Making Tax Digital Requirements Regarding Self Assessment
Making Tax Digital for Income Tax Self- Assessment (MTD ITSA) is the UK government’s initiative in which self-employed individuals, landlords and partnerships will need to switch from annual self-assessment tax returns to quarterly digital reporting.
This system will encourage taxpayers to maintain digital record-keeping and quarterly reporting through HMRC approved software. The system aims at bringing tax reporting into the digital age and reducing errors.
Who Are Affected by MTD ITSA?
Starting from April 2026, MTD ITSA will apply to:
- Self-employed individuals with earnings over £50,000 annually
- Landlords with earnings over £50,000 annually
- Individuals with a combination of self-employed and rental income that, collectively, exceeds the £50,000 threshold
It is to be noted that this threshold is based on gross income rather than taxable profit. Hence, if the total rental or business revenue exceeds £50,000 regardless of the expenses, it will be required to comply with MTD ITSA.
Partnerships Under MTD ITSA
Partnerships are currently not within the scope of MTD ITSA which implies that partnership income (from any type of partnership) will not be included in qualifying income.
HMRC does intend to eventually bring partnerships into scope.
How Does MTD ITSA work?
Here’s an outline process of the working of MTD ITSA:
- Digital Record-Keeping – Taxpayers are required to use HMRC- approved software to record and store their income and expenses. MTD ITSA has mandated digital record-keeping for to improve accuracy and minimise errors.
- Quarterly Updates – Quarterly submissions of the summary of income and expenses through digital platform are required. The submissions are usually summary reports comparatively lesser detailed than the final tax return.
- End-of-Period Finalisation – After the year-end, a final declaration will be required to confirm and adjust the figures before tax is calculated.
What is Required to be Prepared for MTD ITSA?
- Confirm Whether MTD ITSA is Applicable – Check the annual income from self-employment or property to confirm what is needed to comply with MTD ITSA.
- Choose HMRC-approved Software – A MTD compatible software should be required.
- Organise the Records – Ensure that the income and expense records are accurate and up to date. If the receipts are in paper form, make sure to make it into a digital.
- Learn the New Process – It is important to be familiar with the new system of submitting quarterly updates.
What Will be Included in the Quarterly Updates
The quarterly updates will include details of the income and expenses. These details will include amount and relevant dates but is not required to be adjusted for accounting or tax purposes. Any such adjustments required will be made after the year-end when final submissions are made. However, for each business or profit source separate quarterly updates will be needed.
In order to workload, it is possible to submit summarised data rather than a full breakdown of the income and expenditure. For example, for a retail business it is convenient to include daily or weekly takings rather than detailing each individual sale.
Digital Record Keeping Records
The taxpayer can keep on recording documents in paper if it is preferred. However, it is required for each individual transaction to be recorded and stored digitally. HMRC encourages records to be kept in real in as near to real time as possible. The regulation requires the following records to be maintained digitally:
- The financial information included in update
- The details of the items comprised in that information
- The amounts and dates on which those items were received or incurred
Penalties & Fines
As of the voluntary testing phase of MTD for income tax there are no penalties for late quarterly updates. However, When Making Tax Digital for Income tax becomes mandatory for a customer from April 2026, one penalty point will apply for each missed submission deadline. A financial penalty will only be charged once the points threshold of four points is reached.
Timeline for MTD ITSA
Before April 2026:
- 1 annual submission
- Paper filings by 31 October
- Online filings by 31 January
- Fine to keep paper records
After April 2026:
- 4 quarterly submissions per business
- 1 annual final; declaration submission per individual
- Filing via MTD- compliant software
- Keeping digital records
Quarterly Updates
Standard quarters are required for quarterly updates irrespective of a business’s accounting period.
The standards quarters are:
- 6 April to 5 July
- 6 July to 5 October
- 6 October to 5 January
- 6 January to 5 April
The deadlines for quarterly updates will be 7 August, 7 November, 7 February and 7 May following the end of the relevant quarter. Updates may be submitted more frequently and can be submitted up to 10 days early where the information for the quarter is known to be complete.
Leaving MTD Income Tax if Turnover/Gross Income Drops
A taxpayer who is in MTD income tax and whose turnover/gross oncome falls below threshold for three successive tax years can claim exemption from the start of the following tax year. For example: if a taxpayer is required to comply with MTD income tax for 2026/27 and their gross income/threshold falls below £50,000 in the tax years 2027/28, 2028/29 and 2029/30 they will not have to comply with MTD income tax requirements from 6 April 2031.
It is important to note, however, that the income threshold will continue to decrease in the coming years. From £50,000 following 6 April 2026 to £30,000 after 6 April 2027. This threshold will further lower to £20,000 from 6 April 2028. As such, it will be a necessity to confirm whether you fall under the threshold or not in order to comply with the MTD requirements every year.
MTD Income Tax Work for Jointly Held Properties
HMRC has announced agreements that allows joint property owners to:
- Report income(gross) from jointly held properties in their quarterly update while leaving reporting of expenses until the year end finalisation process
- Create a single digital record for each category of income from jointly held properties and a single digital record for each category of expense from jointly held properties. This will remove the need for each joint property owner to create digital records of each transaction
Benefits of MTD ITSA
- Better Financial Visibility – Real-time tracking of income and expenses gives property owners clearer insights into their financial position, helping to make informed decisions and avoid year-end tax surprises.
- Avoiding Penalties – Failure to submit quarterly updates or final declarations on time may result in penalty points and fines if thresholds for penalty points are exceeded.
- Ensuring Transparency – With digital records and regular submissions, discrepancies can be more easily detected, promoting transparency for both property owners and HMRC.
- Cost-Effective – Storing, printing, copying and posting invoices and other tax-related records all incur costs. As long as scan tax-related documents are stored the record digitally, there’s no need to keep a paper-based record, eliminating these costs.
Potential Challanges of MTD ITSA
- Cost of Compliance – Taxpayers may be needed to invest in MTD-compatible software, which will be an added expense, especially for small businesses or sole traders.
- Learning Curve – For individuals who are accustomed to manual accounting may find it difficult to adjusting to digital record-keeping.
- Time & Administrative Burden – Quarterly reporting increases the frequency of tax submissions, potentially requiring more administrative work.
- Accuracy Requirements – Digital Records and quarterly records must be precise and accurate, as errors or omissions can accumulate over multiple submissions, resulting to potential penalties if not corrected.
Making Tax Digital for Landlords
When a landlord’s income reaches the threshold, they will be needed to have HMRC recognised software in place before the start of the following tax year. For example: landlords who had qualifying income of £50,000 in the 2024/25 year will need to have MTD software in place by the 2026/27 tax year.
If a landlord owns a property jointly with another, the gross income will be halved (assumed they own the property 50:50). If they own some property through a limited company, it is excluded as that is a corporation tax.
When someone becomes a landlord for the first time, for example they inherit a property or purchase their first buy to let, they will not need to start using, MTD for income tax until after they have submitted their first Self-Assessment Tax return with the rental income.
Key Dates & Criteria for landlords
- 6 April 2026 – MTD for income tax rules will apply to landlords with an annual income of £50,000 or more. This includes combined income property and other business interests or employment
- 6 April 2027 – Making Tax Digital will be extended to landlords with property and business income of £30,000 or more a year
- 6 April 2028 – Landlords with annual property and business income of £20,000 or more will need to comply with MTD for income tax.
Conclusion
Making Tax Digital for Income Tax is part of the UK government’s long-running plans to digitalise the tax system. Using MTD, empowers better decision-making and early identification of issues.
Preparing early by selecting compatible software, understanding the record keeping and reporting requirements will help landlords navigate the transition smoothly and avoid potential penalties.
FAQs
- Can the self-employed use spreadsheets for MTD?
With MTD for income tax, the self-employed will need to submit cumulative quarterly statements and a final declaration. This makes keeping all the relevant records in a spreadsheet more difficult.
- How will MTD for Income Tax reduce error?
Regularly updating records and making full use of software features will reduce the chance of errors, which means less time is spent trying to put things right.
- What are digital links?
A digital link is where data is transferred or exchanged electronically within or between software that makes up the functional compatible software.
