Making Tax Digital (MTD) is a UK government initiative aimed at transforming the tax system by making it more efficient and easier for taxpayers to comply with. From April 2026, significant changes will be introduced for Income Tax Self Assessment taxpayers, starting with self-employed individuals and landlords with UK or overseas property, who have an annual gross income exceeding £50,000.
The new tax regime called MTD for Income Tax, is also being rolled out to taxpayers with incomes over £30,000 from April 2027, and those with incomes over £20,000 will be required to join the scheme from April 2028.
This blog focuses on the first group of taxpayers who must comply: those earning £50,000 or more of Self Assessment income.
Overview of MTD for Income Tax Changes from April 2026
Under MTD for Income Tax, taxpayers will be required to:
1. Keep digital records: Maintain digital records of income and expenses using MTD compatible accounting software or spreadsheets linking to HMRC's income tax portal using MTD bridging software.
2. Submit quarterly updates: Provide HMRC with quarterly summaries of income and expenditure.
3. Finalise tax affairs annually: Submit an annual summary and a final declaration by the 31 January following the end of the tax year, confirming that the information provided is complete and accurate.
These changes aim to reduce errors and simplify the tax process for taxpayers.
Steps for Self Assessment Taxpayers Earning Over £50,000 to Prepare for MTD
If you're a Self Assessment taxpayer with an annual gross income exceeding £50,000, you must begin preparing for the transition to MTD. Here's a detailed plan to ensure you're ready by April 2026:
1. Assess your income threshold
• Determine eligibility: Review your income from self-employment and/or property letting to confirm if it exceeds the £50,000 threshold. This includes the total gross income before expenses.
2. Choose MTD compatible software
• Decide what type of software you need: Do you require accounting software that enables you to handle a large volume of transactions each week or month and which can manage all your accounts, income, expense recording, and invoicing?
• Or, if you have fewer transactions, particularly if your Self Assessment income is mainly from property lets, would using Excel spreadsheets with MTD bridging software be an easier and cheaper solution?
• Research suitable software: Identify and select MTD compatible accounting software that meets the requirements of your business and is within your budget. HMRC provides a list of compatible software options.
3. Digitise your record-keeping
• Transition to digital records: If you haven't started, begin keeping digital records of all your income and expenses. You will need to create separate income and expense records for each source of self-assessment income you receive. This practice will help you adapt to the new system before next April's mandatory start date.
• Train staff if necessary: Ensure that all individuals involved in your financial record-keeping are trained to use the new digital system effectively.
4. Sign up for MTD
• Register with HMRC: Once you've selected your software and are comfortable with digital record-keeping, sign up for MTD through HMRC's online portal. Early registration can facilitate a smoother transition.
5. Understand quarterly reporting requirements
• Familiarise yourself with deadlines: Learn the schedule for quarterly submissions to HMRC and plan accordingly to ensure timely compliance.
• Set reminders: Implement a system of reminders or alerts to keep track of upcoming submission deadlines.
6. Stay informed about penalty changes
• Be aware of increased penalties: Since April 2025, penalties for late submissions and payments have increased. For example, late payment penalties will rise to 3% for tax overdue by 15 days, with additional increases for longer delays.
• Prioritise timely submissions: Ensure all submissions and payments are made on time to avoid these penalties.
Special note for property landlords
Property landlords may experience the most disruption from MTD for Income Tax. Typically, many self-employed landlords wait until January, following the end of the tax year, to submit their records to HMRC or their accountant. This is primarily due to them having fewer transactions and receipts than someone running a trade throughout the year.
However, from April 2026, property landlords will be required to submit income and expense figures quarterly, as will all other self-employed individuals earning £50,000 or more, even if there are only a few transactions to report. Failure to do so could result in them being issued penalties by HMRC.
Now is the time to seek professional advice
If you're uncertain about any aspect of MTD, contact DWilkinson&Company. We can talk you through the changes, how they will affect you and what you need to do to comply.
The sooner you begin the process, the smoother the transition to MTD for Income Tax. Not only will this help you meet HMRC's new regulations, but you may also benefit from a more streamlined and efficient tax process.
How can DWilkinson&Company help?
The transition to MTD for Income tax will vary from individual to individual. For those already using accounting software such as Xero for their self-employed businesses, the change will be relatively simple, and we can advise on what you need to do to comply with the new regime.
For those accustomed to using spreadsheets, you will need to link your spreadsheets with HMRC approved MTD bridging software. We can advise you on the format the information on the spreadsheet needs to be in, and what bridging software you will need to use to submit your data to HMRC.
If you have large or complex bookkeeping requirements and lack the time or expertise to handle them yourself, we can take on this task for you. By having DWilkinson&Company handle your quarterly bookkeeping, we ensure that your income and expense records are accurately logged and that all quarterly and annual submissions to HMRC are made on time.
More information about our bookkeeping and other essential services can be found here. Alternatively, please call us on 0113 320 0001 or email office@dwco.co.uk.
