What is MTD for Income tax? 

MTD for Income Tax is a change to the way businesses and individuals keep records and report to HMRC. It takes effect from April 2026 for many sole trades and landlords.

Why is MTD being introduced?

The Government’s aim is to improve record keeping, reduce errors as well as the tax gap. The tax gap represents the difference between the amount of tax that should, in theory, be collected by HMRC and what is actually collected. For the 2022 to 2023 period, the UK tax gap was estimated to be 4.8% of total theoretical tax liabilities, amounting to £39.8 billion. This means that HMRC successfully collected 95.2% of all tax due.

What does MTD involve? 

 Three key components: 

• Digital Records: Businesses will need to maintain digital records of their transactions. 
• Quarterly Updates: Businesses must submit updates to HMRC every quarter, providing a summary of their income and expenses. 
• Year-End Declaration: At the end of the tax year, businesses will need to submit a final declaration to confirm that the information provided is complete and accurate. All data transfers to meet these requirements must be done using digital links, ensuring a seamless and accurate flow of information.

Who does MTD apply to?

Making Tax Digital (MTD) will apply to self-employed individuals and landlords who’s gross ‘qualifying income’ exceeds the relevant threshold. This income includes their combined earnings from trading and property, measured before any expenses are deducted. MTD is not planned to be extended to taxpayers with qualifying income between £20,000 and £30,000, limited companies, partnerships, and limited liability partnerships (LLPs) in the future. However, as of now, no specific timescales have been proposed.