MTDIT means major changes in reporting requirements for some sole traders and landlords - are you affected?

What is Making Tax Digital for Income Tax (MTDIT)?

Making Tax Digital for Income Tax (MTDIT) is an upcoming government initiative aimed at simplifying tax reporting and improving record-keeping. Set to roll out in stages, this system will require businesses, the self-employed, and individuals with rental income to maintain digital records and submit quarterly returns electronically.

When Will MTDIT Be Mandated?

The timing of your enrolment in MTDIT will depend on your gross income (also known as turnover before the deduction of any expenses) from self-employment and rental income in previous years. Here’s a breakdown of the upcoming mandate dates:

• April 2026: If your gross income for 2025 is over £50,000, you’ll be required to enrol.

• April 2027: If your gross income for 2026 (and you are not already enrolled) is over £30,000, you’ll need to enrol.

• Future Enrolment: There are plans for a further reduction in the income threshold to £20,000, but the exact date for this change has not been confirmed yet.

What Does This Mean for Individuals?

The shift to digital tax filing will require changes to how many individuals and businesses keep their records. Here's what you can expect:

1. Digital Record-Keeping:

   • You'll need to store your records electronically using compatible software (or spreadsheets linked to bridging software) to file your reports with HMRC.

   • If you already use compatible digital tools for record-keeping, you’ll need to ensure they’re updated regularly.

     
     

2. Quarterly Reports:

   • Instead of filing annual returns, you’ll need to submit quarterly updates to HMRC. These reports will include your gross turnover and a one-line summary of your expenses.

   • At the end of the year, you (or your accountant) will submit a final declaration that includes the usual annual tax adjustments, like adjustments for stock, allowances, and other accounting details.

     
     

3. Impact on Those Using Digital Records:

   • If you’re already keeping digital records and using compatible software, the new system shouldn’t add too much of a burden, provided you’re diligent about updating your records every quarter.

   • The process should feel relatively seamless if your system is already automated and regularly updated.

     
     

4. For Those Not Yet Using Software:

   • If you’re not currently using digital tools, or if you tend to update your records only once a year, this transition could require some upfront effort.

   • In this case, it might be worth considering investing in accounting software that can download bank statements and automatically categorise transactions. While this comes with additional software costs, it could save you time and reduce stress in the long run by making your record-keeping process easier and more efficient.

   • If you know you’re unlikely to keep up with record-keeping—or simply don’t want the hassle—now is the perfect time to reach out to your accountant. They can offer valuable administrative support to keep everything in order, ensuring you stay compliant and stress-free. It’s also a good idea to discuss any additional fees for these services upfront so you can plan accordingly. Taking this proactive approach can save you time, prevent last-minute stress, and help your finances stay on track.

Why Is MTDIT Being Introduced?

MTDIT is part of the government’s broader effort to modernize the tax system, reduce errors, and make the process more transparent. The key benefits include real-time tax tracking, fewer mistakes, and a clearer understanding of your tax obligations throughout the year.

By spreading out tax filings throughout the year, MTDIT aims to make it easier for businesses and individuals to stay on top of their tax responsibilities without the pressure of a large, end-of-year filing.

Conclusion

While the move to Making Tax Digital for Income Tax may seem daunting at first, it’s designed to simplify the tax process in the long term. For those who already use digital records, the transition will likely be straightforward. For others, adopting digital record-keeping software can be a helpful step towards reducing administrative work and avoiding potential penalties. If your income is set to fall within the mandatory thresholds, getting prepared now will help ensure a smooth transition when MTDIT rolls out in the coming years

Reporting changes for sole traders and landlords - see if it impacts you