Introduction to Making Tax Digital: Income Tax
The UK tax system has been undergoing a major transformation. One of the latest changes has been the introduction of Making Tax Digital (MTD), HM Revenue and Customs’ (HMRC) long-term initiative to modernise the UK’s tax administration system by 2030. HMRC’s objective is to move toward a system in which individuals and businesses are increasingly required to keep and submit tax data digitally, and closer to when the transactions occur.
MTD is being introduced gradually for different taxes:
• VAT – already mandatory for most VAT-registered businesses.
• Income Tax Self Assessment (MTD ITSA) – starting from April 2026 for individuals with higher levels of self-employment or property income.
• Corporation Tax – not currently included in MTD.
MTD for Income Tax represents a significant shift in how sole traders and landlords manage their tax affairs. Instead of submitting a single Self-Assessment Tax Return (SATR) annually, taxpayers within the regime will have to submit quarterly digital updates plus end-of-year statements through MTD-compatible software. This blog explains:
• when MTD will apply;
• who is affected and exempt;
• what action affected businesses should take; and
• how we can support you during the transition.
IMPLEMENTATION TIMETABLE
MTD for Income Tax will be introduced in stages, depending on the taxpayer’s level of income from self-employment and property.
Key Implementation Dates
Start Date Who Must Comply
6 April 2026 Sole traders and landlords with income above £50,000
6 April 2027 Individuals with income above £30,000
6 April 2028 Individuals with income above £20,000
TBC Partnerships
These thresholds apply to total qualifying income, meaning combined income from:
• self-employment; and
• property letting.
Income from partnerships does not normally count toward the threshold.
HMRC determines eligibility based on information already reported in the taxpayer’s tax return.
For example, whether a taxpayer must join MTD in April 2026 will be determined by the income reported in their 2024/25 Self-Assessment return.
Reporting Under MTD
Once within the MTD system, taxpayers must submit:
• Quarterly updates reporting income and expenses
• End of Period Statement with adjustments
• Finalisation statement confirming total taxable income
This can result in up to five submissions per taxpayer each year.
DEFERRED ENTRY GROUPS
1. Digital Exclusion
Individuals may apply for exemption if it is not reasonably practical to use digital tools, for example, due to their:
• age
• disability
• remote location with limited internet access
• religious beliefs preventing the use of digital technology
2. Automatic Exemptions
The following groups are typically exempt:
• trustees and executors of estates
• non-resident entertainers and sportspeople
• people acting under Power of Attorney
• certain foreign companies paying UK income tax
Individuals already exempt from MTD for VAT are automatically exempt from MTD for Income Tax.
3. Deferred Entry Groups
Some taxpayers may join later (possibly after 2030), including:
• Lloyd’s underwriters
• ministers of religion
• taxpayers claiming certain older tax allowances
Individuals who typically complete the supplementary tax form SA109 (which relates to non-domiciled individuals authorised to bring in foreign income and gains into the UK at reduced rates and for a limited period) will also be exempt until April 2027.
WHAT AFFECTED BUSINESSES SHOULD DO NOW
1. Start Early
HMRC allows businesses to join the MTD pilot programme voluntarily. This allows taxpayers to test systems and processes before compliance becomes mandatory.
2. Activate Your Business Tax Account
Affected taxpayers should ensure they have access to their HMRC Business Tax Account (BTA), which allows them to manage taxes such as their SATR, VAT and PAYE.
3. Move to Digital Record Keeping
Paper-based records alone will not meet the MTD requirements. Businesses must maintain digital records of income, expenses, transaction dates, and supporting financial data. However, original documents, such as receipts, can still be stored on paper if necessary.
4. Install MTD-Compatible Software
Taxpayers must submit information using software that communicates with HMRC systems via an API (Application Programming Interface). Spreadsheets may still be used, but they must connect digitally to bridging software that submits the data to HMRC.
There are a number of software solutions on the market that comply with MTD ITSA, including Xero, QuickBooks, FreeAgent, Sage Business Cloud Accounting, and KashFlow. Helpfully, HMRC provides a list of software vendors that can assist with MTD ITSA. More information on software vendors is available from the following government website page: https://www.gov.uk/guidance/find-software-thats-compatible-with-making-tax-digital-for-income-tax.
HOW ATN PARTNERSHIP CAN HELP YOU
Moving to MTD can seem difficult, but with the right guidance, we believe it can improve financial management and efficiency. For example, ATN Partnership can assist by:
• Reviewing your current accounting systems
• Advising on suitable MTD-compatible software
• Helping implement digital bookkeeping processes
• Submitting MTD reports on your behalf
• Providing ongoing compliance support
• Keeping you informed of future regulatory changes
We aim to ensure your business remains fully compliant while minimising your administrative burden. Contact our experienced and friendly Client Managers for more information and guidance.