Making Tax Digital for Income Tax
Do You Need to Comply with Making Tax Digital for Income Tax?
If you’re a sole trader, landlord, or running a small business, the way you manage your tax has changed.
With making tax digital for income tax, HMRC is introducing a more structured, digital approach to reporting.
As of April 2026, many taxpayers earning over £50,000 annually will need to keep digital records, use accounting software, and submit updates throughout the tax year.
While this may feel like a big change, it can give you better visibility over your finances, reduce errors, and help you stay in control of your revenue.
What is Making Tax Digital for Income Tax?
Making tax digital for income tax is a set of rules introduced by HMRC to modernise how tax is recorded and reported.
Instead of relying on a single self assessment tax return, you are required to:
- Keep accurate digital tax records
- Track your income and expenses throughout the year
- Submit quarterly updates to HMRC
- Complete a final submission at the end of the tax year
This approach is designed to improve accuracy and give you a clearer, more up-to-date view of your financial position.
Who Needs to Follow MTD for Income Tax?
You’ll need to meet MTD compliance requirements if your qualifying income comes from:
- Self-employment
- Property income
- A combination of employment and property income
As of April 2026, this applies if your total income is over £50,000.
As of April 2027, the threshold lowers to £30,000.
If you have multiple income streams, your total qualifying income must be combined to determine whether the rules apply.
This is particularly relevant for landlords and individuals with mixed income sources.
What Are the Digital Requirements?
To meet the digital requirements under making tax digital for income tax, you need to:
- Maintain digital record keeping for all income and expenses
- Use compatible accounting software or digital software
- Submit quarterly updates to HMRC
- Complete a final year-end submission
If you already use software as part of your business, you may already be part way towards MTD compliance.
How Digital Record Keeping and Reporting Works
Moving to digital record keeping means keeping your records accurate and up to date throughout the year, rather than catching up at the end.
In practice, this involves:
- Recording income and expenses in the correct categories
- Keeping separate records for each income stream
- Maintaining clear and accurate digital tax records
You then submit quarterly updates to HMRC, reporting totals for income and expenses, followed by a final submission at the end of the tax year.
Once systems are in place, this becomes part of your normal routine and helps you stay on top of your finances.
How Does This Compare to MTD for VAT?
If you’re already familiar with MTD for VAT, the structure will feel similar.
It involves:
- Keeping digital records
- Using compatible software
- Submitting information regularly
The difference is that making tax digital for income tax applies to individuals such as sole traders, landlords, and those with additional income streams.
Get in touch on 01895 434515
Real-World MTD ITSA Case Study: Pilot Clients Ahead of April 2026
About the Clients
To prepare for the introduction of Making Tax Digital for Income Tax, Passman Leonard is already working with clients under the MTD ITSA pilot scheme.
These include:
- A rental property portfolio client
- A sole trader, tested under real MTD reporting conditions ahead of April 2026
This proactive approach allows us to assess how MTD ITSA works in practice and ensure our clients are fully prepared well before it becomes mandatory.
The Challenge
There is no one-size-fits-all approach to MTD ITSA. Each client’s income structure, record-keeping preferences, and banking arrangements must be assessed individually.
For the rental property client, we determined that property-specific software was not appropriate, as the client did not wish to operate a separate bank account for rental income. Instead, rental income and expenses were clearly identified directly from bank statements and recorded via a structured spreadsheet solution.
For the sole trader, bank account analysis revealed:
- A mix of personal and business transactions
- Income received was net of commission.
For MTD ITSA compliance, this required:
- Including the gross income as turnover
- Recording the commission deducted as an allowable expense
Our Approach
Our focus was on understanding how each client operates in practice, rather than forcing a standardised system.
Key steps included:
- Detailed analysis of bank transactions
- Clear communication with each client about MTD requirements
- Designing a tailored solution that met HMRC’s MTD ITSA criteria without unnecessary software changes
The Outcome
Both clients were successfully aligned with MTD ITSA reporting requirements under the pilot scheme, using systems that suited their existing processes.
This has allowed:
- Early identification of potential MTD issues
- A smoother transition ahead of April 2026
- Confidence that quarterly reporting can be managed efficiently
Key Takeaway for Other Businesses and Landlords
Preparing early for Making Tax Digital for Income Tax allows you and your accountant to:
- Choose the most appropriate record-keeping approach
- Avoid rushed decisions closer to the April 2026 deadline
- Ensure compliance without unnecessary complexity
Client Feedback
Call us today on 01895 434515 to speak to a specialist tax advisor and get personal accounting services that put you in control of your finances.
How to Comply with MTD
If you’re not currently using digital software, it’s important to move over as soon as possible to meet MTD requirements.
To comply with MTD for Income Tax, you should:
- Review how you currently manage your records
- Move to suitable accounting software
- Begin maintaining digital records
- Understand what will be required throughout the year
Taking the right approach will help ensure ongoing compliance and make the process easier to manage.
How We Support You
We provide a dedicated service with step-by-step guidance to help you manage making tax digital for income tax with confidence.
Our support is designed for both clients and those looking for MTD for accountants assistance.
This includes:
- Explaining your MTD compliance obligations
- Helping you choose and set up the right digital software
- Supporting your quarterly updates
- Keeping your records accurate and organised
- Ensuring you meet all HMRC requirements
We work closely with sole traders, landlords, and small business owners to make digital tax straightforward and manageable.
Speak to Our Team for MTD Services
If you’re unsure how making tax digital for income tax affects you, or you want help getting set up, we’re here to support you.
Call 01895 343515 or email info@passmanleonard.co.uk to speak with our team.
