Making Tax Digital for Income Tax

If you are a small business, or landlord listen up! Making Tax Digital for Income Tax comes into effect from April 2026 so it's really important to understand what this means for you and how to prepare.

Here's what you need to know...

What is Making Tax Digital (MTD)?

Making Tax Digital is the Government initiative to digitise the UK tax system.

The key requirements of MTD are:

• Keeping digital records using MTD compatible software

• File 4 quarterly reports with HMRC using MTD compliant software; plus

• File a 5th and final 'digital tax return' by 31st January the following year using MTD compliant software (note this is different from and replaces the current self assessment tax return. No more paper returns or filling in your tax return via your HMRC tax account)

• HMRC will send you a 'tax estimate' after each quarterly filing

• There is no current change to tax payment dates

When do I have to do this?

You will need to use Making Tax Digital for Income Tax if all of the following apply. You:

• are an individual registered for Self Assessment

• get income from self-employment or property, or both

• have qualifying income of more than:

  • £50,000 on your 24/25 tax return: you are in scope from April 2026

  • £30,000 on your 25/26 tax return: you are in scope from April 2027

  • £20,000 on your 26/27 tax return: you are in scope from April 2028

  • < £20,000 ? to be announced

How to prepare

• Check your income on your latest filed tax return and work out if and when you are in scope to start quarterly reporting

• If you are not already, start using MTD compatible software. I recommend FreeAgent or Xero and can help you set these up. Using accounting software brings many benefits:

  • real time record keeping (know how you are doing and what you owe instantly)

  • automated bank feed - never miss an expense

  • instant visibility for your accountant - less questions

  • automate invoicing, reconciliations and much more - saving you time

• Open a business bank account (if you don't already have one). Connect it to your software and rigorously make sure all business transactions go through there (and nothing else!)

• Work with an accountant to help you stay compliant, streamline the process, support you with your software and ensure the accuracy of the quarterly filing and the resulting HMRC tax forecasts

• Sign up for Making Tax Digital for Income Tax

What's the bottom line?

There is no getting away from it. For most, coming into scope of MTD for Income Tax will be an upheaval and have a cost, at least initially. Over time this may be recovered through improved accuracy and the elimination of paper trails, but you should prepare for additional software and accountancy costs.

Here are my strategies to make the transition as pain free as possible:

• Check out the software options now. The main providers are jostling to secure the new customers that will emerge and many are offering generous introductory prices. Some accounting software comes free with a business bank account (e.g. FreeAgent is free with a Natwest or Mettle business bank account). So if both a business bank account and software is on your checklist, this might be a great place to start.

• I plan to offer two service level options with two price points - these are still work in progress and not fully priced yet (HMRC are still developing the process so accountants like me are busy trying to gauge the time and effort needed to support you), but as an indicator:

  • Option 1 - Final digital tax return only: I will set you up and then you will file the 4 quarterly updates using your software. I will prepare the final digital tax return only, making adjustments after the tax year-end to the cumulative results of the quarterly returns to ensure you have a correct final tax bill. Best for those confident with their record keeping and software

  • Option 2 - Quarterly returns plus final digital tax return: I will prepare and complete all of your Making Tax Digital for Income Tax filings based on the information in your software plus any additional information or explanations you provide. You (or your bookkeeper) will still do your day to day bookkeeping, but I will check and correct at each quarter end so that all filings are as accurate as possible. Best for peace of mind

Still have questions?

Call Jane on 07584621625 or email hello@janesaccounting.co.uk

#makingtaxdigital #MTDITSA #landlords #selfemployed #taxreturn #selfassessment #quarterlyreturns #april2026 #janesaccounting

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The information contained within in this article is provided for informational purposes only and is not intended to substitute for obtaining accounting, tax, or financial advice specific to your own circumstances from your own adviser.