Making Tax Digital for Income Tax (MTD IT) is a government-mandated initiative requiring taxpayers to maintain digital records and submit updates to HM Revenue & Customs (HMRC) using compatible software. The aim is to digitise tax administration and standardise record-keeping requirements for self-employed individuals and landlords. This guide provides an overview of MTD IT, its implementation timeline, and what it means for you. 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)?
MTD IT is a requirement for taxpayers to maintain digital records and submit updates to HMRC through approved software. The initiative replaces the traditional Self Assessment tax return with a system of quarterly reporting and a final declaration.
Who Will Be Affected and When by MTD IT?
The implementation of MTD IT will occur in phases:
From 6 April 2026: Individuals with an annual qualifying income exceeding £50,000 from self-employment and/or property will need to comply. HMRC will review Self Assessment tax returns for the 2024 to 2025 tax year and notify those affected.
From 6 April 2027: The threshold lowers to £30,000, with HMRC assessing tax returns for the 2025 to 2026 tax year and informing affected individuals accordingly.
If your qualifying income is £30,000 or less, you are not currently required to use MTD IT, though this may change in the future.
What Constitutes Qualifying Income for MTD IT?
Qualifying income includes the total gross income from all self-employment and property sources before any expenses are deducted. This includes:
Income from sole trader activities
Rental income from property
Other sources, such as employment income or dividends, are not included in the qualifying income calculation.
Related: Self-Employed? Here’s What You Need to Know About UK Tax Rates and Personal Allowances
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:
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.
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
Transitioning to MTD IT may seem overwhelming, but Lava Sky Accounting is here to support you every step of the way. Lava Sky Accounting can assist with:
Setting you up with MTD-compatible software
Managing and maintaining digital records
Preparing and submitting quarterly submissions
Ensuring your Final Declaration is accurate and submitted on time
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.