Your Top 10 Questions About Making Tax Digital for Income Tax - Answered

1. Who needs to use Making Tax Digital (MTD ) for Income Tax and from when?

MTD applies to self employed individuals and landlords with gross qualifying income (income before expenses ) above the relevant thresholds. If your qualifying income is above :

£50,000 for the 2024/25 tax year (5th April 2024 – 6th April 2025) you will need to comply from April 2026.

£30,000 for the 2025/26 tax year (5th April 2025 – 6th April 2026) you will need to comply from April 2027.

£20,000 for the 2026/27 tax year (5th April 2026 – 6th April 2027) you will need to comply from April 2028.

2. How do I register for Making Tax Digital for Income Tax?

HMRC will not register tax payers automatically but will notify you via a letter or digital communication such as email when you have been mandated and need to start filing under MTD for IT. You will need to sign up to use MTD for Income Tax similar to how you registered for self-assessment.

3. What are the key requirements of MTD?

You must keep digital records

You must file quarterly updates (see dates below )

Submit a year end declaration (31st January after the tax year. Same as for self assessment tax return)

And all these must be done using digital links.

4. What software do I need to use?

Unlike in the past, HMRC will not provide free MTD compatible software like they did in the past when they rolled out any digital transformation like PAYE tool for filing real time payroll information. Most major software providers like Quickbooks, Xero, Sage, Dext, Free Agent etc offer HMRC approved software solutions.

5. When are quarterly updates due and what do they need to include?

You must submit a summary of your business income and expenses every quarter. These quarterly updates operate cumulatively and are due on the 7th of the month following the quarter end and a final submission by the 31st January following the end of the tax year. The due dates are summarised again below:

6th April – 5th July due 7th August

6th April - 5th October due 7th November

6th April - 5th January due 7th February

6th April – 5th April due 7th May

Final submission by the 31st January following the end of the tax year .

6. What exemptions are available from MTD?

You can claim exemption if it is not reasonably practicable to use digital tools due to age, disability, remoteness of location, or if your business is run by practising members of a religious society whose beliefs are incompatible with electronic communications. You will need to apply for this exemption with HMRC.

7. What are the Penalty rules under MTD for income tax?

Penalties for late submissions move to a points-based system, similar to VAT rules introduced in 2019. Under the points-based system no financial penalty arises for the first late submission. We have looked at the penalties in detail in our article titled Penalties Under Making Tax Digital for Income Tax .

8. What records do I need to keep digitally?

You must keep digital records of the amount, category, and date of income and expenses relating to your-self -employment and property business in some form of software. Digital records can be kept either in purpose-built software or on spreadsheets. The key thing as mentioned earlier is that all the required information has to be filed to HMRC using a digital link.

Please note you can still use spreadsheet and keep manual records but these will only be allowed with a bridging software that connects to HMRC.

9. What simplifications options are available?

Where business or proper income is below the VAT registration threshold of £90,000, you can use “three-line-accounts” for that income source. This means you can record each item of income and expenses without needing to allocate it to a specific category.

10. Can I leave MTD once I have joined?

This is an excellent question and yes you can but under very strict conditions. Once you are mandated to join MTD for Income Tax, you will only become exempt if your qualifying income falls below MTD for Income Tax threshold for three consective year based on the filed tax returns, or quarterly updates where the deadline has not yet passed.

If you are self employed and have always done filed your returns yourself but are finding this whole Making Tax Digital for Income Tax a little confusing and unsure where to start, we can help.

Simply complete the contact us form below and we would love to help.

Blog content is for information purposes only and over time may become outdated as the tax landscape is constantly changing, although we do strive to keep it current and up to date. It is written to help you understand your taxes and is not to be relied upon as professional accounting, tax and legal advice. For additional help please contact our team, or a professional adviser.