Making Tax Digital for Income Tax (MTD IT)

Making Tax Digital for Income Tax (MTD IT) is HMRC’s latest initiative to streamline tax reporting and move sole traders and landlords towards a fully digital system.

MTD IT will require affected individuals to maintain electronic records and make reports to HMRC on a quarterly basis.

Qualifying Income for MTD IT

The qualifying income will be the aggregate of gross turnover from an individual’s sole trade, plus rental income from the individual’s property businesses. If either of these, or a combination of the two, exceeds the relevant threshold, quarterly returns will be required.

Thresholds and dates for MTD IT

From April 2026, sole traders and landlords with gross annual turnover of more than £50,000 will be required to make quarterly returns to HMRC. Sole traders and landlords with income of more than £30,000 will join a year later, from April 2027. 

As yet, there are no dates set for the implementation of MTD IT for partnerships and no date for MTD implementation for corporation tax.

Reporting Requirements

If gross annual income is below the VAT threshold £90,000 (increased from £85,000 on 1 April 2024), 3-line accounts are required as follows:

   1. Income

   2. Expenses

   3. Profit/Loss

Separate quarterly updates will be required for each business. 

Periods and deadlines 

Quarterly updates will be required for standard quarters, irrespective of a business’s accounting period.

• 1 April to 30 June (Due by 7 August)
• 1 July to 30 September (Due by 7 November)
• 1 October to 31 December (Due by 7 February)
• 1 January to 31 March (Due by 7 May)

Compatible Software for MTD IT

Crucially, MTD IT will require a taxpayer to keep digital records that can be submitted to HMRC quarterly. This will require use of compatible software. Some software products are currently available, with many additional ones under development.

The software must be capable of:

• creating and storing digital records of your business income and expenses — you can choose to use spreadsheets with compatible software to do this.
• sending quarterly updates.

Some compatible software lets you keep digital records of your business income and expenses. You can also use spreadsheets to keep digital records, with compatible software to send the updates to HMRC. This is known as bridging software.

We are researching and trialling various software solutions for MTD IT and will be discussing the relevant options, and our suggested route, in due course.

Conclusion

MTD IT represents a significant shift in how self-employed individuals and landlords manage their tax obligations. Early preparation and adopting suitable software will be key to navigating this transition smoothly.

We will be providing more guidance, as and when guidance is released by HMRC.

To discuss any of the above points in further detail, please contact Wright Vigar on 0845 880 5678.                          

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