With less than a year until the first phase starts on 6 April 2026, preparation is crucial to navigate the additional administration and costs associated with this new regime.

Who is included?

MTD for Income Tax will initially affect sole traders and landlords, with phased implementation based on income thresholds:

• From 6 April 2026: Mandatory for individuals with gross income exceeding £50,000.
• From 6 April 2027: Extending to those with income over £30,000.
• From 6 April 2028: Further reduction to income exceeding £20,000.

These thresholds encompass combined income from trade(s) and property, including overseas property income and are “gross” so before any expenses are deducted. For instance, if an individual has trading sales of £30,000 and gross rental income of £21,000, they must comply with MTD from April 2026.

Who is Excluded?

Partnership members (including LLPs) are excluded from MTD obligations in so far as their partnership income in concerned. Automatic exemptions apply to individuals who are digitally excluded due to age, disability, location, or religious beliefs incompatible with electronic records.

Registration Process

HMRC will identify affected individuals based on their 2024-25 self-assessment tax returns and notify them to begin using MTD by 6 April 2026 (or later based on income thresholds). Taxpayers or their agents must use HMRC-approved software for digital record-keeping and sign up for MTD for Income Tax.

What is Involved?

MTD for Income Tax consists of three main components:

1. Digital Records: Taxpayers must maintain digital records of income and expenses using compatible software.
2. Quarterly Updates: HMRC requires quarterly reports of income and expenses, with deadlines aligned either with calendar months or the tax year end.
3. End of Year Return: A final digital tax return incorporates data from quarterly updates, including necessary adjustments and claims for reliefs and allowances.

Due Dates and Penalties

MTD retains existing self-assessment due dates and payment schedules. Penalties for late submissions will shift to a points-based system within MTD, with potential appeals against penalties or points accrued.

Conclusion

As MTD for Income Tax approaches, taxpayers must adapt to digital record-keeping and quarterly reporting requirements. Preparation now will ensure compliance and mitigate potential penalties under this new tax regime.

For more information, visit HMRC’s official resources or consult with your tax advisor to navigate this transition effectively.