Guide to Making Tax Digital for Income Tax

MTD IT is a UK government initiative that requires certain taxpayers to maintain digital accounting records and submit income tax updates to HMRC electronically, aiming to 

simplify record-keeping and reduce errors.

Overview of Making Tax Digital for Income Tax

Making Tax Digital for Income Tax (MTD IT) is part of the UK Government's program to digitalise the tax system. It transforms the way self employed individuals and landlords report their income and expenses to HMRC.  The initiative is designed to improve accuracy, reduce mistakes and provide real time tax information through quarterly submissions, rather than relying solely on traditional annual tax returns.

Who Must Comply

MTD IT applies to individuals who:

• Are registered for Self Assessment

• Have income from self-employment or property, or both

• Exceed specific income thresholds, where the phased compliance is as follows:

• April 2026: annual income over £50,000

• April 2027: annual income over £30,000

• April 2028: annual income over £20,000 

• It does not include income from:

  • Employment (PAYE)

  • Profit share from partnerships

  • Dividends

  • State pension

  • Private pension

HMRC will assess your gross income (income before expenses are deducted) based on the self assessment tax return that was submitted in the previous tax year.

If your income was above the relevant threshold HMRC will write to you confirming that you need to use MTD IT.

Key Requirements Under MTD IT

Taxpayers mandated to use MTD IT must:

1. Maintain digital accounting records using compatible software or digital 

2. spreadsheets. Paper records alone do not meet the requirements 

3. Submit quarterly updates to HMRC summarising income and expenditure. These 

   updates overwrite previous submissions, allowing corrections to accumulate 

   automatically 

4. File an annual tax return at the yearend to finalise the tax position, maintaining 

   existing deadlines for payments, such as the 31 January balancing payment 

For example, an individual with one sole trade and a UK property business would 

submit separate quarterly updates for each, totalling eight submissions per year.

In conclusion, MTD IT represents a modernisation of UK income tax reporting, moving away from the traditional annual self assessment to a digital continuous reporting system, starting in stages from 2026. The system helps both taxpayers and HMRC maintain accurate up to date finance records and simplifies the tax filing process.