Are you ready for the changes to how you’ll report your income for tax purposes? From April 2026, HM Revenue & Customs (HMRC) is extending Making Tax Digital (MTD) to cover Income Tax Self Assessment (ITSA). Self-employed individuals and landlords will need to keep digital records and send updates every three months instead of filing once a year.
MTD might seem like another layer of admin, but using the right software and working with a qualified Self Assessment accountant can make the process manageable and give you a clearer view of your finances.
What is Making Tax Digital for Income Tax?
MTD for Income Tax is the next step in HMRC’s plan to modernise the UK tax system. The initiative began with VAT in 2019 and is now being extended to individuals and businesses filing Self Assessment returns.
If you fall within scope, you’ll need to:
· Keep digital records of business and property income, plus allowable expenses.
· Submit quarterly updates to HMRC through MTD-compatible software.
· Make a final declaration at year-end to confirm total income and adjustments.
Every transaction will be logged digitally as it happens instead of piecing together paperwork at the last minute.
Who does MTD apply to?
From April 2026, MTD will apply to:
· Sole traders with business income of £50,000 or more
· Landlords with rental income of £50,000 or more
· Individuals with combined income from self-employment and property above the threshold
If you meet the threshold, here’s what changes:
· Digital record keeping - All business and property income, plus expenses, must be recorded through HMRC-approved software. Paper records and spreadsheets won’t be enough.
· Quarterly updates - Every three months, you’ll submit income and expense summaries through your software. HMRC will return an estimated tax calculation based on the data, but payment will still follow the usual Self Assessment deadlines.
· Final declaration - At the end of the year, you’ll complete a digital declaration to finalise your accounts and include any other personal income (such as savings or dividends). This replaces the traditional annual return.
What counts as qualifying income?
Only income from self-employment and property counts towards the MTD threshold, and it must be measured before expenses.
Included:
· Sole trader business income
· Gross rental income (UK or overseas)
Excluded:
· PAYE wages and benefits
· Pensions
· Savings interest and dividends
· Capital gains
· Partnership income (until 2027 at the earliest)
· Social security benefits or trust income
Do you run multiple businesses or own several rental properties? Then you must add the gross income from all of them together.
When MTD doesn’t apply
You won’t need to comply if:
· Your qualifying income is below the threshold
· You aren’t required to file a Self Assessment return
· You’re part of a general or complex partnership (for now)
· HMRC grants you an exemption due to age, disability, insolvency, or another valid reason
How to prepare for MTD
The best way to avoid last-minute stress is to prepare now.
· Add up your gross self-employment and rental income to see if you meet (or are close to) the threshold.
· Switch to MTD-compatible software. HMRC will only accept submissions through approved platforms. Choose one that records every transaction digitally, submits quarterly updates, and files your year-end declaration. Bank feeds and invoicing features will make tracking easier.
· Move away from manual records and log income and expenses digitally in real time.
· Learn the system. Set aside time for training, either through your provider or your accountant.
· Plan for quarterly submissions. Schedule time to reconcile records each quarter so reports are accurate.
· Work with a Self Assessment accountant. Agree on who handles record keeping, submissions, and troubleshooting.
· Test the pilot scheme. HMRC’s voluntary pilot gives you a chance to practise before the rules become mandatory.
Penalties for late submissions
Under MTD, every missed quarterly or year-end submission earns a penalty point. The only way to stay clear of penalties is to file on time, which means keeping your records digital and ready before each deadline.
Get support from a Self Assessment accountant.
Allenby Accountants works with clients across London to simplify Self Assessment and prepare them for MTD. Call us today on 0208 914 8887 and let’s make sure you’re ready well before April 2026.
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