MTD For Income Tax

Making Tax Digital, usually called MTD, is HMRC’s move toward digital record keeping and digital tax reporting. Instead of relying only on paper records or manual submissions, businesses and landlords affected by MTD must keep records digitally and use compatible software to send information to HMRC.

For many businesses, MTD is already part of everyday compliance. For others, especially sole traders and landlords, the main changes are arriving in stages.

What MTD means in practice

If MTD applies to you, you will usually need to:

  • keep your business records in a digital format

  • use compatible software

  • send information to HMRC digitally

  • keep records up to date throughout the year, not just at year end

The exact rules depend on whether you are dealing with VAT or Income Tax.

MTD for VAT

MTD for VAT already applies to all VAT registered businesses, unless HMRC has agreed that you are exempt.

If your business is VAT registered, you should now:

  • keep VAT records digitally

  • submit VAT Returns using compatible software

  • use software that can connect to HMRC’s systems

New VAT registered businesses are generally signed up to MTD for VAT automatically by HMRC, unless they are exempt or have applied for exemption.

VAT records you must keep digitally

Your digital VAT records normally include:

  • your business name, address and VAT registration number

  • the VAT accounting schemes you use

  • VAT on goods and services you supply

  • VAT on goods and services you receive

  • the totals needed for each VAT Return

MTD for VAT exemptions

You may be exempt if, for example:

  • it is not reasonably practical for you to use digital tools because of age, disability or remoteness of location

  • you are subject to an insolvency procedure

  • you object on religious grounds to using computers

HMRC must agree the exemption, it is not automatic.

MTD for Income Tax

MTD for Income Tax is being introduced in phases for sole traders and landlords.

When it starts

Under the current timetable:

  • if your qualifying income is more than £50,000 in the 2024 to 2025 tax year, you must start using MTD for Income Tax from 6 April 2026

  • if your qualifying income is more than £30,000 in the 2025 to 2026 tax year, you must start from 6 April 2027

  • if your qualifying income is more than £20,000 in the 2026 to 2027 tax year, the government has said it plans to bring you into MTD from 6 April 2028

Who this affects

MTD for Income Tax is aimed at:

  • sole traders

  • landlords

  • people with qualifying income from self-employment and property

Qualifying income is based on the gross income from these sources, not profit.

What you will need to do

If MTD for Income Tax applies to you, you will need to:

  • keep digital records of your self-employment and property income and expenses

  • send quarterly updates to HMRC for each self-employment business and property business

  • submit a final year-end submission through MTD software

  • pay any tax due by the normal deadlines

MTD changes how records and updates are sent, but it does not remove the need to pay tax on time.

Quarterly updates, what they are

Quarterly updates are summary reports sent to HMRC during the tax year. They help keep your records current and give you a more up to date picture of your tax position.

In most cases:

  • updates are sent every 3 months

  • they cover each self-employment and property source separately

  • corrections can be made through your digital records and reflected in later updates

Your software will usually tell you the update periods and deadlines.

Will Self Assessment disappear

Not completely.

If you come into MTD for Income Tax, you will still have an end of year process. Instead of the old style return alone, you will keep digital records, send quarterly updates, then make a final submission through compatible software.

Do I need special software

Yes, if MTD applies to you, you must use compatible software.

HMRC does not provide the software itself. You must choose software that works with HMRC’s systems. There are both paid and, in some cases, free options, depending on the type of business and complexity of your records.

Benefits of getting ready early

Even before MTD becomes compulsory, many businesses benefit from moving to digital bookkeeping early:

  • fewer errors from manual records

  • a clearer view of income and expenses during the year

  • easier preparation for VAT and year-end tax work

  • better visibility of likely tax bills

  • smoother communication with your accountant

Common concerns about MTD

“I only have one small business, does this still apply to me?”

Possibly, yes. For Income Tax, the key test is your qualifying income threshold.

“I already use spreadsheets”

Spreadsheets may still be used in some cases, but they must work within MTD rules and connect properly to HMRC, often through bridging software.

“Can I be exempt?”

Some people can apply for exemption if it is not reasonably practical for them to use digital tools. HMRC decides this case by case.

“Will MTD change my tax bill?”

MTD does not usually change the tax rates themselves. It changes how you keep records and report information.

How PK Financial Services can help

We can help you move to MTD smoothly and correctly by:

  • checking whether MTD already applies to you, or when it will

  • setting up compliant bookkeeping systems

  • recommending suitable software

  • helping with quarterly updates and digital record keeping

  • managing VAT, Self Assessment and MTD obligations together

  • training you or your staff to use the system properly

Whether you are a sole trader, landlord, contractor, or limited company, we can help you stay compliant and avoid last minute problems.

Talk to us
PK Financial Services, 49 West Ham Lane, Stratford, London, E15 4PH
T: 0208 22 111 65, 077 897 581 77

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