might mean you need training on the software or alternatively you need to find someone to help you with the quarterly bookkeeping and final return to HMRC.  

 

However you decide to do it, preparation is going to be key. There will be penalties for late filing of returns and HMRC won't allow returns to be submitted as Nil and amended later.  

 

Get in touch if you need to check whether the new rules will apply to you or you need help sorting out software and getting started. These are big changes to self assessment and need to be managed carefully to avoid penalties so start planning now!