Navigating tax obligations can be complex – especially with all the recent changes surrounding digital compliance. If you’re a business owner, landlord, or self-employed individual, you’ve probably heard about “Making Tax Digital” (MTD) and wondered how it impacts you. If that’s the case, you’re in the right place: this guide is here to demystify Making Tax Digital for Income Tax. Read on below to learn all the essentials – as well as key details – to make sure you meet HMRC’s MTD deadlines and requirements. By the end, you should have all the knowledge to stay compliant and keep on top of your digital tax.
What is Making Tax Digital for Income Tax?
Making Tax Digital is a UK government initiative designed to digitalise the tax system. Having started in the last few years, there are ever more stages of digitalisation underway. In terms of Income Tax, deadlines have already been set. Very soon, MTD will require many taxpayers to use compatible software to manage tax records and submit regular updates to HMRC.
By doing this, HMRC hopes to simplify tax and boost compliance – both for individuals and businesses. In the process, this should increase the accuracy of tax filing and improve efficiency across all areas. MTD will also help to reduce the “tax gap”, ultimately benefiting the taxpayer.
The Goals of MTD
Improving accuracy in tax reporting
By mandating the use of digital record-keeping methods, Making Tax Digital for Income Tax expects to greatly improve tax accuracy by reducing human error. For instance, software tools incorporating real-time form validation should help to flag and resolve potential errors.
Simplifying the tax process
By making tax returns digital, MTD aims to make submissions easier and more intuitive. By removing the need for complicated (and environmentally unfriendly) paperwork, there is opportunity for more user-friendly approaches. One such benefit is the ability for tax-compatible software to provide on-the-go guidance while you’re filling in your tax forms.
Enhancing efficiency for HMRC and taxpayers
It is hoped that improved efficiency will help to reduce costly mistakes – not only for HMRC but for the taxpayer too. By reducing error at each possible stage, MTD will streamline the tax process for everyone: fewer resources will be spent on chasing up tax non-compliance, and individuals will avoid wasting valuable time and money.
Boosting tax compliance
By supporting (and mandating) digital systems, MTD encourages taxpayers to make use of more convenient modes of tax submission. The many benefits include access across many devices and platforms, real-time updates, and quicker turnaround. Overall, these advantages should boost tax compliance as people will be less reluctant to complete their tax returns and other duties.
Who Needs to Comply with MTD for Income Tax?
Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) is set to begin soon (as soon as April 2026). It will be rolled out in stages, each time including more taxpayers. By April 2027, a huge number of individuals will be required to comply.
Here’s an overview of who will be affected, according to each rollout stage:
- Stage 1: All sole traders and landlords with qualifying income above £50,000
- Stage 2: All sole traders and landlords with qualifying income above £30,000
If your “qualifying income” meets one of these thresholds – or you expect to meet one of the thresholds soon – it would be wise to start preparing now. It’s essential to ensure that you’re ready when MTD becomes mandatory.
What is “qualifying income”?
Not all income qualifies for Income Tax. In other words, you might not need to pay Income Tax on everything you earn. For instance, self-employed individuals are entitled to a standard Personal Allowance of £12,750. This means that you do not need to pay any Income Tax on the first £12,750 of your earnings.
Depending on your circumstances, you might be entitled to even more Personal Allowance (e.g. if you claim Blind Person’s Allowance). Contrastingly, if you earn more than £100,000, your Personal Allowance may be reduced significantly.
Requirements for Making Tax Digital for Income Tax
To comply with MTD, there are some new requirements you will need to meet, including:
Digital record-keeping
You’ll need to start keeping all relevant business and financial records digitally. This will be necessary by law, and you will no longer be allowed to maintain paper records. Make sure to save backup copies of your files!
Compatible software
With the introduction of MTD for ITSA, you will need to use HMRC-approved, MTD-compatible software for submissions. Paper-based alternatives will no longer be permitted – including for both annual Self Assessment returns and quarterly updates.
Using the appropriate software will allow you to manage, update and submit information directly to HMRC’s system. Some such services are even free (such as AbraTax Self Assessment).
Quarterly updates
Income Tax taxpayers will be required to submit updates to HMRC at least quarterly (every 3 months) – in addition to the annual Income Tax Self Assessment submission. This will be done through compatible software (such as AbraTax).
Key Deadlines for MTD for Income Tax
Familiarity with the key dates and deadlines for MTD is vital for smooth compliance and avoiding penalties.
MTD rollout
There are two initial stages scheduled for MTD for ITSA. For both stages, sole traders and landlords with qualifying business or property income will need to comply with the new MTD requirements. The rollout dates, and associated income thresholds, are:
6 April 2026 – Stage 1: £50,000 or more in qualifying income
6 April 2027 – Stage 2: £30,000 or more in qualifying income
In summary: after the initial rollout (April 2026), the qualifying threshold for MTD will be reduced (in April 2027).
Important Dates for Submissions
Following the MTD rollout, everyone meeting the MTD criteria will need to submit quarterly updates to HMRC. The first update would be expected three months after the start of your first MTD-compliant fiscal year (e.g. in July). These quarterly updates will continue indefinitely (in addition to the annual Income Tax Self Assessment submission).
Penalties for Missing Deadlines
Along with the new MTD rules, HMRC is introducing a new points-based penalty system. Taxpayers will receive a point each time a submission deadline is missed (including both quarterly updates and the annual Self Assessment). When a certain number of penalty points has been reached, fines will be charged. See HMRC for more details.
Familiarisation with the relevant dates and deadlines for circumstances is essential in preventing unwanted penalties.
How to Register for MTD for Income Tax
If you’re self-employed as a sole trader or a landlord, you will need to register for MTD for ITSA before the relevant rollout date. However, it is possible for many taxpayers to sign up voluntarily. This means that you get to jump ahead now and familiarise yourself with MTD in advance. In addition, you can take advantage of the numerous benefits available through digital tax.
What will you need to register?
To register for MTD for ITSA, will need the following details ready:
- Your National Insurance (NI) number
- Your business’s start date (or the date you started receiving property income)
- Your method of accounting (e.g. cash basis or traditional accounting)
- Your chosen tax year for starting with MTD
Sole traders will also need to have ready their business name, business address, and the nature of their business (their trade).
Where to register?
Once you are ready to register for MTD for ITSA, head to the HMRC website. From here, you will log into your Government Gateway ID. (Note that you must have filed at least one Self Assessment in the past in order to be eligible for voluntary registration.)
Once you have set up your account with MTD for ITSA, it’s time to choose appropriate, HMRC-approved and MTD-compatible software to manage and submit your returns and quarterly updates. See below for recommendations!
Choosing the Right Software for MTD Compliance
Selecting the right software is crucial for making your MTD compliance as simple and convenient as possible. Here are some suggested key considerations:
Low (or no) cost
Since you will be submitting updates to HMRC at least every quarter, you need to ensure affordability of any service you use. Otherwise, you might be facing significant fees. Luckily, there are low cost, and even free services (such as AbraTax) available.
Secure, cloud-based service
Making Tax Digital for Income Tax offers a fantastic opportunity for flexibility, allowing you to check data and submit returns from almost any device. However, since MTD for ITSA concerns your sensitive financial and personal data, you need to know that you can trust it. One way to ensure this is by checking for HMRC approval. Any service you use should be both MTD-compatible and officially HMRC-approved.
Ease of use
Considering how often you will be accessing the MTD service, a user-friendly service could help you to save a huge amount of time in the long run. Look out for features such as step-by-step guidance and automated form validation (error-checking).
Multiple returns
If you are likely to submit multiple returns (perhaps across multiple businesses or on behalf of family members), then you need to choose software which supports this (and doesn’t charge a premium for doing so!).
Our recommendation
AbraTax Self Assessment offers a free and secure service, providing all the key considerations mentioned above. Our software is HMRC-approved and in the process of becoming MTD-compatible.
Common Challenges and How to Overcome Them
As with any change, there can be challenges while getting used to MTD. That being said, you can reduce difficulty by familiarising yourself in advance and preparing ways to address potential issues:
Transitioning from paper to digital records
If you’re more accustomed to paper records, it might feel daunting to imagine submitting your Self Assessment and quarterly updates online. That being said, it has never been easier to do so! If you’re in this situation, it might be best to register for MTD as soon as possible, so you have time to get used to MTD before it is mandatory. You could even contact a professional to help you make the transition.
Understanding MTD requirements
Getting to grips with the new requirements (mentioned above) is going to be essential to successful MTD compliance. Luckily, you still have time to learn and prepare for the rollout! Consider reading more guides like this, and consult HMRC resources to ensure you’re fully informed when the time comes.
Meeting quarterly reporting deadlines
Once you have started with MTD, either voluntarily or after the rollout, it might take time to get used to submitting quarterly reports – a new stipulation from HMRC. To keep on top of these reports, as well as the more familiar annual Self Assessment, it’s a good idea to set up reminders on your devices – or even on your physical calendar. You should get used to it in no time!
Choosing the right software
Choosing the right software is key to a successful transition into MTD. There are many options out there, tailoring to different tastes and needs. When doing the research to inform your choice, make sure to take into account the factors we mentioned above (“Choosing the Right Software for MTD Compliance”).
How AbraTax Makes MTD Easy for Income Tax
As discussed earlier, choosing the right software can transform your MTD experience. It can turn a daunting task into a quick and simple process. At AbraTax, our Self Assessment software is designed with MTD in mind, integrating all the necessary features and keeping on top of HMRC’s MTD legislation.
We are HMRC-approved, boasting a user-friendly interface with step-by-step guides and customisability pertaining to your individual circumstances. Perhaps the best thing is that we currently provide all the benefits mentioned above for free.
All we ask is that you send us your feedback – if you want to. This is because, at AbraTax, we are passionate about providing the best and most satisfying MTD Self Assessment (and VAT) service around. By receiving feedback from our users, we have already been able to improve our tools vastly. We’re thankful for your help!
Conclusion
Making Tax Digital for Income Tax may seem complex at first. However, with the right knowledge and tools, it doesn’t have to be. In fact, it’s pretty effortless to stay compliant if you prepare yourself and choose the right software. We hope that you have found our guide useful, and encourage you to sign up voluntarily for MTD now! Get ahead of the curve and start benefiting from MTD today.
For quick and simple MTD compliance, contact mtd-itsa@abratax.co.uk.