HM Revenue & Customs is preparing one of the most significant changes to the UK tax system in recent years. Making Tax Digital (MTD) for Income Tax will require self-employed individuals and landlords to move away from the traditional once-a-year Self Assessment return, replacing it with a system of digital record-keeping and more frequent reporting. For businesses and individuals operating in the UK, understanding what is coming — and when — is the first step towards a smooth transition.
What Is Making Tax Digital?
Making Tax Digital is a UK government initiative designed to modernise the tax system. It requires certain taxpayers to keep digital records and submit tax information to HMRC more frequently, using compatible software. The current phase of MTD focuses on individuals who already complete a Self Assessment tax return — primarily those with income from self-employment or property rental.
Who Is Affected and When?
The rules will be introduced in two stages. From April 2026, individuals with gross income from self-employment and/or property exceeding £50,000 will be required to comply. From April 2027, the threshold lowers to £30,000, bringing a wider group of taxpayers into the regime.
Importantly, the income threshold is based on total gross income — that is, turnover before expenses — from self-employment and property combined. Therefore, someone earning £28,000 from freelance work and £15,000 from renting a property would have combined gross income of £43,000 and would fall within MTD from April 2027.
What Will Change?
Under Making Tax Digital, affected taxpayers will be required to keep digital records of their business or rental income and expenses, submit quarterly updates to HMRC using approved accounting software, and complete an end-of-year final declaration confirming their total income and the tax due.
Rather than sending information to HMRC once a year, updates must be provided every three months, followed by a final annual submission. Quarterly updates will normally cover the following periods:
- 6 April – 5 July
- 6 July – 5 October
- 6 October – 5 January
- 6 January – 5 April
Each update summarises income and expenses for that period.
Who Is Exempt from MTD?
Not everyone will be required to join the Making Tax Digital regime. Individuals whose income falls below the applicable thresholds are not affected. Moreover, taxpayers who are digitally excluded — due to age, disability, geographic location or religious beliefs — may be eligible for an exemption. Trusts, the estates of deceased persons, and partnerships currently fall outside the scope of MTD. Certain other specific taxpayer categories defined by HMRC are also exempt.
How We Can Help
Navigating a shifting compliance landscape can be challenging, particularly when the rules are changing on a fixed timetable. Our firm will assist affected clients with setting up suitable digital accounting software, maintaining compliant digital records, preparing and submitting quarterly updates to HMRC, and completing the end-of-year declaration.
If you would like to understand how these changes may affect you or your business, please contact our London office today.