HMRC is changing the way taxpayers report their income and expenses from April 2026; “Making Tax Digital for Income Tax”. If a taxpayer meets the conditions, they will be required to maintain digital records on HMRC approved software and then send digital updates to HMRC disclosing their gross income and expenses on a quarterly basis.
Initially MTD will only apply to individuals who are self-employed (sole trading) and landlords. At this stage, partnerships (and partners thereof) and companies are not within the MTD regime.
MTD is being introduced using a phased approach.
- From 6 April 2026, for those with gross income exceeding £50,000 in the 2024/25 tax year,
- From 6 April 2027, for those with gross income exceeding £30,000 in the 2025/26 tax year, and
- From 6 April 2028, for those with gross income exceeding £20,000 in the 2026/27 tax year.
The gross income limit is the total income figure for the year from all sources and it is not per self-employment / property rental. If you have self-employment income and rental income exceeding the threshold you are required to comply with MTD.
What this means for taxpayers who meet the conditions
- They are required to keep a record of the amount, category and date of income and expenses relating to their sole trade and/or property business on either purpose-built software or computer spreadsheets. Each quarter these records must then be sent to HMRC using the software’s functionality or, if in spreadsheets form, by using specific bridging software that transforms the spreadsheet into a format accepted by HMRC.
- The quarterly reports and periods that they will cover are detailed below with the deadline for reporting this to HMRC:
-
- Quarter 1 Report – covers the period 6 April to 5 July and is due with HMRC by 7 August
- Quarter 2 Report – covers the period 6 April to 5 October and is due with HMRC by 7 November
- Quarter 3 Report – covers the period 6 April to 5 January and is due with HMRC by 7 February
- Quarter 4 Report – covers the period 6 April to 5 April and is due with HMRC by 7 May
At this stage HMRC has advised that the quarterly reporting will declare:
-
- Gross income
- Total expenses per heading, and
- Net income
Accounting and tax adjustments are not required on the quarterly returns, this is completed in the annual declaration detailed at point 3 below.
- Following the quarterly reporting for the tax year the taxpayer is then required to prepare an annual declaration (tax return) for the tax year, and it is at this stage that the taxpayer is required to make all accounting and tax adjustments for the relevant tax year.
The annual declaration deadline is 31 January following the relevant tax year (the same deadline as current tax return requirement). Tax payment deadlines have not changed at this stage and tax is still payable by 31 January each year and 31 July each year for those with payments on account.
How we can help
HMRC will review the last tax returns submitted for 2023/24 and for those with gross income from self-employment and property income exceeding £50,000 will advise them that they may be required to comply with the new MTD regime from April 2026. If you receive a letter from HMRC, please get in touch with us to discuss the next steps.
Failure to comply with MTD, submit quarterly returns and a final declaration could result in HMRC issuing late filing penalties and tax geared penalties.
We have already contacted many clients who we believe will be within the scope of MTD for Income Tax from April 2026 to plan for the new requirements. If you believe you may meet the conditions for MTD, and we have not been in touch, please contact the tax team or your normal point of contact at Baker Tilly Mooney Moore at your earliest convenience.