What is Making Tax Digital for Income Tax (MTD)

The government set out its plans for Making Tax Digital about ten years ago. The scheme aims to move businesses of all sizes away from paper documentation regarding their tax affairs. MTD is being rolled out gradually and the initial pilot saw it used for VAT returns. If you are a VAT-registered business, you should, by now, be used to keeping digital records and submitting your VAT returns using compliant software.

The next phase of Making Tax Digital sees the scheme extending to cover self-assessment. This phase of the rollout has been delayed but is now set for introduction on the 6th of April 2026 and will be fully complete by the 6th of April 2027.

Essentially, MTD requires businesses and individuals to do the following:

  • Keep Digital Records
  • Use Software that is compatible with Making Tax Digital
  • Submit updates once per quarter.

Who does this affect?

If you are a sole-trader and/or landlord and your income from 1 or both of these activities, before expenses, is £50,000 or over per year, you will now need to have your accounts submitted via software that is compliant with MTD. This change comes into effect from the 6th of April 2026 and means you will no longer submit an annual self-assessment return via HMRC’s website. Instead, you will need to submit quarterly updates and a final declaration. Further information about the process, the quarterly updates and final declaration, are outlined in the next section.

If you earn £30,000 or more, you will need to move over to Making Tax Digital the following year with a deadline of the 6th of April 2027. Those earning £20,000 or more will be included at a later date, yet to be announced.

What will Making Tax Digital look like in practice?

To comply with Making tax Digital, those affected will follow the process outlined below:

Make a Quarterly Submission:

Every quarter, you will be required to submit details of your business income and expenses using compatible software. As your Accountant, Barrons can do this on your behalf. You can correct quarterly updates and make adjustments as they work on a cumulative basis. The filing dates for each period are shown in the table below:

Time frame covered Filing Date
6 April to 5 July 7th August
6 April to 5 October 7th November
6 April to 5 January 7th February
6 April to 5 April 7th May

 

If you are a sole trader and a landlord with a combined income exceeding the £50,000 threshold, you will need to file a quarterly submission for each source. So for example, if you are a sole trader with a rental income property, you will be required to file two quarterly reports each quarter – one for the self-employment and another for the rental!  

Tax Calculation

Each time you submit a quarterly update, you’ll received an estimate for the tax you’re likely to owe. This will come via the software used and will just be a guide, particularly if your business has periods of fluctuating income.

Final Declaration

At this stage you need to ensure all forms of income are covered and this replaces the old self-assessment tax return. Here we would include details of any savings or investments and can make any claims for relief. The deadline for submitting your final declaration is the 31st of January.

What do I need to do about Making Tax Digital?

As your Accountant, Barrons will assist

  • Prepare the quarterly reports from your manual records if you don’t use accounts software or a spreadsheet
  • If we prepare your quarterly reports from your manual records, we will maintain a digital record of your individual transactions to adhere to this particular requirement of MTD for Income Tax
  • File the quarterly reports, and the final declaration on your behalf

Are there benefits to Making Tax Digital?

Whilst this may seem like a big change, there are benefits to the new system.

Getting it right – HMRC is confident that using software to keep records will result in less errors.

Regular updates – Submitting a quarterly update means that you won’t have the mammoth task of pulling everything together once per year.

Greater visibility – by providing quarterly updates and receiving an updated tax calculation, you’ll have a much better idea of the amount owed much further in advance. 

Further Info

The team at Barrons are happy to discuss how this affects you and your business, so do get in touch with us using this link.

You can find more information on Making Tax Digital on the government’s website.