Making Tax Digital for Income Tax

Making Tax Digital (MTD) is a strapline that HMRC have been using for many years now, although to date the only tax they have digitised is VAT. That will change in summer 2026 when Income Tax will be brought into MTD.

MTD for Income Tax will result in certain taxpayers having to report their income and profits to HMRC on a quarterly basis (plus a year-end tax return), instead of just the one annual tax return, as at present.

The purpose of this article is to set out a brief summary of these arrangements, to hopefully make it clearer as to who will be affected by the new rules, and when.

The scheme currently applies only to those taxpayers with income (not profits) from trading and property activities, where that income exceeds certain thresholds.

Who will be affected in the first few years:

• Sole traders
• Individuals who rent property out (residential let or holiday let), including jointly owned properties; this includes UK resident landlords renting out properties overseas

When will they be affected:

• Where your income from the above sources exceeded £50k in 2024/25, you will need to report under MTD for 2026/27 (from summer 2026)
• Where your income from the above sources exceeds £30k in 2025/26, you will need to report under MTD for 2027/28 (from summer 2027)
• Where your income from the above sources exceeds £20k in 2026/27, you will need to report under MTD for 2028/29 (from summer 2028)

We’ll set out some examples below of individuals who will be required to report under MTD from summer 2026:

• Sole trader with turnover of £50k or more in 2024/25
• Landlord with property income of £50k or more in 2024/25
• Individual with sole trade income of less than £50k in 2024/25 but also has property income that results in total trading and property income over £50k

Examples of individuals that will not be required to report under MTD from summer 2025 will include:

• Partners in a trading business (including a B&B, which is treated as trading income rather than property income) unless they have separate sole trades or property income; it’s something of an anomaly that partners in a partnership will not be subject to the regime but sole traders will
• A couple with combined rental income of £55k split 50/50 between them
• Landlords operating property rentals via limited companies

The practical effects of MTD will be felt in two main ways:

1. Taxpayers will be required to maintain digital records covering the affected income sources
2. Taxpayers will be required to submit quarterly updates within a month and seven days of each quarter-end, starting with June 2026 (deadline 7 August 2025); this mirrors the current quarterly VAT return timeline

MTD reporting will take the form of electronic submissions so the income being reported on will be recorded in/linked to suitable software. For many sole trades, record-keeping is already digital, but a new step may be needed to make the actual submissions. Property income is less commonly maintained digitally. We are reviewing software systems to assist affected clients.

We don’t have final 2024/25 figures for every client at present, but current indications are that less than 10% of our individual tax clients will be affected in year 1, and still under 20% by year 3. We will be in touch with each affected client in due course. In the meantime let us know if you have any questions.