Making Tax Digital for Income Tax

It’s been delayed, but it’s coming; from April 2026, the way sole traders and landlords manage and file their taxes with HMRC is changing. Not everyone will be making the switch at once, as HMRC is introducing the system for taxpayers with qualifying* business and/or property income over certain thresholds, using a phased approach (be aware that these dates and thresholds are subject to change).

• £50,000 from April 2026
• £30,000 from April 2027
• £20,000 from April 2028

*Qualifying income means gross (before expenses) income

This is an important one to get out of the way early, and will hopefully make the things that are changing feel a bit less scary: the amount of tax you will need to pay, and when you will need to pay it, is staying exactly as it is now. That means any tax is due by the 31^st January following the end of a tax year, with potential for payments on account due by 31^st January and the following 31^st July, depending on how much tax you owe. Currently, MTD just means submitting information to HMRC more often than before.

Before now, if you received income from a property or self-employed business, you would have reported this income once per year on your Self Assessment Tax Return on or before the 31st January following the end of the tax year 5th April.

Your records might have been physical, digital, or a combination of the two, and you probably used spreadsheets to keep track of things.

This is changing.

Under Making Tax Digital (MTD) for Income Tax, you will instead make four ‘Quarterly Updates’ to HMRC each year, on which you will declare your business/property income and expenditure for the year so far, plus a ‘Final Declaration’ after notifying HMRC of any non-business income that would usually be reported on a tax return, for example savings interest or dividends.

You will also be required to maintain digital records (no more paper receipts!) and must record and submit your information using HMRC-approved software (and will need to sign up for MTD through this software).

Many businesses that fall within MTD for Income Tax thresholds will already be using such software in order to comply with the MTD for VAT rules, and so should not need to make significant changes. However, many more businesses will now find themselves in the position of having to find software and change their record-keeping processes.

You may therefore be wondering: “What is the easiest way to make myself compliant with these new rules, without spending time and money that could be better used elsewhere in my business?”.

The Finance Department’s solution is simple: Xero Simple, the new lowest tier of pricing plan available for the Xero cloud bookkeeping platform, which includes all the features and functionality to digitally record all aspects of your business (including saving photos of your paper receipts and automatically reading/inputting the information from them) and report them to HMRC.

By default, the reporting dates under MTD will continue to be based on the existing 5th April tax year end, with the dates covered by the Quarterly Updates as follows:

• Quarter 1 – up to 5 July (filing deadline of 7 August)
• Quarter 2 – up to 5 October (filing deadline of 7 November)
• Quarter 3 – up to 5 January (filing deadline of 7 February)
• Quarter 4 – up to 5 April (filing deadline of 7 May)

However, if you prefer, you can opt to base your quarters on calendar months. In this case, the quarter dates will be as follows (the filing deadlines do not change):

• Quarter 1 – up to 30 June
• Quarter 2 – up to 30 September
• Quarter 3 – up to 31 December
• Quarter 4 – up to 31 March

So, whichever set of dates you use, you’ll have around a month after the end of each quarter to submit the figures to HMRC.

For the ‘Final Declaration’, the submission deadline is the same as for a tax return – the 31 January following the end of the tax year – that’s about a 10-month window.

MTD for Income Tax will use the same Penalty Points System as MTD for VAT.

Essentially, you’ll get a penalty point if you fail to submit a Quarterly Update (or a Final Declaration) on time. If you reach 4 penalty points, you’ll be charged a £200 fine, and will be fined an additional £200 for each additional point you accrue whilst at or over this threshold.

If you make all your submissions on time over a period of 12 months, your penalty points will be reset to zero. Essentially, you won’t be punished for occasionally missing a filing deadline, but if you make a habit of it, the fines will add up very quickly!

If you make a mistake on a Quarterly Update, you can simply correct it on the next update!

If you fall into one of the upcoming thresholds, almost certainly.  However, there are criteria for being considered ‘Digitally Excluded’, and you can check these (and apply for exemption) here: Find out if you can get an exemption from Making Tax Digital for Income Tax – GOV.UK.

Please note that even if you have previously been confirmed as Digitally Excluded for MTD for VAT, you will still have to apply separately for exemption from MTD for Income Tax.

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