Apari

View Original

What is Making Tax Digital for Income Tax?

Guest User

Making Tax Digital for Income Tax is the new way to approach your tax affairs - moving from a single annual tax return, to more frequent submissions using Making Tax Digital (MTD) software starting from April 2026.

Article Overview

  • Making Tax Digital for Income Tax will create a system that makes it easier for businesses and individuals to pay their taxes.  

  • HMRC’s MTD regulations will require you to use Making Tax Digital software to keep digital records, and submit your tax return. 

  • You must submit quarterly updates within one month of the end of the quarter.

  • If you live in the UK, are registered for Self Assessment or are a landlord/sole trader with combined self employed or property income of over £50,000, then you will qualify for MTD for Income Tax

What is the purpose of Making Tax Digital for Income Tax?

HMRC’s whole MTD strategy stems from the need to create a tax system that makes it easier for businesses and individuals to calculate and pay the correct amount of tax. Although HMRC implemented a similar MTD system for VAT registered businesses two years ago, it was on a much smaller scale. Making Tax Digital for Income Tax however, will make this mandatory for almost all of the  individual taxpayers in the UK that currently submit a self assessment tax return.

HMRC is promising a more effective and efficient tax administration, with the belief that it will make it easier for taxpayers to correctly calculate their tax liability. While the transition to this new digital tax system can be a bit complicated, digital recordkeeping with the right MTD software can help ease that transitional stress.

Click here to see how software can help you make the Making Tax Digital for Income Tax transition stress free.

Do I have to use Making Tax Digital for Income Tax?

That depends on your financial situation and your type of employment. The basic eligibility criteria for Making Tax Digital for Income Tax is:

  • You live in the UK

  • You’re registered for Self Assessment 

  • You’re either a landlord or a sole trader (with multiple businesses), with a turnover exceeding £50,000 per year

Find out if you should sign up for MTD for Income Tax early here.

How does Making Tax Digital for Income Tax work?

To comply with Making Tax Digital for Income Tax, landlords, the self-employed and tradespeople will need to use software to keep digital records of business income & expenditure, and submit a summary every quarter. This replaces the need for a Self Assessment tax return.

At the end of the year, you will need to submit any other  tax related information - for example employment income - and finalise all of the information through the annual summary. If you choose a good software, it will be able to do all of this for you. 

You will get your total tax liability (tax owed) for the year which needs to be paid by the following January similar to the current self assessment system.

Find our step by step guide of how Making Tax Digital for Income Tax works here.

What do I need to use Making Tax Digital for Income Tax?

To start using Making Tax Digital for Income tax, you will need:

Click here to find out when Making Tax Digital for Income Tax will come into effect.

Who is exempt from Making Tax Digital for Income Tax?

Threshold for Making Tax Digital for Income Tax

To qualify for Making Tax Digital for Income Tax you must have total business or property income above £50,000 per year.

This threshold of £50,000 per year applies to gross income or turnover. If you have more than one business property or several trades, then this threshold will apply to your total gross income or turnover. E.g. if you make £21,000 a year through your sole trader business plus another £30,000 of rental income then you would qualify for Making Tax Digital for Income Tax.

Exemptions for Making Tax Digital for Income Tax

You will not have to follow Making Tax Digital for Income Tax regulations if one or more of the following points applies to you:

  • You are not able to keep digital records due to age, remoteness of location, disability or “digital exclusion” (22% of the British population does not regularly use mobile devices and software. If this is you and you would like to give it a go, we have created an accounting software that is easily accessible and easy to use. You can sign up for FREE here).

  • You are subject to an insolvency procedure

  • You are a member of a religious society whose beliefs are not in line with electronic communication and digital recordkeeping 

  • Your business qualified for an exemption for MTD for VAT

You should contact HMRC to apply for an exemption from Making Tax Digital for Income Tax.

For more information regarding MTD for Income Tax head to the HMRC website.

 

Want to know more about MTD? We created the Ultimate Guide to Making Tax Digital for YOU!