Making Tax Digital for Income Tax (MTD) will become mandatory from 6 April 2026, marking a significant change in how many individuals report income to HMRC.

From this date, self-employed individuals and landlords within scope will be required to maintain digital records and submit information to HMRC on a quarterly basis. Although this represents an increase in reporting frequency, when implemented effectively, the regime can also provide practical benefits.

What Is Making Tax Digital for Income Tax?

Making Tax Digital for Income Tax is an HMRC initiative designed to modernise the UK tax system by replacing annual tax returns with digital record-keeping and more frequent reporting.

Individuals within scope will be required to:

• Maintain digital accounting records

• Use HMRC-compatible software

• Provide quarterly reports detailing income and expenditure

• Complete a year-end declaration instead of a traditional Self Assessment tax return

Who Will Be Affected?

From 6 April 2026, MTD will apply to individuals (but not initially to trusts or partnerships) who have:

• Self-employment income, and/or

• UK or non-UK property rental income

where total qualifying turnover exceeds £50,000.

The scope will expand in subsequent years:

• From April 2027 – the turnover threshold reduces to £30,000

• From April 2028 – the turnover threshold reduces to £20,000

Over time, this phased reduction in thresholds will bring a growing number of self-employed individuals and landlords into the regime.

Is Participation Mandatory?

Yes. Making Tax Digital represents a statutory obligation imposed by HMRC.

While some may regard MTD primarily as a compliance exercise, practical experience from early testing and engagement with software providers and HMRC indicates that it may also offer operational advantages when properly implemented.

Potential Practical Benefits

For self-employed individuals

Quarterly reporting can enable individuals to:

• Monitor income and profitability on a cumulative basis across the tax year

• Develop a clearer picture of likely tax obligations

Plan more effectively for tax payments, particularly where earnings fluctuate

Where such information has not previously been available in-year, forecasting and managing tax liabilities has often been more challenging.

For landlords

For individuals with multiple rental properties, reporting at profit and loss level for individual properties can provide commercially valuable insights that may not have been readily apparent under previous reporting methods.

Key Considerations Based on Early Experience

Engagement with HMRC and accounting software providers has highlighted several practical points:

1. Implementation timetable

HMRC has confirmed that implementation will proceed as planned. Although penalties will not apply until 6 April 2027, the commencement date of 6 April 2026 remains unchanged.

2. Administrative impact and use of technology

There will inevitably be an administrative burden associated with more frequent reporting. However, the use of accounting software linked to a dedicated business bank account, together with receipt-scanning tools or direct email capture of expenses, can reduce the need to manually collate and submit records. For larger self-employment or rental businesses, this may result in meaningful time savings.

3. The value of client involvement

While advisers can provide a full service in connection with Making Tax Digital, there can be advantages where individuals are involved in at least part of the process.

4. Accuracy of quarterly submissions

To derive the greatest benefit, quarterly updates should be prepared as accurately as possible. HMRC does not initially appear to be prescriptive, provided submissions are not nil. Tax adjustments are not required on a quarterly basis and can be made at the year end.

5. Changes within HMRC systems

From a personal tax perspective, individuals will move from HMRC’s legacy IT system to a new enterprise system. This is expected to improve the pre-population of tax returns for known information.

With the introduction of Making Tax Digital for Income Tax approaching, early preparation will be essential to ensure a smooth transition and ongoing compliance.

If you would like to discuss how these changes may affect you, or require support in preparing for April 2026, please contact one of our team, who will be happy to assist.

Website: www.menzies.co.uk 

Email: advice@menzies.co.uk

David Truman, Partner,

Private Client of Menzies LLP