Making Tax Digital for Income Tax: What you need to know!

HMRC's Making Tax Digital (MTD) initiative changes how individuals and businesses manage and report their taxes. If you're self-employed, a landlord, or run a small business, understanding MTD for Income Tax is essential. In this blog, we'll break down everything you need to know about Making Tax Digital for Income Tax Self Assessment (MTD ITSA).

What is Making Tax Digital (MTD) for Income Tax?

Making Tax Digital is designed to streamline tax administration, reduce errors, and make it easier for taxpayers to manage their tax affairs online. Many businesses will have been using MTD for VAT for some years now, and from April 2026 MTD will start for income tax.

MTD for Income Tax requires eligible individuals and businesses to keep digital records and submit quarterly updates to HM Revenue & Customs (HMRC) using compatible software.

Who Needs to Comply with MTD for Income Tax?

MTD for Income Tax will apply to individuals and businesses with an annual business or property income of over £50,000 from April 2026. From April 2027, it will expand to those earning over £30,000, and the latest date following the Spring 2025 statement is that those earning £20,000 or over will start MTD from April 2028.

This includes:

• Self-employed individuals

• Landlords with rental income

• Partnerships (more specific timelines to follow)

  
  

Key Requirements Under MTD for Income Tax

1. Keep Digital Records

   • You must maintain digital records of all your business income and expenses.

2. Use MTD-Compatible Software

   • HMRC requires you to use approved software to keep records and submit updates.

3. Submit Quarterly Updates

   • Every three months, you’ll submit a summary of your income and expenses.

4. End-of-Period Statement (EOPS)

   • After the tax year ends, you’ll submit an EOPS to confirm and adjust any final figures.

5. Final Declaration

   • This replaces your annual Self Assessment tax return and ensures all other income sources are declared.

     
     

There are some benefits of MTD being that as an individual you will have a clearer and more regular view of your tax liabilities which helps you to plan.

How to Prepare for MTD for Income Tax

1. Check Your Eligibility: Determine if your income requires you to comply.

2. Choose Compatible Software: Ensure it’s recognised by HMRC.

3. Maintain Digital Records: Start keeping digital records now to get familiar with the process.

4. Stay Informed: Keep track of updates from HMRC regarding MTD changes.

At Forth Accountancy we are already working with our clients to move them onto MTD early so we are ensuring that we can iron out any wrinkles in the system prior to April 2026. Not only are we experts in accounts and tax matters we are also digital experts and able to work with our clients to go digital.

If you are going to fall into the MTD for income tax scheme, or you receive a letter from HMRC stating that you will, then get in touch and speak to us about how we can work together to deliver a seamless transition.