Making Tax Digital
Making Tax Digital

Making Tax Digital

COMING SOON TO A SCREEN NEAR YOU !!!

STARTING FROM APRIL 2026, if you are Self-Employed AND / OR a Landlord with a GROSS income of over £50,000, you will need to register for Making Tax Digital for Income Tax. With further changes coming in APRIL 2027 and APRIL 2028, you can find out if and when the new Making Tax Digital rules will apply to you by reading the information and FAQs below.

Making Tax Digital – Income Tax Self Assessment (MTD ITSA)

MTD is a new system being brought in by the Government to digitise taxation in the UK and it is being phased in over the next few years as shown below.

Phase 1

6th April 2026

Individuals with a gross income (before the deduction of expenses) of £50,000 must register from 6th April 2026 onwards.

Phase 2

6th April 2027

An individual with a gross income of £30,000 or more will need to register from 6th April 2027.

Phase 3

6th April 2028

An individual with a gross income of £20,000 or more will need to register from 6th April 2028.

Phase 4

Date To Be Advised

Eventually HMRC plans to make tax digital for every self-employed individual and/or landlord.

MTD Gross Income

The calculation for MTD is based on your GROSS income. It is NOT based on net profit. The qualifying GROSS turnover applies to Individuals only.

The two types of income that make up the qualifying turnover are:

1. Income from self-employment.

2. Gross Rental Income that Landlords receive from tenants.

Both amounts are before the deduction of business expenses.

Example 1

Plumber Jack has a gross turnover of £45,000 in 2024/25. Jack and his wife inherited a property and let it jointly. The gross rent from the property is £18,000 of which £9,000 is Jack’s half share. His gross income is therefore £54,000 (45K + 9K = 54K).

As Jack exceeds the 50K threshold, he will need to register for the MTD scheme at the start of Phase 1 on 6th April 2026.

Example 2

Charlie is a sub-contractor and had a turnover of £60,000 in 2024/2025.

Charlie will need to register for the Making Tax Digital (MTD) scheme as soon as Phase 1 starts on 6th April 2026.

Example 3

James runs his own business and has a gross income of £44,000. He also has a second job working for a company but this income is NOT included in the income criteria at this present time.

James will need to join the MTD scheme when Phase 2 begins and the threshold decreases to £30,000 on 6th April 2027.

Filing Your Quarterly Tax Returns

Starting from 6th April 2026, as soon as a Client exceeds the threshold, they will need to enrol for MTD and prepare an Income and Expenditure Statement at the end of every quarter. The dates for each quarter in 2026/27 tax year are shown below but the same will apply to all the years ahead.

QUARTERS

DATES

FILING DEADLINE

1st Quarter

1st April 2026 to 30th June 2026

7th August

2nd Quarter

1st July 2026 to 30th September 2026

7th November

3rd Quarter

1st October 2026 to 31st December 2026

7th February

4th Quarter

1st January 2027 to 31st March 2027

7th May

Final Declaration

At End of Tax Year

The Final Declaration or is it destination?

Final Declaration – All Sources of Income

In the Final Declaration under Making Tax Digital (MTD), you must declare all sources of income for the tax year, including:

  • Self-employment income – Earnings from sole trading or freelance work.
  • Rental income – Earnings from UK and overseas properties.
  • Employment income – Salary, bonuses, and benefits from employment.
  • Dividend income – Payments received from shares in companies.
  • Savings interest – Interest earned from bank accounts and investments.
  • Pension income – Payments from private or state pensions.
  • Capital gains – Profits from selling assets like property or shares.
  • Foreign income – Earnings from overseas sources.
  • Trust income – Distributions from trusts or estates.
  • Miscellaneous income – Any other taxable earnings, such as royalties or compensation payments.

Final Declaration – Claim Tax Reliefs and Allowances

In the Final Declaration under Making Tax Digital (MTD), you can claim various tax reliefs and allowances to reduce your overall tax liability.

These include:

  • Marriage Allowance – Transfer part of your Personal Allowance to your spouse or civil partner.
  • Pension Contributions – Declare contributions to personal or workplace pensions.
  • Gift Aid Donations – Claim tax relief on charitable donations.
  • Trading Allowance – If you earn up to £1,000 from self-employment or casual income.
  • Property Allowance – If you earn up to £1,000 from property income.
  • Capital Allowances – Relief for business-related purchases like equipment or vehicles.
  • Private Residence Relief – If selling a property that was your main home.
  • Rent-a-Room Relief – If you rent out a furnished room in your home.
  • Employment Expenses – Claim tax relief on work-related expenses.
  • Dividend Allowance – Tax-free allowance for dividend income.
  • Savings Allowance – Tax-free allowance for interest earned on savings.

Penalties For Late Submissions

All individuals registered for Making Tax Digital (MTD) are required to file each quarterly tax return on time.

HMRC has introduced a points-based system for late submissions whereby the rules shown below will be applied.

  • Each late submission earns a penalty point.
  • Once a taxpayer reaches the threshold (e.g., four points for quarterly submissions) a £200 fine is issued.
  • Additional penalties apply if late submissions continue.

Penalty points for Making Tax Digital (MTD) for Income Tax remain on record for two years unless the taxpayer reaches the penalty threshold. If the threshold is reached (e.g., four points for quarterly submissions), the points will only reset to zero once the taxpayer has met all filing deadlines for a set period.

Making Tax Digital Quarterly Accounts

If you use an Accountant, you can expect the additional work of filing the Income & Expenditure Accounts on a quarterly basis to be reflected by the fees that are charged. Here at Chapel House Accountancy, yes the costs will rise for our services, but we will do everything we can to minimise the increase in fees. We will continue to use the tried and tested Excel spreadsheets to prepare and record our Clients records and a bridging software rather than an expensive third party software to digitally transmit the information to HMRC. Microsoft Excel and other spreadsheet software are acceptable to HMRC and compliant with the Making Tax Digital rules.

MTD Compliance At Chapel House

Our Responsibility

Under MTD, it is your Accountant’s responsibility to prepare the information and calculations for your quarterly tax returns in digital format and then to submit the Income and Expenses information to HMRC using MTD-compatible software.

MTD Compliance Requirements

  • Quarterly updates submitted on time.
  • End of Period Statement (EOPS).
  • Final Declaration confirming tax position.
  • Digital record-keeping using MTD-compliant software.

Your Responsibility

To comply with MTD, your Accountant at Chapel House will send you a personalised request for the documents required to prepare your return at the end of each quarter. The type of information that may be requested is shown below:-

  • Bank statements in CSV, Excel and PDF.
  • Sales invoices or Customer invoices.
  • Supplier’s invoices.
  • Fuel receipts and other receipts paid for business expenses.

If the information you provide is not already in a digital format, we can receive the original paper documents to scan and store them into a digital format like PDF documents.

Making Tax Digital for Income Tax becomes easier when you hire an Accountant. We invite you to request a FREE Telephone Consultation or if you prefer, you can simply request a FREE Quote. We are happy to discuss your specific requirements at any time and answer any questions that you may have too.

FAQs
Making Tax Digital For Income Tax

HMRC says the qualifying annual income for the tax year for Sole Traders or Landlords must be more than £50,000, so if your business has an annual income of over £50,000, you are required to sign-up for MTD for Income Tax in April 2026. You MUST already be registered for Self Assessment.

From April 2027, this threshold will be lowered to £30,000, so if at that time you are earning over £30,000, (and are registered for Self Assessment), you will need to sign up for MTD for Income Tax from that date.

It’s anticipated that the threshold will be lowered even further at a future date, which means that more people who are registered for Self Assessment and earning less that £30,000 might also be required to sign up to MTD for Income Tax too. It hasn’t yet been announced however, and so it is not known at this time what the threshold will be.

It was planned that MTD for Income Tax would become mandatory for general Partnerships as year after the initial launch date of April 2024 with the same basic rules that apply to Sole Traders. However, this requirement was discarded by the government in late 2022.

It’s currently unclear when MTD for Income Tax will become a legal requirement for Partnerships, and what the threshold will be. But as it stands, it appears most unlikely to be mandated before April 2027.

Notably, at the present time, Partnerships can’t voluntarily sign up for MTD for Income Tax, and so they are effectively excluded from MTD for Income Tax for the time being.

All businesses have a basis period for which tax is calculated and paid. This typically matches the accounting period of the business, but it isn’t always the case.

Inspired by the MTD for Income Tax introduction, the rules have changed so that all unincorporated businesses – such as Sole Traders – must use the tax year (6th April – 5th April, or 1st April – 31st March) as their basis period. This is true even if their accounting period uses different dates and several have had to go through a period of adjustment known as basic period reform.

Landlords already use the tax year as their basis period.

Therefore the period over which the threshold for MTD for Income Tax will be calculated is the tax year.

For those starting MTD for Income Tax on the start date of April 2026, the tax year used to calculate this will be 2024/25 because income for 2025/26 will not yet have been fully declared.

It is your gross income that matters, which is basically your pre-tax income before you deduct expenses.

Qualifying income for MTD for Income Tax is all that you earn through self-employment and property from UK sources. Foreign income from self-employment or property is included if you are domiciled in the UK.

If you undertake multiple self-employments or have multiple properties, you will need to consider all of that as qualifying income too.

No. If you fall within the scope of MTD for Income Tax (or sign up voluntarily), then you will also need to use your MTD software (or HMRC online services account) to report other kinds of personal income, such as savings interest. But this won’t count as qualifying income in order to decide the threshold for whether MTD for Income Tax should apply.

No. For the sake of the MTD threshold, your income from self-employment and/or landlord rents are combined together.

For example, if you are currently a self-employed Plumber with a £35,000 income from that trade, and you also receive £20,000 from rental income, then the total qualifying income of £55,000 pushes you over the £50,000 threshold. To comply with the new MTD regulations, you will need to apply for MTD for income Tax as of April 2026.

MTD for Income Tax is about income tax and applies to your personal income. In this case your personal income would be the share of the rental income that you receive.

For example, if rental income from an apartment block is £70,000 per annum, and your share of that is £55,000, then that would push you above the MTD threshold of £50,000 and therefore MTD for Income Tax will apply to you.

You must include ALL income, so if for example you receive £30,000 from a share of rental income, and £29,000 from your self-employment, your total income will be £59,000 and you will need to sign up for MDT for Income Tax.

Yes, you must be registered for Self Assessment. As of the start date for MTD for Income Tax in April 2026, if you are newly self-employed or become a landlord after being in employment, you will have to use the older Self Assessment system until your income rises above £50,000. At the start of the next tax year, if your gross income is over £50,000, you will be legally required to register for MTD for Income Tax.

As of April 2027, the MTD threshold becomes £30,000, so if your gross income is over £30,000 at that time, you will need to sign-up to MTD for Income Tax.

Once you sign up for MTD for Income Tax – either voluntarily or because your income has passed the threshold – you must continue using it.

This is the case even if your income drops to £50,000 or below (or £30,000 or below as of April 2027).

The only time you would stop using MTD for Income Tax for self-employment or landlord rental income is if you stopped receiving income of that type and no longer needed to submit an income tax return. At that point, you can deregister for Self Assessment and the requirement to use MTD for Income Tax.

No. The threshold for MTD is calculated based only on gross self-employed trade income and rental income from properties.

MTD for Income Tax will apply to you if you have a gross income of over £50,000 as of April 2026 (or over £30,000 as of April 2027).

The nature of how the property came into your possession is irrelevant in relation to MTD for Income Tax.

MTD for VAT is now mandatory for all businesses that are registered for VAT, so there is no longer a threshold as there was when MTD for VAT was first launched in 2019.

You’ll need to register for VAT – and therefore MTD for VAT – if your turnover is over the current year threshold. Currently in 2025, the threshold is £90,000.

No. The two schemes are entirely independent of each other and should be applied for individually when necessary.

You will first need to register for Self Assessment if you haven’t already and use the traditional submission method of completing an online tax return.

Once you have submitted a tax return that includes self-employed and/or rental income in excess of £50,000 as of April 2026, you will need to register for MTD for Income Tax.

The same will apply if you submit a tax return in excess of £30,000 as of April 2027, or £20,000 as of April 2028.

No. You will be able to register voluntarily for MTD for Income Tax regardless of what your Self-Employed or Landlord income is.

If you anticipate your income rising above £50,000 as of April 2026, or above £30,000 as of April 2027, then registering ahead of time will give you time to sort out any initial processing issues that may arise and help you avoid any HMRC penalties that may be applied if you can’t file your Income & Expenditure Accounts on time.

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