Making Tax Digital for Income Tax: Who is affected and how to prepare

From April 2026, individuals with income from self-employment and/or property will be required to keep digital records and report income quarterly under Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA), starting with those generating turnover from self-employment and/or rental income over £50,000.

If this applies to you, preparation is important, and we are here at Gerald Edelman to support you every step of the way.

What is MTD for Income Tax?

Making Tax Digital is HMRC’s initiative to modernise the tax system by requiring:

•  Digital record-keeping of income and expenses.
•  Quarterly updates submitted to HMRC via approved software.
•  A final year-end declaration to complete your Tax Return.

The aim is to reduce errors, improve accuracy, and encourage real-time tax visibility.

Who will be affected and when?

From 6 April 2026, MTD for ITSA will apply to individuals who:

• Are self-employed and/or landlords, and
• Have combined gross income over £50,000 from these sources.

From 6 April 2027, the threshold reduces to £30,000, and from April 2028 it reduces further to £20,000.

Note: These thresholds are based on gross income before expenses, combining income from self-employment and property. If you exceed the threshold in one tax year, MTD applies from the following April. Once you are mandated into MTD, you will only become exempt if your qualifying income falls below the MTD income threshold for three consecutive years, therefore, the position will need to be reviewed carefully for this period.

Important: HMRC assesses eligibility based on the gross income reported on the most recently filed Tax Return. For example, if your 2024/25 Tax Return (due 31 Jan 2026) shows rental income of £26,000 and sole trader income of £26,000, the combined total (£52,000) exceeds the £50,000 threshold such that you will be required to enrol for MTD from April 2026.

What will you need to do?

1. Keep digital records using HMRC-approved software.
2. Submit quarterly updates to HMRC (these are required to be updated on a cumulative basis).
3. Submit a year end declaration.

Keep digital records

You must maintain digital records using MTD-compatible software or spreadsheets which must be physically uploaded using bridging software.

Submit quarterly updates

Every three months, you will need to submit a summary of income and expenses for each income source (e.g. one for your sole trade, one for UK property, and a separate submission is required for an overseas property business).

• Q1 (6 Apr – 5 Jul): due 7 August.
• Q2 (6 Jul – 5 Oct): due 7 November.
• Q3 (6 Oct – 5 Jan): due 7 February.
• Q4 (6 Jan – 5 Apr): due 7 May.

These quarterly updates are not full tax returns. You can submit estimates, and, at present, there are no penalties proposed by HMRC for inaccuracies, although HMRC encourages accuracy as part of the digital reporting process.

Submit a Year-End Declaration

The Final Declaration replaces your current Self-Assessment Return and includes:

• Adjustments (e.g. capital allowances, private use).
• Other income (e.g. salary, benefits, pension income, interest, dividends).
• Relevant chargeable gains subject to Capital Gains Tax.
• Relief claims (e.g. Rent-a-Room, pension contributions, charitable donations, or other reliefs).

The deadline for this submission is 31 January after the end of the tax year.

What income counts towards the threshold?

Included:

• Self-employment income.
• UK property rental income.
• Overseas property rental income.

Excluded:

• Employment income.
• Investment income (interest and/or dividends).
• Pension income.
• Partnership income.
• Rent-a-Room or property allowance (if not otherwise in scope).

Where the property is held jointly, only your share of the income is counted.

Already receiving letters from HMRC?

HMRC have gradually begun issuing letters from Spring 2025 to taxpayers whose 2023/24 Self-Assessment Returns show gross income over £50,000. The letters are intended to raise awareness and help taxpayers prepare for the upcoming changes. If you are unsure what it means for you, please contact us. We will review your position and guide you on the steps you may need to take to be ready in advance of the changes from 6 April 2026.

What about exemptions and deferrals?

You may not need to follow MTD rules if:

• Your income is below the relevant threshold.
• You are digitally excluded (age, disability, location, religion).
• You are a trustee, foster carer, or personal representative.
• You do not have a UK National Insurance number by 31 January before the tax year.

Some groups (e.g. ministers of religion, taxpayers that submit SA109 schedules ) are deferred until April 2027.

We can check whether MTD applies to you and assist with exemption applications if needed.

What software will you need?

You must use:

• MTD-compatible software or
• Spreadsheets with approved bridging software.

Manual retyping or copy-pasting is not permitted as data must flow digitally.

Penalties for non-compliance

A points-based penalty system will apply, which follows a similar system to the one in place for VAT.

• Late submission: £200 after four missed updates (points-based).
• Late payment (payment deadlines remain the same as for self-assessment):
  • 3% after 15 days.
  • 6% after 30 days.
  • Daily interest applies thereafter.

Different penalties apply to individuals who voluntarily registered for MTD before April 2026.

Do tax payment deadlines change?

No. MTD changes how you report your income, not when you pay tax.

• 31 January – Balancing payment and first payment on account due.
• 31 July –  Second payment on account (if applicable) due.

How Gerald Edelman can support you

We can tailor our support to your needs, including:

• Checking if you meet the MTD requirements.
• Setting up or managing digital records.
• Handling all quarterly submissions.
• Completing your year-end declaration.
• Advising on best practices.
• Ensuring you remain fully compliant and managing all deadlines to avoid penalties.

There will be additional services involved in complying with MTD. Please contact us to discuss your options and the level of support that is right for you.

Have a question?

We are here to help. Please get in contact if you have any questions or require further information.