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Making Tax Digital (MTD IT) for Income Tax: What You Need to Know

  • Feb 12
  • 3 min read

Updated: Feb 17

Making Tax Digital for Income Tax (MTD IT) is one of the most significant changes to the tax system for self-employed individuals and landlords in recent years. HMRC is introducing MTD to modernise the tax system, requiring digital record-keeping and more frequent reporting. While the changes won’t affect everyone immediately, many taxpayers will be brought into the regime over the next few years.


This guide explains what MTD for Income Tax is, who it applies to, when it starts, and how to prepare.. Lava Sky Accounting can help you transition to MTD IT including setup, record-keeping, and submission, ensuring seamless compliance with HMRC. Get in touch today.


What is Making Tax Digital (MTD IT)?

Making Tax Digital for Income Tax requires certain self-employed individuals and landlords to:

  • Keep digital records of income and expenses

  • Submit quarterly updates to HMRC using compatible software

  • Submit your end of year Tax Return

After the fourth quarterly update, you’ll make any necessary tax/accounting adjustments, add any other income sources as required, and then submit your tax return by 31 January following the end of the tax year.


Who Will Be Affected by MTD IT?

MTD for Income Tax applies to:

  • Sole traders

  • Landlords

  • Individuals with combined self-employment and property income

It does not apply to employment income, dividends, or pension income on their own. However, those income sources will still be included in the final declaration if you are within MTD.


When Does MTD for Income Tax Start?

The implementation of MTD IT will occur in phases:

  • From 6 April 2026: If your qualifying income is over £50,000, you will be required to join MTD.

  • From 6 April 2027: If your qualifying income is over £30,000, you will be required to join.

  • From 6 April 2028: If your qualifying income is over £20,000, you will be required to join.


This means many more sole traders and landlords will eventually fall within the regime. If your qualifying income is £20,000 or less, you are not currently scheduled to use MTD IT, though this may change in the future.


What Constitutes Qualifying Income for MTD IT?

The key figure is your gross income (turnover), before expenses, from:

  • Self-employment

  • UK and overseas property

This is important, the threshold is based on income before deducting costs.


Whether you are required to join MTD for Income Tax depends on your qualifying income based on your recently filed self-assessment tax return. If your income exceeds the relevant threshold, you will be required to comply from the applicable start date. It’s important to review your income in advance so you can prepare ahead of time, rather than waiting until the start date approaches.



How to Submit Quarterly Updates and the Final Summary Return

Once MTD IT applies to you, you will be required to submit regular updates to HMRC through MTD-compatible software. This replaces the traditional annual Self Assessment tax return and consists of the following steps:

  1. Quarterly Updates: Every three months, you will need to send a summary of your income and expenses to HMRC via MTD-compatible software. These updates help ensure that your tax liability is calculated more accurately throughout the year.

  2. Final Declaration: You will complete a Final Declaration, confirming the year-end income and expenses as well as any other sources of income. This replaces the traditional Self Assessment tax return.


Digital Requirements for MTD IT

To comply with MTD IT, you must:

  • Keep digital records of your income and expenses using MTD-compatible software

  • Submit quarterly updates to HMRC via the software

  • Complete the Final Declaration, ensuring all income sources and adjustments are accurately reported


HMRC has approved several software providers that offer MTD-compatible solutions, including options for businesses of all sizes.


How Lava Sky Accounting Can Help

At Lava Sky Accounting, we are already helping clients prepare for Making Tax Digital.

We can:

  • Review whether and when MTD applies to you

  • Recommend suitable software

  • Provide bookkeeping support

  • Handle quarterly submissions on your behalf

  • Ensure your year-end process remains stress-free

If you’re unsure how MTD affects you, or would like help preparing in advance, please get in touch.


By working with us, you can ensure a seamless transition to MTD IT while staying compliant with HMRC regulations. If you have any questions or need personalised advice, please get in touch with our team today.


 
 
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