One year to go: what you need to know on Making Tax Digital for Income Tax

With the Making Tax Digital (MTD) for Income Tax (MTD for ITSA) pilot already open for volunteers, the government has committed to the MTD programme with the first tranche of taxpayers being mandated to use MTD from April 2026 and plans to extend the programme expected to be implemented in 2027 and 2028.

Since April 2022, all VAT-registered businesses have been required to follow MTD for VAT. So many accountants will already be broadly familiar with the concept and a report published by HMRC in February 2025 shared research results that more than threequarters of smaller business mandated to join MTD from April 2022 agreed that MTD had reduced potential for error in at least one area.

Error reduction is certainly one of the key drivers of the MTD project with HMRC suggesting errors and carelessness account for approximately £9 billion of the tax gap. Accordingly, HMRC is moving forward with the extension of MTD for ITSA.

There are three key components to MTD for ITSA:

• keeping digital accounting records
• filing updates with HMRC every quarter
• an end of year finalisation process.

When will it come in?

From April 2026, MTD for ITSA will apply to self-employed individuals and landlords with qualifying income over £50,000. Those with qualifying income in excess of £30,000 will follow in April 2027 and, as recently announced at the Spring Statement, MTD for ITSA will be extended to those with qualifying income in excess of £20,000 from April 2028.

What needs to be reported and when?

Taxpayers will need to report a summary of their business income and expenses to HMRC each quarter. If business or property income is below the VAT registration threshold only the total income and expenses will need to be reported each quarter; for income above the threshold more detailed categorisation will be needed.

The filings will be made cumulatively to standard quarters (from 6 April) with the filing deadline of the seventh day of the following month. An election can be made to use calendar quarters instead; the filing date remains the same.

Quarterly filings will not need to include any tax adjustments like capital allowances. These will be made in an end of year finalisation together with any non-business income sources. The deadline for the end of year finalisation will be the same as the self assessment deadline of 31 January following the relevant tax year.

What about the digital element?

The three key components of MTD for ITSA (digital record keeping, quarterly updates, and end of year return) will all have to be done in software. HMRC will not provide an online filing service, so any filings will need to be done using third-party software. An ‘all-in-one option’ can be used to manage the end-to-end process. Alternatively, a combination of software products can be used e.g. maintaining digital records on a spreadsheet then using ‘bridging’ software to file quarterly updates.

HMRC are maintaining a list of compatible software. However, it is important to note that not all products will support filing both the quarterly returns and the end of year return.

Five points you might you not know about MTD for ITSA

• The thresholds will be based on a combined total of self-employment/property income rather than looking at each income stream separately.
• The thresholds will be assessed based on the most recently filed tax return. Therefore, tax returns for 2024/25 will determine whether an individual is in MTD for ITSA in 2026/27.
• Typically, where property is owned jointly, qualifying income means each individual’s share of gross rents. However, if a taxpayer only receives notice of their share of income after expenses have been deducted, that is the figure that will be used.
• for ITSA does not yet apply to partnerships or limited liability partnerships (LLPs), though they are expected to have to join at some point in the future. Individual partners will therefore only be required to join MTD for ITSA if they have any self-employment and/or property income at the levels noted above.
• as confirmed at Spring Statement that individuals needing to submit the residence/remittance pages (SA109) with their tax returns have their entry to MTD for ITSA deferred until April 2027 even if they meet the qualifying income thresholds for 2026/27.

Acountants should be reviewing their client lists now to determine who will be impacted and helping affected clients get ready for the change.