Big changes are coming for how self employed individuals and landlords manage their taxes. The government’s Making Tax Digital (MTD) initiative aims to make the UK tax system more modern and user-friendly. While this may sound daunting, don’t worry—we’ve got you covered with the latest updates and tips on how to prepare.
What’s Making Tax Digital (MTD) All About?
MTD is part of HMRC’s mission to modernise the UK tax system, and it’s already in place for VAT. The next step is Making Tax Digital for Income Tax (MTD IT). This will mean you have to keep digital records and send updates to HMRC every quarter. Currently there are no changes to how and when you pay your tax, but it wouldn’t be a big surprise if eventually you also have to pay income tax quarterly.
The goal? To reduce errors, make tax reporting simpler, and give you a clearer idea of how much you owe throughout the year.
When will MTD IT start?
The start date was pushed back to April 2026, which scarily is now just over a year away! It won’t necessarily kick in for you straightaway though, it is dependent on your total sales or gross rental income. If your total sales or gross rental income are £50,000 or more this will apply for you from April 2026 onwards. If your total sales or gross rental income are between £30,000 and £50,000, you’ll need to comply starting in 2027. The threshold will then drop to £20,000, but the date for that hasn’t yet been announced.
Who Needs to Pay Attention?
If you’re self-employed or a landlord earning over £50,000 a year, this change is heading your way in April 2026. If you’re below that threshold, you’re off the hook for now, but keep an eye on developments as the threshold will be reducing to £30,000 in 2027 and then £20,000 at a future date. No date has been announced yet for partnerships.
What Does MTD for Income Tax Actually Involve?
Here’s what you’ll need to do once MTD IT kicks in:
- Keep digital records: Say goodbye to paper files! You’ll need to track your income and expenses digitally.
- Send quarterly updates: Every three months, you’ll submit a snapshot of your income and expenses to HMRC through your software.
- File a Final Declaration: You’ll have to submit non-business information to HMRC before you can make the Final Declaration, which is basically how you “accept” your final tax position for the year.
Why Is This a Good Thing?
At first, MTD might feel like more admin and hassle, but we promise you there are benefits!
- Less guesswork: Quarterly updates mean you’ll have a clearer idea of your tax bill throughout the year, so you’re much less likely to have a nasty surprise after the end of the tax year.
- Fewer mistakes: Digital systems are more accurate, reducing the risk of errors that could cost you.
- Streamlined processes: Using MTD-compliant software like Xero makes everything quicker and easier in the long run.
How to Get Ready for MTD IT
It’s never too early to prepare, and getting ahead of the game can save a lot of stress later. Here’s how to start:
- Check your records: If you’re still using spreadsheets or paper, it’s time to think about going digital.
- Pick the right software: Look for MTD-compliant tools that work for you. We love Xero, but there are plenty of others out there.
- Try it out early: You can sign up for MTD voluntarily now, giving you time to get familiar with the system before it becomes mandatory.
We’re Here to Help
At Starfish Accounting, we know changes like this can feel overwhelming, but you don’t have to do it alone. We’ve already helped many clients transition to digital accounting for VAT, and we’re here to do the same for Income Tax.
From choosing the right software to keeping your records in order, we’ll make sure you’re fully prepared when April 2026 rolls around. If you’d like to chat about how we can help, get in touch – we’re just an email or call away. We’re working on something special to make MTD IT easier to manage, so watch this space!
