Making Tax Digital for Income Tax Explained (UK Guide)

Making Tax Digital for Income Tax (MTD for ITSA) is one of the biggest changes to the UK tax system in recent years. If you’re self-employed or earn income outside of PAYE, the way you keep records and report your income to HMRC is changing.

This guide explains what MTD for Income Tax is, who it applies to, when it starts, and what you need to do to prepare.

What is Making Tax Digital for Income Tax?

Making Tax Digital for Income Tax (often shortened to MTD for ITSA) is a government initiative from HM Revenue and Customs to modernise the tax system.

Under MTD, individuals will no longer submit a single annual Self Assessment tax return in the traditional way. Instead, they will:

• Keep digital records of income and expenses
• Send quarterly updates to HMRC
• Submit a final year-end declaration

The aim is to make tax reporting more accurate and more up to date, reducing errors and improving visibility of tax liabilities throughout the year.

Who Will Be Affected by MTD for Income Tax?

MTD for Income Tax will apply to individuals who:

• Are self-employed, or
• Receive property income (landlords)

The key trigger is total gross income from these sources.

From April 2026

You will need to comply with MTD if your combined self-employed and/or property income is over £50,000 per year.

From April 2027

The threshold reduces to £30,000 per year.

Future Expansion

HMRC has indicated that MTD may be extended further in future, potentially to those earning over £20,000, although this is not yet confirmed.

Who Is Exempt?

You may not need to follow MTD rules if:

• Your income is below the threshold
• You are digitally excluded (e.g. due to age, disability, or location)
• You are already exempt from filing online

However, exemptions are not automatic and may require approval from HMRC.

What Will Actually Change?

The biggest change is how and when you report your income.

Current System (Self Assessment)

• One tax return per year
• Deadline: 31 January following the tax year
• Records can be paper-based

MTD System

• Digital records must be kept throughout the year
• Quarterly updates submitted to HMRC
• End of period statement (EOPS) for each business
• Final declaration to confirm overall income

This means moving from an annual process to a continuous reporting system.

Quarterly Updates Explained

Instead of filing once a year, you’ll send updates every three months.

Each update will include:

• Total income for the period
• Total allowable expenses

You won’t need to calculate your final tax bill at this stage. These updates are more like summaries rather than full tax returns.

Typical quarterly periods could look like:

• April to June
• July to September
• October to December
• January to March

Deadlines are usually one month after the end of each quarter.

End of Period Statement (EOPS)

At the end of the tax year, you’ll submit an End of Period Statement.

This allows you to:

• Finalise your accounts
• Make accounting adjustments
• Confirm your actual taxable profit

If you have multiple businesses or property income streams, you may need to submit more than one EOPS.

Final Declaration

The final step replaces your current Self Assessment tax return.

It includes:

• All sources of income (e.g. employment, dividends, savings)
• Final confirmation of tax due

This is submitted after your EOPS and ensures everything is complete for the year.

Digital Record Keeping Requirements

Under MTD, records must be kept digitally using compatible software.

This includes:

• Dates of transactions
• Amounts
• Categories (income or expense type)

You can no longer rely on:

• Paper records
• Spreadsheets alone (unless linked to compliant software)

Many businesses will use accounting software such as:

• Xero
• QuickBooks
• FreeAgent

These tools can automatically track income and expenses and submit updates directly to HMRC.

Do You Need to Submit More Tax Returns?

Technically yes—but they are different from the current system.

Under MTD, you may submit:

• 4 quarterly updates
• 1 or more EOPS submissions
• 1 final declaration

That could mean 6+ submissions per year, compared to just one currently.

However, the quarterly updates are simpler and less detailed than a full tax return.

Will This Change When You Pay Tax?

At present, MTD for Income Tax does not change payment dates.

You will still generally pay tax:

• 31 January (balancing payment + first payment on account)
• 31 July (second payment on account)

However, because HMRC will receive more regular updates, you may have a clearer idea of your tax position throughout the year.

Future changes to payment timing have been discussed but are not yet confirmed.

Benefits of Making Tax Digital

Although it adds more frequent reporting, MTD does offer some potential advantages:

Better Visibility

You can see your tax position throughout the year rather than waiting until January.

Fewer Errors

Digital record keeping reduces manual mistakes.

More Efficient Systems

Automation can reduce admin time once set up correctly.

Integration with Banking

Many software platforms connect directly to bank accounts, simplifying bookkeeping.

Challenges and Considerations

MTD also introduces some practical challenges:

Increased Admin

Quarterly reporting means more frequent deadlines.

Software Costs

You may need to pay for accounting software.

Learning Curve

If you currently use spreadsheets or paper records, there may be a transition period.

Complexity for Multiple Income Sources

Managing multiple businesses or rental properties could require more detailed tracking.

How to Prepare for MTD for Income Tax

Even if MTD doesn’t apply to you yet, it’s worth preparing early.

1. Move to Digital Records

Start keeping records digitally now to get used to the process.

2. Choose Software

Select MTD-compatible software that suits your needs and budget.

3. Review Your Income Levels

Check whether you are likely to exceed the thresholds.

4. Speak to an Accountant or Bookkeeper

They can help set up systems and ensure compliance.

5. Stay Updated

MTD is still evolving, so keep an eye on HMRC announcements.

What About Landlords?

Landlords are included within MTD if their gross rental income exceeds the thresholds.

This applies to:

• Single property landlords
• Multiple property portfolios

Each property business will need to be reported digitally, with quarterly updates and a year-end process.

What Happens if You Don’t Comply?

HMRC is expected to introduce a points-based penalty system for late submissions.

This means:

• You accumulate points for missed deadlines
• Penalties apply once a threshold is reached

There may also be penalties for:

• Late payment
• Incorrect submissions

Will MTD Replace Self Assessment Completely?

Not entirely—at least not yet.

MTD replaces the traditional Self Assessment return for those within its scope, but the final declaration still serves a similar purpose.

For individuals outside MTD, the existing Self Assessment system will continue for now.

Key Dates Summary

• April 2026 – MTD starts for income over £50,000
• April 2027 – Threshold drops to £30,000
• Future – Possible expansion to lower income levels

Making Tax Digital for Income Tax represents a significant shift in how individuals report income to HMRC. While it introduces more frequent reporting, it also encourages better record keeping and provides more visibility over your tax position.

For many, the key to managing the transition will be adopting digital systems early and getting comfortable with regular updates.

Disclaimer

This article is for general information purposes only and reflects current understanding of Making Tax Digital for Income Tax at the time of writing. It does not constitute financial or tax advice. Rules may change, and individual circumstances vary, so professional advice should be considered where appropriate.