Making Tax Digital for Income Tax 2026
Making Tax Digital for Income Tax2026
At Adams Moore, we’ve spent years helping clients navigate the complexities of the UK tax system. Now, one of the most significant changes is approaching: Making Tax Digital (MTD) for Income Tax.
From 1st April 2026,the way many of you report your income to HMRC will change. All this means is that the records for the business (bookkeeping records) have to be held digitally on some sort of software and you will have to file quarterly returns to HMRC for income tax. The payment of income tax rules remain the same, it's just about filing the quarterly returns and holding your bookkeeping record digitally.
Here is everything you need to know to stay ahead of the curve.
What is Making Tax Digital (MTD) for Income Tax?
Currently, most self-employed individuals and landlords file a single Self-Assessment tax return once a year. Under the new MTD rules, this annual return will be replaced by a more frequent, digital process, the quarterly updates.
The three core requirements are:
- Digital Record Keeping: You must maintain your business records (income and expenses) digitally using HMRC-compatible software. Paper ledgers or simple manual spreadsheets will no longer be enough.
- Quarterly Updates: Instead of one annual return, you will send a summary of your business income and expenses to HMRC every three months through your software.
- Final Declaration: At the end of the tax year, you will submit a final declaration (replacing the traditional tax return) to pull all your data together and claim any reliefs or adjustments.
Why is this happening?
HMRC’s primary goal is to "modernise" the tax system. By moving to digital, they aim to:
- Reduce Errors: Manual data entry is prone to mistakes. By moving to a digital system it reduces the risk of errors occuring.
- Provide Real-Time Clarity: Digital software allows you to see an estimate of the tax you owe throughout the year, making it easier to budget and manage your cash flow.
- Increase Efficiency: For most businesses, once the software is set up, reporting becomes a "push-of-a-button" exercise rather than a week-long paperwork session.
Who does this effect?
The rollout is phased based on your gross income (turnover), not your profit.
Start Date - Who is affected? - Income Threshold?
6 April 2026 - Sole Traders & Landlords - Over £50,000
6 April 2027 - Sole Traders & Landlords - Over £30,000
6 April 2028- Sole Traders & Landlords- Over £20,000
Who is NOT affected (for now)?
Not everyone will be brought into the system straight away. You are currently exempt or deferred if you fall into these categories:
- Limited Companies: The government has not yet set a mandatory date for Corporation Tax to join MTD.
- General Partnerships: These are expected to join later, though the exact timeline is yet to be confirmed.
- Income under £20,000: If your combined turnover is below the £20,000 mark, you will continue to use the current Self-Assessment system.
- The "Digitally Excluded": HMRC offers exemptions for those who cannot use digital tools due to age, disability, remote location (lack of internet), or religious beliefs. However, you must apply for this status.
You can find out even more information on the Government website:
https://www.gov.uk/guidance/check-if-youre-eligible-for-making-tax-digital-for-income-tax
How Adams Moore Can Help
Don't wait for the deadline to catch you off guard - the transition to digital accounting takes time. Moving to digital now means you can test the system ahead of the game.
If you have any questions, get in touch with us today.
