What is Making Tax Digital?
Making Tax Digital for Income Tax (MTD) is a significant change to the UK self-assessment tax system that will impact sole traders, self-employed individuals, and landlords.
From April 2026, the way tax returns are submitted will be changing with the introduction of Making Tax Digital for Income Tax. It is the biggest change to income tax reporting since HMRC introduced self-assessment over 30 years ago. Below is a summary of the main changes:
Create, store and correct digital records of self-employment and property income and expenses
Submit summaries of income and expenditure for each of your self-employment and property businesses for each quarter of the tax year
Submit your Final Declaration, which replaces your tax return, by 31 January each year. This allows you to finalise profit, adjust previously submitted income and expenditure figures, and you must also disclose the other taxable income, gains, allowable deductions and reliefs not already reported under MTD.
Your most recently filed tax return will be used to identify if you will have to start using MTD for Income Tax. For example, your 2024/25 tax return that is due to be submitted by 31 January 2026 will be used to determine if you need to start using MTD from 6 April 2026.
Individuals starting a new property or sole trade business will enter MTD in the tax year after they have filed a return that includes the new source of income at the earliest – only if the applicable turnover threshold is breached.
Annual business and/or rental income over £50,000 as reported in the 2024/25 tax return
Annual business and/or rental income over £30,000 as reported in the 2025/26 tax return
Annual business and/or rental income over £20,000 as reported in the 2026/27 tax return
MTD to apply to partnerships
Partnerships (at the moment), although partners who separately receive sole trade or property income on their own account will still be required to report these sources under MTD.
Non-UK resident foreign entertainers & sportspeople with no other qualifying income sources for MTD
Lloyds underwriters, religious ministers, distributions to shareholders in real estate investment trusts or distributions to participants in open-ended investment companies
Trusts, estates, trustees of registered pension schemes and non-resident companies
Taxpayers who do not have a UK national insurance number
Taxpayers who claim Married Couples Allowance, Blind Persons Allowance or claiming Qualifying Care Relief (e.g., foster carers) for that source of income only
Taxpayers with a Power of Attorney
Trustees of charitable trusts or the trustees of exempt unauthorised unit trusts
For 2026/27, taxpayers who have residence or remittance basis pages on their tax return have a one-year deferral of MTD. They will not enter MTD until 6 April 2027 even if the turnover threshold is breached.
Scenarios to register for MTD by April 2026.
Sole TraderTurnover
RentalTurnover
Total Turnover
Required to Register for MTD?
£5,000
£12,000
£17,000
No
£48,000
£0
£60,000
£25,000
£85,000
Yes
£30,000
MTD filing is automatically under tax quarters, although calendar quarters may be elected for.
Quarter
Tax Period
Calendar Period
Filing Deadline
1
6 April – 5 July
1 April – 30 June
7 August
2
6 July – 5 October
1 July – 30 September
7 November
3
6 October – 5 January
1 October – 31 December
7 February
4
6 January – 5 April
1 January – 31 March
7 May
Final Declaration
6 April – 5 April
1 April – 31 March*
31 January
*all other taxable income and expenditure will be reported on a tax year basis, i.e. 6 April – 5 April
Total expenses of each property and/or sole trade business categorised in the same way as on your Self-Assessment tax return
Total income from property with UK and foreign property businesses reported separately
Total income from each sole trade business reported separately
Allowances and other allowable deductions and adjustments
HMRC will produce an Income Tax estimate based on the information reported up to the quarter end in the tax year. This is for a taxpayer’s information as a guide, however, it does not consider other sources of taxable income e.g. dividends, interest etc. or allowable expenditure e.g. charitable donations during the tax year.
Total UK dividend income for a tax year
Taxed UK savings interest
Untaxed UK savings interest
Capital Gains (residential property gains will have also been reported in-year)
Other taxable income sources
Any claims or elections
Set up a separate bank account (that is compatible with Open Banking) for each business, as applicable.
Register for MTD with HMRC.
Set up your cloud based accounting tool to record and report your income and expenditure to HMRC.
Link your property and/or sole trade bank account with the MTD software.
Give Barnes Roffe access to your MTD account.
Barnes Roffe can assist you with registering for MTD and setting up a cloud based accounting tool.
All transactions (not summaries) need to be recorded and stored digitally.
Invoices and receipts do not need to be scanned into the digital software, paper records can still be kept but digital capture makes record keeping much simpler and easier.
The following records will need to be maintained digitally:
the financial information including the quarterly submission;
the details of the items comprised in that information;
the amounts and dates on which those items were received or incurred; and
categories of the income and expenses which are broadly the same as those that are currently used for the full self-employment and property sections of your self-assessment tax return.
Quarterly updates are based on cumulative trial balance data.
If anything is missed or adjusted after a quarterly update has been submitted, this will be adjusted for in the next quarterly update.
A new late filing penalty regime will replace the current system
Points will be issued for each late filing
All points will expire after the taxpayer has met their return within the period of compliance
Where a taxpayer continues to miss submission deadlines after reaching the points threshold every additional late submission immediately triggers another £200 penalty.
Submission frequency
Penalty threshold
Period of compliance (points reset)
Penalty per late submission
Annual
2 points
24 months
£200
Quarterly
4 points
12 months
The payment deadlines will remain the same as for Self-Assessment i.e. 31 July and 31 January each year.
Interest is charged daily from the due date until payment is made.
There is a new penalty regime for MTD taxpayers. HMRC will charge a penalty on the tax outstanding from 15 days after the due date.
Tax unpaid
Penalty percentage
Total penalty rate
Within 15 days
0%
After day 15
3%
After day 30
6%
After day 31
10% per annum (accruing daily)
6% + 10% per annum
(accruing daily)
You can stop complying with the reporting requirements of MTD if the turnover/gross income falls below the reporting threshold consistently or when the business ceases permanently.
Where income falls below the threshold, the MTD reporting requirements will cease to apply only when the turnover/gross income falls below the threshold for 3 successive years.
We can set up a cloud based accounting tool and training in readiness for MTD. In addition to that, we can offer the following packages to support you with MTD returns:
We maintain your records and file the quarterly returns and final declaration.
You maintain your records and we review and file the quarterly returns and final declaration
You maintain your records and file quarterly returns. We will pick up your records to use to prepare your final declaration
