When Does Making Tax Digital for Income Tax Start?

HMRC is phasing in MTD obligations gradually based on income thresholds rather than applying them to everyone simultaneously. This approach recognises that higher-earning taxpayers typically have more complex affairs and greater capacity to handle digital compliance requirements.

The timeline depends on your qualifying income levels from past tax returns, creating predictable obligations that give you time to prepare appropriate systems and processes.

The Three-Phase MTD Rollout

HMRC is introducing Making Tax Digital for Income Tax through a structured three-phase approach, gradually expanding the scope to include more taxpayers.

Phase 1

MTD will apply if your gross qualifying income from self-employment or property or both exceeds £50,000 annually. HMRC will assess your eligibility based on your 2024/25 Self-Assessment return, which must be filed by 31 January 2026. If that return shows qualifying income above £50,000, you must comply from 6 April 2026.

Phase 2

The threshold reduces to £30,000, bringing individuals with gross qualifying income between £30,000 and £50,000 into MTD scope. HMRC will review your 2025/26 return filed by 31 January 2027 to determine if you need to comply from 6 April 2027.

Phase 3

The planned extension covers those with a £20,000 or more qualifying income. HMRC will assess your 2026/27 return to determine 2028 obligations, significantly broadening MTD scope while still exempting smaller operations.

The “Current Year Minus Two” (CY-2) system means your obligations are based on historical income from past tax returns, rather than sudden current-year changes. If you cross thresholds later, you’ll join MTD from the following April rather than immediately, providing planning time.

Income below these levels will remain outside MTD scope, continuing with existing Self-Assessment processes. These thresholds apply to gross qualifying income before expenses, so your £35,000 rental income triggers 2027 obligations even if costs reduce your actual profit to £8,000.

Voluntary Early Adoption Options

HMRC allows voluntary participation before your mandatory compliance date. This early adoption suits taxpayers who want familiarity with digital systems before obligations begin or those planning income growth that might trigger future requirements.

Benefits of Early Participation: You gain experience with MTD processes while penalty systems are lenient, identify software and system integration issues with support available, and develop efficient workflows before they become mandatory.

Considerations for Waiting: Voluntary participation requires the same record-keeping and quarterly reporting as mandatory compliance. Some prefer waiting until obligations begin to avoid unnecessary complexity during transition periods.

Exit Flexibility: Voluntary participants can exit MTD more easily than mandatory users, providing flexibility if circumstances change or you want to postpone digital compliance.

The choice depends on your preparation preferences, business complexity, and comfort with digital systems.

What Happens If Your Income Changes

Your MTD start date is based on historical income, but what happens if your circumstances change significantly after that assessment?

Income Increases After Assessment: If your 2024/25 return shows £45,000 qualifying income (below the £50,000 threshold), you won’t join MTD in April 2026. However, if your 2025/26 income jumps to £35,000, you’ll be assessed for the £30,000 threshold and join MTD in April 2027 instead.

Income Decreases After Joining: Once you’re in MTD, you generally can’t exit until your qualifying income falls below the relevant threshold for three consecutive tax years. This means even if your income drops significantly, you’ll remain in MTD for several years.

Changes to Your Business Structure: If you decide to incorporate your business or change who owns your property, it can affect your Making Tax Digital (MTD) obligations. Income from a limited company does not count toward MTD thresholds, which may help some taxpayers.

HMRC’s Notification and Communication Process

HMRC will contact you before you need to start following your MTD obligations. It’s helpful to know when they will reach out so you can prepare properly.

Advance Notice Letters: HMRC sends letters to taxpayers whose returns show upcoming MTD obligations. These letters usually arrive several months before your compliance date, giving you time to get ready.

What the Letters Contain: HMRC’s notification includes your specific start date, basic MTD requirements, and guidance on finding compatible software. However, these letters provide general information rather than detailed implementation guidance.

If You Disagree with HMRC’s Assessment: Contact HMRC promptly if you believe their income calculation is incorrect. Common issues include adding up income sources incorrectly or misunderstanding joint ownership situations.

Missing HMRC Letters: Don’t assume you’re exempt just because you haven’t received a letter. HMRC notifications can be delayed or sent to the wrong address. Check your Self-Assessment online account or contact HMRC directly if you are unsure about your status.