HM Revenue and Customs (HMRC) is continuing to innovate and modernise how taxpayers file their returns and report information. It is committed to its digital transformation roadmap and part of this is the Making Tax Digital (MTD) initiative.

MTD changes how taxpayers maintain their accounting and tax records as well as they conduct business and report back to HMRC.

Having successfully introduced MTD Value Added Tax (VAT) in 2022, the Government has confirmed MTD for Income Tax will be phased in from April 2026 with plans to introduce MTD for Corporation Tax although at this stage, there isn’t a set date for that.

MTD for Income Tax will impact self-employed individuals, businesses and landlords and soon they will be required to follow a new set of measures. According to estimated figures released by HMRC, the new changes are expected to 2.916 million taxpayers.

It is important to check if the new MTD for Income Tax impacts you as it is being phased in over the next three years and your start date is determined by your total turnover and gross income. You need to clarify your position and understand if this does affect you and begin planning for these changes.

Who will MTD for Income Tax affect?

The MTD Income Tax measures coming into effect will impact self-employed individuals, sole traders and landlords. Their turnover and gross income will determine when they need to comply with MTD.

From April 6, 2026, individuals will need to comply with MTD measures if their annual turnover exceeds £50,000. Individuals with an annual turnover exceeding £30,000 will need to comply from April 6, 2027, while MTD for Income Tax will apply to individuals exceeding £20,000 annual turnover from April 6, 2028.

Your income tax return from 2024/25 will determine when MTD for Income Tax applies to you. There are some exemptions in place, so it is important to check and confirm if MTD Income Tax does apply to you.

In its recent report, HMRC released estimated figures, suggesting how many individuals will need to comply. Their estimates are based income tax self-assessment returns (ITSA) for 2023/24 received prior to 31 March 2025.

From these figures, HMRC has deduced an estimated 42 per cent of individuals will need to comply with the MTD for Income Tax. This works out at 2.916 million individuals with 864,000 of those expected to start following the MTD procedures from April 2026.

What will I need to do if MTD for Income Tax applies to me?

When the mandatory laws come into effect, taxpayers will need to follow a set of procedures to ensure they are compliant and communicating with HMRC when required.

Under the new laws, taxpayers will need to maintain digital account records. This will need to be done through a software platform or via spreadsheets as paper records will not meet the MTD requirements.

In addition to this, MTD for Income Tax requires taxpayers to submit quarterly updates to HMRC. The quarterly updates must be submitted within a certain window and through this, you will then need to clarify your tax position at the end of the tax year.

You will need to submit your updates using compatible software that can access HMRC’s app or use an external agent to submit your updates to HMRC on your behalf.

It is a lot to take in so it’s important you understand if MTD for Income Tax will affect you and when you need to start following the laws that will come into place.

Need support clarifying your position?

With the new MTD for Income Tax laws taking effect early next year, it is important to confirm of you will be required to follow new legislation. Clarifying your position will help you prepare, implement measures and stay a step ahead.

If you are unsure and want to clarify your tax position ahead of the laws, speak with financial experts who can advise and guide you. They can explain the MTD for Income Tax in detail, help you work out if MTD for Income Tax applies to you and when you would need to follow the laws.

With the changes expected to affect over two million self-employed taxpayers, sole traders and landlords, it’s important to prepare yourself ahead of time.

Get in touch with our team today for all self-assessment concerns.