Making Tax Digital for Income Tax – What taxpayers need to know

Making Tax Digital (MTD) is one of the most significant changes to the UK tax system in recent years. It is part of HMRC’s long-term plan to modernise tax administration, making it easier for individuals and businesses to keep on top of their tax affairs. While MTD for VAT is already in place, the next major phase – MTD for Income Tax Self Assessment (MTD for ITSA) – is on the horizon.

Here’s what you need to know about the upcoming changes, who it affects and how to prepare.

What is Making Tax Digital for Income Tax?

MTD for ITSA requires individuals with business or property income to keep digital records and submit quarterly updates to HMRC using compatible software.

Rather than filing a single Self Assessment tax return once a year, taxpayers will provide more regular updates, making tax reporting more real-time and accurate.

Who will be affected?

MTD for ITSA has been delayed several times over the last few years. As of the latest government timeline, MTD for ITSA will be mandated from April 2026 for self-employed individuals and landlords with annual gross income of over £50,000.

From April 2027, the threshold will be lowered to include those with annual gross income from these sources of over £30,000, and from April 2028 the threshold will drop again to £20,000 (as announced in the Spring Statement).

HMRC is currently writing to taxpayers whose reported income for the 2023/24 tax year was close to, or above, £50,000 to let them know they may need to comply with MTD from April 2026.

Key points:

• The threshold applies to gross income or turnover, not profit i.e. it is income before any expenses are deducted.
• If your total gross income from self-employment and property combined is below £50,000, you won’t be required to join MTD (yet).
• Trustees and personal representatives have an automatic exemption from MTD for ITSA.
• General partnerships and Limited Liability Partnerships (LLPs) are due to be subject to MTD at some point in the future, but the scope and timescale is currently unknown.

It’s worth clarifying – as there will be many in this position – that MTD does not apply to individuals whose income comes solely from sources such as PAYE employment, dividends from limited companies, savings, investments or pensions. So, for instance, a company director who only receives a salary through PAYE and dividend payments would not be subject to MTD, unless, of course, they also have income from property.

What will change?

Under MTD for ITSA, affected taxpayers will need to:

1. Keep digital records of income and expenses using HMRC-approved software.
2. Send quarterly updates to HMRC summarising income and expenses.
3. Submit a final year end declaration (replacing the Self Assessment return) to report any other personal income and confirm tax liability.

Example timeline:

For an individual, for the tax year starting 6 April 2026, quarterly updates will be filed for the quarters ending:

• 6 July 2026 (due 6 August 2026)
• 6 October 2026 (due 6 November 2026)
• 6 January 2027 (due 6 February 2027)
• 6 April 2027 (due 6 May 2027)
• Final Declaration – due by 31 January 2028

How to prepare

Here’s how to get ready for the shift to digital tax reporting:

1. Check if you’re affected

Estimate your gross income from self-employment and property. If it exceeds £50,000, you will need to comply from April 2026, if it’s lower consider whether you might need to comply from a later date.

2. Start keeping digital records

Use accounting software or apps to track your income and expenses. Many popular tools like QuickBooks, Xero and FreeAgent are MTD-compatible. Spreadsheets may be an option where suitable ‘bridging software’ is used to submit the information to HMRC.

3. Consider joining a pilot scheme

HMRC is running a voluntary MTD for ITSA pilot, open to certain self-employed individuals and landlords. Joining early could give you a head start and help you adjust before it becomes mandatory.

4. Talk to your accountant

Your accountant can help ensure you are compliant and assist with software setup and ongoing submissions. If you are already a Westcotts client, then please speak to your usual contact who will be ready to help you. If you are not currently a client, we would still be happy to talk to you about any questions you might have and how to meet your obligations going forwards.

Benefits of MTD

While it might feel like an extra burden at first, MTD has potential upsides:

• More accurate tax reporting
• Fewer end-of-year surprises
• Better cashflow planning with quarterly insights
• Reduced risk of mistakes thanks to automated software

Final thoughts

Making Tax Digital for Income Tax marks a major step forward in digitising the UK tax system. While it requires a shift in how self-employed individuals and landlords manage their tax, early preparation and the right tools can make the transition smooth.

With the 2026 deadline approaching, now is the time to assess your income, explore digital solutions and build good record-keeping habits that will serve you well into the future.

Need help getting started with Making Tax Digital? Our team is here to guide you every step of the way. Contact your usual Westcotts adviser or email Tara at tara.bell@westcotts.uk to get started.