News

Making Tax Digital (MTD) for income tax is being phased in from April 2026.  Those who receive income from self-employment and/or property where turnover/gross income exceeds £50,000 (combined, from both sources) will stop filing traditional tax returns and switch to using MTD to declare income from 6 April 2026.  This will be extended to those earning over £30,000 from April 2027 and over £20,000 from April 2028.

Current regulations do not cover partnerships, but it is anticipated that MTD income tax will be extended to include partnerships at some point in the future.

What does MTD income tax mean?

After April 2026, taxpayers within the scope will be required to:

• Maintain digital accounting records in functional compatible software or a spreadsheet for each business you run and separately for all rental income.
• A submission to HMRC must be made quarterly as well as a year-end tax return (final declaration) using compatible software.
• The final declaration is to be submitted no later than 31 January following the end of the tax year. It will include a summary of the income, allowances and any adjustments along with claims for personal allowances.

MTD income tax does not change the payment dates for tax and national insurance and it does not change the taxation rules.

What digital records do I need to keep?

Legislation for keeping digital records does not mean you have to scan and store invoices and receipts digitally. Paper documents can still be kept but each individual transactions must be recorded and stored digitally on compatible software.  Each quarterly update must include:

• The quarterly update period start and end date.
• The amount and date on which the expenditure occurred or income was received.
• The category into which the transaction falls – the categories are broadly the same as those used for the full self-employment and property pages of the self-assessment tax return.

The standard quarters are:

• 6 April to 5 July
• 6 July to 5 October
• 6 October to 5 January
• 6 January to 5 April

Businesses can elect to report for calendar quarters:

• 1 April to 30 June
• 1 July to 30 September
• 1 October to 31 December
• 1 January to 31 March

The filing deadlines for the quarterly updates are 7 August, 7 November, 7 February and 7 May following the end of the relevant quarter (whether the standard or calendar quarter is used).

Software

HMRC has confirmed that it will not be launching its own software program but the government has confirmed that free MTD income tax software will be made available to those taxpayers with the simplest of affairs.  When choosing your software package you need to ensure that the software will send quarterly submissions and your final return (not all packages do both so please do check).

You will still be able to use spreadsheets to either record individual transactions or as part of a combination of software and spreadsheets, however, there is a requirement for digital links in this case.  The spreadsheet must be either API enabled or used in combination with an MTD compatible software program allowing data to be sent to and received from HMRC systems.

If you have an agent, please speak to them about your choice of software before committing.

For more information please contact us.