Making Tax Digital for Income Tax (MTD IT) is approaching and will fundamentally change how businesses and landlords handle their tax obligations.
Understanding MTD
MTD aims to modernise tax administration for self-employed people, sole traders and landlords. Under the new rules, you’ll need to keep digital records and file quarterly returns to HMRC using approved software, replacing the current system of annual submissions.
Income thresholds for implementation
The rollout for MTD operates in stages based on qualifying income levels:
- Above £50,000 (from April 2026)
- Above £30,000 (from April 2027)
- Above £20,000 (from April 2028)
Exemption criteria
Some businesses may qualify for MTD IT exemptions if using digital systems would be unreasonable or impractical. Circumstances might include:
- Advanced age preventing digital adoption
- Disability affecting technology use
- Operating from remote locations with poor digital infrastructure
- Religious objections to computer use
- Other compelling reasons making digital compliance impractical
Exemptions aren’t automatic – you must apply directly to HMRC who will assess each case individually.
Preparation steps
Moving from annual to quarterly reporting demands advance planning. Essential preparations for MTD IT include:
- Implementing digital record-keeping to ensure your accounting software meets MTD IT standards and enables quarterly submissions directly to HMRC
- Understanding new reporting obligations including how to file quarterly updates and monitor tax liabilities throughout the year
- Staff training where employees handle financial records, ensuring they possess the skills needed for digital record management and reporting
Advantages of the updated system
Quarterly reporting provides better financial oversight during the year and spreads administrative tasks more evenly, avoiding the year-end rush that characterises traditional annual filing.
Consequences of non-compliance
Failing to meet MTD IT obligations may result in HMRC penalties, making early preparation essential.
For more information or guidance, get in touch today.
