What is making tax digital for income tax (MTDIT)

1. What MTDIT is

MTDIT (Making Tax Digital for Income Tax) is a new way of reporting income tax to HMRC using approved software rather than paper forms or the current online Self-Assessment return alone.

Key points:

- It applies to individuals with business and/or property income over a set threshold

- You must keep digital records of income and expenses in software or spreadsheets that link digitally to HMRC.  

- Instead of one annual Self Assessment, you send quarterly updates for each income stream affected – even if individually they are below the limits, plus an end‑of‑year final declaration.  

You will still be taxed on your total yearly income, but the reporting is spread across the year and must be done using compliant software.

2. Who it will affect

MTDIT is mainly aimed at:

- Sole traders (unincorporated businesses).  

- Landlords with rental income.  

- Individuals who have both business and rental income.  

In most cases, it will affect you if:

- Your total gross income from self‑employment and/or property is above the MTDIT threshold (excluding other income like employment or pensions).  The threshold for starting in April 2026 is based on your 24/25 tax return submitted total turnover/gross income > £50k, from April 2027, based on 25/26 tax return – gross income £30k

We can confirm individually whether you fall within MTDIT and from which tax year.

3. How MTDIT will change what you do

a) Digital record‑keeping

You will need to keep your accounting records in a digital form.

That means:

- Using bookkeeping/accounting software, or  

- Using spreadsheets that connect to HMRC via “bridging” software.  

Your digital records must capture at least:

- The date of each transaction.  

- The amount.  

- The category (for example, sales, rent received, repairs, motor, professional fees).  

Paper‑only records will no longer be sufficient on their own if you are within MTDIT.

b) Quarterly updates

Each business and each property portfolio will require quarterly submissions to HMRC via software. These are summary figures, not every individual invoice, but they must come from your digital records. This means if you have a sole trader business and property income – you will need to submit a quarterly report for both, so 8 updates a year, plus the final declaration.

For each quarter, you or we will send:

- Total income for that period.  

- Total allowable expenses split into categories.  

Quarterly updates:

- Are not final tax calculations.  

- Give HMRC an in‑year view of your income.  

- Help you see a more up‑to‑date estimate of your tax liability.

c) End‑of‑year finalisation

After the fourth quarterly update:

- You must submit an end‑of‑year “final declaration” (an MTDIT tax return).  

- This is where year‑end adjustments are made (for example, private use, capital allowances, accruals, prepayments).  

- Other income not within MTDIT (such as employment, bank interest, dividends) is also included here.  

Once the final declaration is submitted and any tax due is paid, that tax year is finalised in a similar way to the current Self Assessment system.

4. How MTDIT is likely to affect you in practice

More frequent reporting

Instead of dealing with your tax once a year:

- You will be working to quarterly deadlines plus an annual one.  

- Records will need to be kept up to date throughout the year, not recreated at year‑end from bank statements and receipts.  

This should improve accuracy and reduce last‑minute pressure, but it is a change of habit.

Use of software (not mandatory but recommended for ease)

Most clients will need to:

- Move from paper or basic spreadsheets to cloud accounting software, or  

- Upgrade existing software to an MTDIT‑compliant version.  

Benefits for you include:

- Better visibility over profits and cash flow.  

- Fewer manual errors.  

- Easier sharing of information with us as your accountants.  

Time and cost

You may notice:

- Some initial setup and training time.  

- Possible software subscription costs.  

These should be weighed against:

- Time saved on manual bookkeeping.  

- Reduced risk of penalties for late or incorrect returns.  

- Better information to run your business or manage your property portfolio.

5. What you need to do now

Step 1 – Confirm if MTDIT applies to you

- Identify all sources of self‑employment and property income in your name.  

- Add up your total gross income from those sources.  

- Check if you are expected to join MTDIT and from which tax year.  

- Speak to us so we can confirm your position and any deferrals or exemptions.

Step 2 – Choose suitable software

- If you already use accounting software, check with us whether it is MTDIT‑compatible.  

- If you do not use software, we can recommend options that suit the size and complexity of your business or property portfolio.  

- Decide who will operate the software day‑to‑day (you, a bookkeeper, or us).  

We can help with:

- Selecting software.  

- Setting up your chart of accounts (income/expense categories).  

- Linking bank feeds and apps (for example, receipt capture).  

Step 3 – Move to digital record‑keeping

From an agreed start date:

- Record all sales/rental income and expenses in the chosen software.  

- Use bank feeds and scanning apps where possible to reduce manual entry.  

- Keep supporting documents (invoices, receipts, tenancy agreements) in digital form where possible.  

Aim to update records regularly (for example, weekly or monthly) so quarterly submissions are straightforward.

Step 4 – Plan for quarterly submissions

- Note the quarterly periods we will use for your business and/or property income.  

- Decide whether you want to submit quarterly updates yourself or prefer us to handle them.  

- Make sure data entry is up to date at least a few days before each quarterly deadline.  

You should also:

- Set aside funds regularly through the year for your tax liabilities.  

- Continue to note the normal payment deadlines for income tax and payments on account.

6. How we can support you

- Assessing whether and when MTDIT applies to you.  

- Advising on the most appropriate software and setting it up correctly.  

- Training you or your staff to use the system.  

- Providing ongoing bookkeeping support if required.  

- Preparing and submitting quarterly updates.  

- Preparing the year‑end final declaration and advising on tax planning opportunities.  

If you are unsure whether MTDIT affects you, or you are worried about the move to digital records and quarterly reporting, please contact us. We can review your circumstances, explain your obligations in plain English, and agree a plan so you are fully compliant and prepared ahead of time.

business owner in last minute chaos