MTD is a government initiative to digitise the way businesses manage tax. MTD for VAT is already in place, with all VAT-registered businesses now required to keep digital records and submit their VAT returns using HMRC-recognised software.

This next stage is known as Making Tax Digital for Income Tax (MTD for IT).

When does MTD for IT apply?

MTD for IT applies to sole traders and landlords with an annual income above £50,000 from April 2026. Sole traders and landlords with an annual income above £30,000 will follow in April 2027. And, those earning above £20,000 will join the system from April 2028.

What are the requirements?

Requirements for sole traders and landlords within these thresholds are:

• MTD software: Individuals need to use compatible, HMRC-recognised MTD software to keep digital records and file MTD for IT returns.
• Maintain digital records: those affected will be required by law to maintain digital records.
• Quarterly reporting: Individuals will be required to send HMRC quarterly summary updates of their business income and expenditure, as well as a Final Declaration that includes all other taxable income and gains by 31 January every year.

 Is MTD for IT compulsory?

Yes, if you meet the income threshold and criteria set by HMRC, you must comply.  The traditional Self-Assessment return will no longer be an option for those required to follow MTD for IT rules.

Who is automatically exempt? 

You’re automatically exempt and cannot sign up for Making Tax Digital if you are a:

• Trustee, including a charitable trustee or a trustee of non-registered pension schemes.
• Person that does not have a National Insurance number — this only applies for a tax year where you do not have a National Insurance number on 31 January before the start of that tax year
• Personal representative of someone who has died
• Foster Carers
• Non-resident companies.

 Who can claim exemption?

• If it’s not reasonably practicable for you to use digital tools to keep your business records or submit quarterly returns due to age, disability, remoteness of location or any other reason (often referred to as ‘digital exclusion’)
• Your business is run entirely by practising members of a religious society or order whose beliefs are incompatible with using electronic communications or keeping electronic records.
• Taxpayers who have a Power of Attorney
• Non-UK resident foreign entertainers and sportspeople (provided they have no other income within MTD)
• Taxpayers for whom HMRC “cannot provide a digital service”.

Exemption requests must be submitted to HMRC for approval.

Other exemptions

At Spring Statement 2025 it was announced that the following groups would not have to comply with MTD during the current Parliament:

• Ministers of religion
• Lloyd’s Underwriters
• Recipients of the Married Couples’ Allowance
• Recipients of the Blind Persons’ Allowance

In addition, individuals who submit residence/remittance basis pages with their tax returns (SA109) won’t be brought into MTD until April 2027.

What if I become self-employed or start renting a property part-way through the year? 

If the sole trade or property income you declare on your tax return relates to a new source of income which started in the year, the figure reported will need to be adjusted in order to compare 12 months’ worth of income against the MTD IT threshold.

What if I exceed the MTD IT threshold partway through the tax year?

If your total qualifying income exceeds the MTD IT threshold during a tax year, you will be brought into MTD from the beginning of the following tax year.

 How does MTD IT apply to jointly owned properties?

 Separate quarterly updates must be submitted where property is jointly owned if the individual meets the MTD IT threshold.

 What is meant by “digital records”?

Digital records must include:

• The date of the transaction
• The amount received or paid
• The nature/category of the transaction.

What software can be used?

HMRC will not provide compatible software themselves, but they have published a list of compatible software, including many popular cloud accounting packages.  Shaw Gibbs have partnered with Xero as our preferred cloud accounting package.

Manual record-keeping, copying and pasting or retyping between systems will not be compliant.

Can Shaw Gibbs handle these filings for me?

Yes, we will be offering an end-to-end solution to include all of your digital recordkeeping and quarterly filings. We will be also offering an alternative review and filing-only service as well as training packages should you wish to complete your digital recordkeeping and filings yourself.

What are the reporting deadlines?

The summary quarterly updates will operate cumulatively and you must submit quarterly updates for each trade or property business.  You can choose between two types of reporting periods:

Option 1: Standard Tax Year Quarters (default)

• Quarter 1: 6 April – 5 July → Submit by 7 August
• Quarter 2: 6 July – 5 October → Submit by 7 November
• Quarter 3: 6 October – 5 January → Submit by 7 February
• Quarter 4: 6 January – 5 April → Submit by 7 May

Option 2: Calendar Quarters (requires election)

• Quarter 1: 1 April – 30 June → Submit by 7 August
• Quarter 2: 1 July – 30 September → Submit by 7 November
• Quarter 3: 1 October – 31 December → Submit by 7 February
• Quarter 4: 1 January – 31 March → Submit by 7 May

The Final Declaration will be due by 31 January following the tax year. This replaces the traditional Self-Assessment Tax Return.

Contact us if you require assistance with MTD.