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MTD for Income Tax: What every business needs to know
Making Tax Digital is the government's plan to modernize the UK Tax system. It already applies to VAT. The next step is Income Tax. From April 2026, many sole traders and landlords will have to follow new rules. This change is called Making Tax Digital for Income Tax, or MTD ITSA. Businesses and individuals need to understand what is coming, what the rules mean, and how to prepare.
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Who needs to follow MTD for income Tax
The rules apply in stages.
- From 6 April 2026, if you earn more than £50,000 in self-employed income or property income, you must join MTD for Income Tax.
- From April 2027, the limit drops to £30,000.
- From April 2028, it will again be reduced to £20,000.
If your income is below these levels, you do not need to join at this time. Partnerships and limited companies are not included at this stage.
What the rules require
- Keep digital records of business and property income.
- Use approved software to store and send information.
- Submit updates every quarter.
- Send a final end-of-year statement through software.
Why it matters for businesses
Quarterly submissions ensure HMRC always has a near-real-time view of income. This provides fewer surprises at year-end but requires consistent record-keeping. Businesses accustomed to spreadsheets will need to transition to software. Those already using MTD for VAT will find the process easier, but they still need to make adjustments.
Penalties and late payments
The penalty system changes with MTD.
- Each late quarterly submission results in a one-point deduction.
- Once you reach a set number of points, you get a £200 fine.
- Late payment charges are also stricter. You may incur a 2 to 3 percent late fee if the Tax is paid 15 or 30 days after the due date. If it exceeds 30 days, a 10 percent annual charge may apply.
This means compliance is not optional. Delays will cost money.
Preparing for the change
- Check your income
If your turnover from self-employment or property is above £50,000, start preparing now.
- Choose software
MTD requires approved software. Do not wait until the deadline. Thoroughly test the software to ensure it connects with HMRC
- Update record keeping
If you use paper or simple spreadsheets, start moving to digital systems. Record every sale, rent, or expense as it happens.
- Join voluntary testing
HMRC already allows early sign-up. Voluntary use gives you time to learn the process without penalty.
- Train staff or agents
If you use an accountant or bookkeeper, check that they support MTD for Income Tax.
Impact on sole traders
Impact on landlords
Landlords must record property income digitally. That means every rent payment and expense, such as repairs or management fees, must be logged in software. Quarterly submissions, then keep HMRC updated. For landlords with multiple properties, this brings more structure but also more admin.
Benefits of MTD for income Tax
- Less risk of errors with digital records.
- Regular Tax updates help prevent surprise bills.
- Improved financial insight for planning.
- Easier link with VAT digital systems if you already comply with MTD VAT.
Risks of ignoring preparation
- Struggle to learn software quickly.
- Misses deadlines during the transition.
- Face higher costs for emergency support.
- Pay penalties for late filing.
How Swift VAT Pro fits in
Swift VAT Pro already helps with digital VAT returns. Businesses that use it are familiar with digital record-keeping. The same habits apply to MTD for Income Tax. By preparing early, VAT-compliant users can extend digital methods to income Tax. This reduces disruption and keeps compliance simple.
Commercial search intent and user needs
People searching for Making Tax Digital for Income Tax often want
- To confirm if the rules apply to them
- To see the deadlines
- To know the penalties
- To find suitable software
This content covers those needs with practical, direct information. The commercial intent is clear. Readers want solutions. Swift VAT Pro can position itself as a trusted software partner for both VAT and future MTD requirements.
Checklist for readiness
- Confirm your income level
- Register for voluntary use if eligible
- Select MTD compliant software
- Start recording income digitally
- Test the quarterly submission before it becomes mandatory
Conclusion
Frequently Asked Questions:
Your Questions – Answered ,We’re here to help you with anything VAT-related.
1. What is MTD for Income Tax and who needs to comply?
MTD for Income Tax, also known as Making Tax Digital for Income Tax Self-Assessment (MTD ITSA), is a UK government initiative that requires individuals and businesses with an annual income exceeding a specified threshold to maintain digital records and submit Tax updates using approved software.
It replaces the traditional Self-Assessment process with a more frequent, digital-first system. Sole traders, landlords, and partnerships with an income above the threshold will need to comply once the rules take effect. HMRC’s goal is to reduce errors and improve Tax reporting efficiency.
Instead of filing one tax return per year, you will submit quarterly updates plus an annual final declaration. If your income is below the threshold, you may not be affected yet, but voluntary registration is possible. Understanding whether you fall within MTD for Income Tax requirements is crucial so you can prepare your bookkeeping and software in advance.
2. When does MTD for Income Tax come into effect?
MTD for Income Tax is being introduced in phases to give taxpayers time to adapt. As of now, HMRC plans to enforce it starting April 2026 for self-employed individuals and landlords with annual income above £50,000. From April 2027, the threshold will be lowered to include those earning over £30,000 per year.
Partnerships and smaller businesses are expected to follow in later phases, with exact dates yet to be confirmed. The phased approach helps avoid disruption and allows enterprises to implement digital systems gradually. While this may seem a long way off, preparing early is best.
Waiting until the deadline can lead to rushed decisions, compliance mistakes, or difficulties in switching to compatible software. By planning now, you can spread out costs, train staff, and adjust workflows gradually. Staying aware of HMRC announcements ensures you’re always aligned with the latest MTD for Income Tax deadlines.
3. How does MTD for Income Tax change the way I report taxes?
Under the current Self-Assessment system, most taxpayers file one return per year. With MTD for Income Tax, the approach shifts to a more structured and digital one. You’ll need to maintain your financial records in HMRC-approved software rather than spreadsheets or manual logs.
Instead of submitting one yearly report, you’ll send quarterly updates summarizing your income and expenses. At the end of the year, you will provide a final declaration that replaces the Self-Assessment return. This system is designed to provide HMRC with a more transparent and more frequent view of your Tax position, while reducing human error.
For taxpayers, it means staying on top of bookkeeping throughout the year rather than rushing to complete everything once annually. Although the process may seem more frequent, it distributes the workload and provides greater financial visibility. Businesses that adopt MTD for Income Tax early will find the transition smoother and more manageable.
4. What software do I need for MTD for Income Tax?
To comply with MTD for Income Tax, you must use HMRC-approved software capable of maintaining digital records and sending updates directly to HMRC. Standard solutions include cloud-based accounting tools designed for small businesses, sole traders, and landlords.
These tools integrate bookkeeping and Tax reporting, reducing manual work. Some software even automates data entry by linking with bank feeds, invoices, and receipts. If you already use accounting software, check whether it is MTD-compatible and updated to reflect the latest Income Tax rules.
If you currently use spreadsheets, you’ll likely need to switch to compliant software or use bridging tools that connect spreadsheets to HMRC. The right choice depends on the complexity of your income sources and business structure.
5. How should businesses prepare for MTD for Income Tax?
Preparation for MTD for Income Tax involves more than just choosing software. First, review your eligibility by checking whether your annual income crosses the HMRC threshold. Next, evaluate your current bookkeeping practices.
If your records are manual or spreadsheet-based, plan to transition into digital systems. Speak with your accountant or Tax advisor to confirm how quarterly updates will work for your specific business type. Early adoption of MTD-compliant software can help you test the system before deadlines, identify any gaps, and train your team effectively.
It’s also smart to keep digital receipts, organise expenses, and maintain accurate records to avoid last-minute errors. Businesses should set calendar reminders for quarterly updates and build them into regular financial routines. By preparing early, you reduce stress and ensure compliance with MTD for Income Tax.
