Hello again!

This will hopefully answer some of the questions we often get about the new MTD (Making Tax Digital) roll out.

We hope this information is useful.

As always we are just a telephone call away if you have any further questions regarding MTD.

Who must use MTD for Income Tax?

You must use Making Tax Digital for Income Tax if:

• You are a sole trader, a landlord, or both.
• Your total gross income from self-employment and property exceeds the relevant threshold.
• You are registered for Self Assessment and have a National Insurance number.
• Your qualifying income is assessed before deducting expenses, allowances or tax.

Limited companies, partnerships and individuals whose only income is from employment or pensions are not currently included in the first phase.

When does MTD become compulsory?

• From 6 April 2026: those with qualifying income of more than £50,000, based on the 2024/25 tax return.
• From 6 April 2027: those with qualifying income of more than £30,000, based on the 2025/26 tax return.
• From 6 April 2028: those with qualifying income of more than £20,000, based on the 2026/27 tax return.

It remains the taxpayer’s responsibility to check whether they must join, even if they do not receive a letter from HMRC.

What income counts?

The threshold is based on the combined gross income from:

• Sole-trader businesses.
• UK property income.
• Overseas property income.

This is the total income received before expenses are deducted.

Certain types of income do not count, including:

• Employment income.
• Pension income.
• Dividends and savings interest.
• Partnership income.
• Income fully covered by Rent a Room relief.
• Certain qualifying care income.

What will taxpayers need to do?

Under MTD for Income Tax, taxpayers (or their agents) must:

• Keep digital records of business and property income and expenses.
• Use HMRC-recognised MTD-compatible software (We recommend Xero).
• Submit quarterly updates to HMRC.
• Submit an end-of-year tax return through compatible software.
• Pay any tax due by the normal Self Assessment payment deadline.

The quarterly updates provide HMRC with totals for income and expenses recorded during each quarter. They are not final tax returns, and accounting or tax adjustments can still be made at the end of the year.

Quarterly update deadlines

For most taxpayers (But not all), the standard deadlines will be:

• 7 August – first quarterly update.
• 7 November – second quarterly update.
• 7 February – third quarterly update.
• 7 May – fourth quarterly update.

For the 2026/27 tax year, the first quarterly update is due by 7 August 2026.

What if someone has more than one business or property?

Digital records must be maintained separately for each relevant source of income, such as:

• Each sole-trader business.
• UK property income.
• Overseas property income.

The compatible software will use these records to prepare the required quarterly updates.

What happens if my income later falls below the threshold?

Joining MTD does not necessarily mean that a taxpayer must remain within it permanently.

If qualifying income falls below the relevant threshold for three consecutive tax years, the taxpayer may choose to leave MTD for Income Tax. They may also choose to continue voluntarily.

Exemptions

Some taxpayers may be exempt from MTD for Income Tax.

An exemption may be available where it is not reasonable or practical for the person to use digital tools because of circumstances such as:

• Age.
• Disability.
• Religious beliefs.
• Location or unreliable internet access.
• Other circumstances causing digital exclusion.

Some exemptions apply automatically, while others require an application to HMRC. Even when exempt from MTD, the taxpayer must continue reporting their income through Self Assessment.

Penalties

For taxpayers required to join from 6 April 2026, HMRC has confirmed that penalty points will not be issued for late quarterly updates during the first MTD tax year, 2026/27.

However, normal penalties may still apply for:

• Late submission of the end-of-year tax return.
• Late payment of the tax liability.

In summary

MTD for Income Tax requires affected sole traders and landlords to:

• Maintain digital accounting records.
• Use compatible software.
• Report income and expenses to HMRC every quarter.
• Complete an end-of-year tax return.
• Continue paying Income Tax through the usual Self Assessment system.

Preparing early and choosing suitable software will help make the transition as straightforward as possible.

Partridge Accountancy Services
Helping businesses stay informed, compliant and prepared.

Simple.

We wish all our clients a wonderful summer and, as always, thank you for your continued support.