The UK tax system has been on a digital transformation journey for a while now, and Making Tax Digital (MTD) is at the center of it. Most businesses have already adapted to MTD for VAT, but now it’s time for the next phase — MTD for Income Tax Self Assessment (ITSA).
Let’s break this down in simple words.
What is MTD for Income Tax?
Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) is a system introduced by HMRC to make tax reporting more frequent, digital and accurate.
Under MTD for Income Tax, individuals who earn income from:
- Self-employment, and/or
- Property (rental income)
will need to keep digital records and send quarterly updates of their income and expenses to HMRC instead of waiting till the end of the year.
Who Will Be Affected?
Currently, MTD for ITSA applies to or Going to apply:
- Individuals with total business and/or property income (i.e. qualifying income) above £50,000 (Tax Year 2024/25), MTD effective from 6th April 2026.
- Those with qualifying income above £30,000 (Tax Year 2025/26) will join from April 2027.
- Those with qualifying income above £20,000 (Tax Year 2026/27) will join from April 2028. Anyone with less than £20,000 is not yet required to join (but likely in future).
This means if your combined income from qualifying income i.e. self-employment and property is over £50,000, you’ll be among the first to enter this system.
How It Will Work – In Simple Steps
Here’s how MTD for Income Tax will actually work in real life:
1. Keep digital records
You’ll need to maintain your income and expense records in a digital format using HMRC-approved software like QuickBooks, Xero, or FreeAgent.
2. Send quarterly updates
Every 3 months, you’ll send an update to HMRC summarising your income and expenses. This helps HMRC estimate your tax liability throughout the year.
3. End of Period Statement (EOPS)
After the end of the tax year, you’ll confirm your figures and make any accounting adjustments through an EOPS.
4. Final Declaration (replaces tax return)
Once everything is finalised, you’ll submit your Final Declaration instead of the old Self Assessment tax return.
Example
Let’s say you’re self-employed earning £40,000 and also have rental income of £20,000.
√ Your total income = £60,000
√ Since it’s above £50,000 → You’ll fall under MTD for Income Tax from April 2026
You’ll be required to send 4 quarterly updates + 1 EOPS + 1 Final Declaration to HMRC through MTD-compatible software.
Why HMRC is Doing This
HMRC’s goal is to reduce tax errors and make things easier for taxpayers (and themselves).
A large chunk of tax underpayments in the UK happens due to record-keeping mistakes or miscalculations.
MTD aims to make tax more real-time, so people aren’t hit by large tax bills unexpectedly at year-end.
What if You Have Employment Income Too?
If you’re employed and earning, say £150,000 salary, and also have a small property income of £10,000 —
you won’t fall under MTD for Income Tax yet, because MTD applies only when business + property income exceeds the threshold (£50,000).
Salary income is reported by your employer through PAYE, so it doesn’t count towards the MTD limit.
Why You Should Start Preparing Now
Even if you’re not required to join yet, it’s smart to start preparing.
Digital record keeping will soon be standard practice. Moving early means fewer headaches later.
Here’s what you can do:
- Choose a good MTD-compatible software.
- Start maintaining income and expense digitally.
- Understand your tax quarters and submission dates.
- Take professional help if needed (like we at Punchhole do ).
In Short
| Step | Requirement | Frequency |
|---|---|---|
| 1 | Keep digital records | Ongoing |
| 2 | Send quarterly updates | Every 3 months |
| 3 | End of Period Statement | Once per year |
| 4 | Final Declaration | Once per year |
Final Thoughts
MTD for Income Tax is not just another compliance thing – it’s a change in how small business owners and landlords manage their finances.
It’ll make taxes more predictable, more accurate, and yes, maybe a bit more paperwork initially. But once you get used to it, it’s actually simpler than doing everything at the end of the year.
At Punchhole, we’ve already started preparing our systems and clients for this transition. If you need help setting up your books digitally or getting ready for MTD, feel free to reach out.
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