Making Tax Digital (MTD): 4 steps to help you prepare

23 Jun 2025

By Kirsty Ringland, AAB

From 6 April 2026 , Making Tax Digital (MTD) for Income Tax Self-Assessment will become mandatory for individuals with annual gross income of over £50,000 from self-employment and/or property income. This will be lowered to £30,000 from 6 April 2027 and £20,000 from 6 April 2028. If you are both self-employed and receive property income, it is the total gross income from both sources. 

You can choose to follow the rules voluntarily, even if you are not legally required to do so. At the time of writing, partnerships are not included. 

HMRC will review 2024/25 self-assessment returns to identify individuals with gross income over £50,000 from self-employment and/or rental income. If this applies to you and you submit your tax return by 31 January 2026, you'll receive a letter from HMRC in February 2026 confirming your obligation to comply with MTD from 6 April 2026. 

If you know you’ll need to follow the rules, start getting ready now rather than waiting for HMRC's letter to come in. Doing so could leave you with little to no time to prepare for the significant changes. HMRC has a tool to help you check when you're required to follow MTD. 

If you start self-employment or receive rental income on or after 6 April 2025, you’ll fall under MTD once your annual gross income exceeds the threshold. In this case, you must follow the MTD rules from 6 April after the relevant 31 January Self-Assessment filing deadline. Alternatively, you will need to apply for an exemption from MTD, as detailed below. 

Exemptions to MTD

Taxpayers can apply for an exemption to opt out of MTD if: 

• It's unreasonable or impractical for them to use electronic communications or keep electronic records due to reasons like age, disability, or location. 
• They are a practising member of a religious society whose beliefs prevent the use of electronic tools.

The application process to apply for an exemption is not yet available. 

The following are automatically exempt from MTD for Income Tax and will not need to apply for an exemption: 

• Non-resident companies 
• Trustees, executors, and administrators 
• Foreign businesses of non-UK domiciled individuals 
• Foster carers 
• Individuals without a National Insurance Number 
• If you are VAT registered and you have been granted exemption from Making Tax Digital for VAT by HMRC, you will be automatically exempt. 

WHAT IS MTD FOR INCOME TAX?

Under MTD, self-employed individuals and landlords must keep digital records and submit quarterly returns to HMRC, detailing their income and expenses. A final declaration is due at the end of the tax year, where you will need to inform HMRC of any other taxable income you received during the year. Make sure to use one of the providers from the growing list of HMRC-approved software. 

The quarterly updates are cumulative and must be submitted by the filing deadlines set out below: 

When Are Updates For MTD Due?

The first quarterly update under MTD for Income Tax is due by 7 August 2026, covering the quarter ending 5 July 2026 or 30 June 2026, where a calendar quarter election is in place. If you want your update periods to align with month-end and your software supports it, you must elect this before submitting the first update of the relevant tax year. The election stays active until you choose to revert to standard periods. To revert, cancel the election in your software before submitting the first update of the tax year you want to switch back. 

Separate quarterly updates are required for each trade or property business. For jointly held property, only the taxpayer’s share of income (not expenses) must be reported. 

An end-of-tax-year Final Declaration will combine all sources of income, reliefs, and allowances to calculate the final tax liability, due by the usual 31 January deadline. The Final Declaration effectively replaces the Self-Assessment tax return for those fully within the scope of MTD.  

There are no changes planned to the timing of tax payments; the current system of payments on account and balancing payment remains. 

Who Needs to Comply?

• Self-employed and landlords with turnover >£50,000 (from April 2026)
• Self-employed and landlords with turnover >£30,000 (from April 2027) 
• Self-employed and landlords with turnover >£20,000 (from April 2028) 

Key Requirements For MTD Compliance

To help you navigate the process smoothly, we’ve outlined the key actions you need to take to stay compliant and avoid any last-minute surprises. 

1. Use MTD-Compatible Software

You are required to use software that integrates with HMRC’s systems. The software must: 

• Keep digital records of income and expenses 
• Provide quarterly updates  
• Submit tax returns directly to HMRC 

2. Keep Digital Records

You must maintain digital records of: 

• Income 
• Expenses 
• VAT (if VAT-registered) 
• Tax adjustments 

3. Quarterly Updates

You must submit quarterly updates to HMRC for real-time tax tracking. For clarity, no payment of tax will be due at this point. 

4. Digital Links for VAT

For VAT returns, you must establish a clear digital audit trail, ensuring that there is no manual copying of data between systems. 

What Are The Benefits Of MTD?

MTD isn’t just another HMRC regulation - it offers real benefits for self-employed individuals and landlords. Here’s why it’s worth embracing: 

• Fewer Errors, Less Stress- digital records reduce errors from manual entry, lost paperwork, or miscalculations, making your tax figures more accurate and lowering HMRC penalty risks.
• Saves Time on Admin- automated calculations and direct submissions reduce spreadsheet work. 
• Quarterly updates prevent last-minute tax filing stress. 
• Better Cash Flow Management- quarterly updates give you a clearer view of your tax liabilities, reducing surprises. 
• Easier VAT & Tax Filing- MTD-compatible software automates submissions with no data re-entry needed. 
• More Business Insights- Real-time financial data helps track profits, expenses, and growth opportunities, with some software offering forecasting tools for future planning. 
• Future-Proofing- Digital tax is here to stay, and MTD prepares you for future changes and keeps you ahead of the curve. 

Ultimately, MTD can simplify reporting and help you stay on top of your tax liability.  

How Can You Effectively Prepare For MTD?

Getting ready for MTD doesn’t have to be a last-minute panic. Here’s how to prepare effectively and stay ahead of the changes: 

1. Check if MTD applies to you- MTD for Income Tax starts in April 2026 for self-employed individuals or landlords earning over £50,000. It will be extended to those earning over £30,000 from April 2027 and over £20,000 from April 2028.
2. Sign up for MTD- If you must comply with MTD from April 2026, you can sign up early online, choosing the 2026/27 tax year during sign-up. If you wish to be part of the testing process, choose the 2025/26 tax year. 
3. Choose MTD-Compatible Software- Use software that records transactions, generates reports and submits returns directly to HMRC. If you’re unsure, check HMRC’s list of approved software.
4. Switch to Digital Records- Start recording income and expenses digitally. Many software packages allow you to snap photos of receipts and categorise expenses automatically. 
5. Plan for Quarterly Updates- Unlike the current system, MTD requires quarterly tax updates. Set reminders to stay on top of your submissions. 
6. Test the System Before It’s Mandatory- Start using MTD software now to get familiar with it and resolve any issues before it becomes mandatory.
7. Stay Informed About MTD Changes- Keep an eye on HMRC for any changes to MTD rules or deadlines. 

Making the switch to MTD may seem challenging at first, but taking the time to get organised now will save you time and stress later. If you have any questions about the changes or how they’ll impact you, please don’t hesitate to reach out to Kirsty Ringland, Mark McCluskey or your usual AAB contact.