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Making Tax Digital (MTD)
All your questions answered:
At MJB Avanti, we are dedicated to helping businesses navigate key changes in tax reporting. One major development taking place is Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA), part of HMRC’s ongoing efforts to modernise the tax system. With this new requirement coming into effect in April 2026, now is the time to start getting ready. To help make things easier, we have put together a simple Q&A that breaks down what’s changing and what you can do to prepare.
Q1: What is MTD for IT?
Making Tax Digital for Income Tax (MTD for IT) is a new approach to reporting income and expenses to HMRC. The idea is to improve the accuracy and timeliness of record-keeping, which helps to reduce errors and supports the government’s aim of closing the tax gap. Under MTD, you will need to keep digital records and send a summary of your income and expenses every three months. These updates must be submitted using MTD-compatible software.
Q2: Who will MTD apply to?
Starting from 6th April 2026, MTD for Income Tax will apply to individuals who meet the following criteria:
- They are a sole trader and/or landlord
- Their total gross income from self-employment and/or property exceeds £50,000 per year
- They are currently required to file a self-assessment tax return
Starting from 6th April 2027:
- This threshold reduces to £30,000
- Whether the limit is exceeded will be determined based on income reported in the 2025/26 tax return
Starting from 6th April 2028:
- This threshold reduces to £20,000
- Whether the limit is exceeded will be determined based on income reported in the 2026/27 tax return
Important: HMRC will review self-assessment tax returns for the 2024/25 tax year. If you reach the deadline and submit your tax return by 31st January 2026, and you meet the above criteria, you will receive a letter from HMRC the following February to confirm that you must comply with MTD from 6th April 2026.
Please note: if you wait to get prepared until you receive this letter from HMRC, this leaves you with no time, contact us today.
Q3: What counts as “qualifying income” for MTD?
Not all income is treated equally when it comes to MTD.
- Income from self-employment
- Income from property rental
- Employment wages
- Pensions
- Dividends
- Interest from savings
Q4: What if I have both property and trading income?
It’s simple – add the two together! If the total reaches £50,000 or more, the MTD rules will apply to you from April 2026.
Important: you will need to send separate 3-month updates to HMRC for each income source. For example, if you are a sole trader and you also have a UK property business, you will be submitting eight updates per year.
Q5: What software do I need for MTD?
The software you choose must be compatible with MTD for IT and approved by HMRC. It is important to focus on what suits your specific needs. It is a good idea to check with the provider to make sure that the product is right for you. If you are unsure, you can get in touch here.
Here are a few examples of digital accounting software that are available now for your consideration –
- Xero MTD for IT
- Sage accounting
- Intuit QuickBooks online
- FreeAgent
Q6: So, what are the new requirements in a nutshell?
Key requirements checklist:
- Keep digital records (this doesn’t mean scanning your receipts. You can continue to keep paper copies if preferred, but every individual transaction must be entered and stored digitally)
- Use software compatible with MTD
- 3-month updates to HMRC
- Complete an end of year statement (this confirms income and finalises tax for the year)
Q7: Is there any support for those who struggle with digital tools?
If using digital tools is not practical for you, for example, due to age, disability or lack of internet access, you may be eligible for a digital exclusion exemption. You can check your eligibility with HMRC. And if you’re feeling overwhelmed by this new system, you can always delegate your online filing and bookkeeping to an accountant. Get in touch here to find out how we can help.
Q8: Will I still need to submit a Self-Assessment tax return?
Although the 3-month submissions under MTD will replace the Self-Assessment tax return, you will still need to submit a final declaration at the end of each tax year to confirm your income and finalise your tax.
Q9: What happens if I don’t comply?
HMRC will apply a points-based system to track missed deadlines, meaning that each late submission or payment earns a point, and once you hit a certain threshold, you’ll face a £200 fine. Falling behind could lead to mistakes in your tax records, ultimately leading to added stress, extra costs and more time sorting things out (and I think we have all got enough of that already!).
Q10: What do I need to do now? Can your firm help me?
You’ll need to decide whether you want to take on the burden of these new reporting requirements yourself, this means ensuring all submissions are accurate and deadlines are met, or whether you’d prefer to engage with us. By doing so, you’ll have access to a dedicated member of our team who can support you with these additional compliance obligations and help make your transition to MTD as seamless as possible.
Getting MTD-ready doesn’t have to be complicated. If you or someone you know operates as a sole trader or landlord with a gross income of £20,000 or more, or if you have any un-answered questions, contact our team today. The sooner you prepare, the easier it will be to transition smoothly into the new system and ensure your tax affairs remain compliant and stress-free!
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