Making Tax Digital for Income Tax: a look at the detail

It’s been called the biggest change since the introduction of self assessment in the 1990s - and for the first taxpayers impacted, Making Tax Digital for Income Tax (MTD IT) is now less than a year away.

Quick view

MTD IT is a new online system to report income and expenses to HMRC, which will be mandatory for sole traders and landlords with income over a particular threshold. Partnerships are expected to join later.

Biggest changes

MTD IT means reporting income and expenses to HMRC every three months, rather than just once a year. Quarterly reporting must be digital, using HMRC-approved software which is authorised to communicate with HMRC’s systems. At the end of the year, there is then a finalisation process, which is also digital. The regime is backed up by a new points-based penalty regime.

Action now: You may need to think now about using software for the first time, or checking your existing product is compliant. We can help you with these decisions.

Stays the same

Processes to pay tax don’t change. Income Tax will still be paid once or twice a year, as at present. Dates for payment also stay the same.

Start dates

  • Sole traders and landlords with qualifying income over £50,000 for the tax year 2024/25 are in MTD IT from 6 April 2026.
  • Sole traders and landlords with qualifying income over £30,000 for the 2025/26 tax year are in MTD IT from 6 April 2027.
  • Sole traders and landlords with qualifying income over £20,000 for the 2026/27 tax year, are expected to be in MTD IT from 6 April 2028, but legislation is still awaited on this point.

More detail on: the quarterly routine

Every three months, your MTD-compatible software will create totals for each income and expense category, and prompt you to submit this information to HMRC. A quarterly update is required for each trade or source of property income, so someone with more than one trade, for example, or with both property and self-employment income, must submit a quarterly update for each. No tax or accounting adjustments to the figures are needed. These can be done at the year end.

Quarterly updates work cumulatively, and are based on the tax year, rather than a business’ accounting year end. They cover the following periods:

  • 6 April to 5 July (due by 7 August)
  • 6 April to 5 October (due by 7 November)
  • 6 April to 5 January (due by 7 February)
  • 6 April to 5 April (due by 7 May).

There is also the option to use calendar quarters instead, though filing deadlines are the same, whichever method is chosen.

The figures submitted quarterly are not final. If you make a mistake, it can be corrected, for example in the next quarter. It will also be important to make sure that the underlying digital records are also adjusted. Note, too, quarterly updates are needed even if you have no income or expenses to report for that period. Landlords who jointly let properties can either include both property income and expenses or just the income for those properties. Expenses will then be reported at the end of the tax year.

Once an update is submitted, HMRC will generate an estimate of your tax bill in your software, or your HMRC online services account. This is only a rough guide, and will change through the year, especially when end of year adjustments are made.

We can help

MTD IT is likely to feel like a considerable learning curve to begin with, and we have only been able to scratch the surface in this article. Please do contact us with any queries: we will be happy to help you prepare.

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