Making Income Tax Digital: Will the new laws impact you?

HMRC has been working hard to modernise the current tax system to ensure it is functioning efficiently and effectively.

A big part of that is the Making Tax Digital (MTD) and new laws will soon come into place for self-employed taxpayers, sole traders and landlords with property income. Starting from April 2026, MTD for Income Tax will be introduced gradually with the threshold changing each year.

According to their estimates released in a recent report, around 2.9 million taxpayers will be affected which means now is a good time to prepare and ensure you know when the laws will apply to you.

Who will the new MTD for Income Tax laws apply to?

The upcoming MTD for Income Tax laws will mainly impact self-employed individuals, sole traders, and landlords but as it is being phased in during a three-year period, it’s important from your perspective to confirm when you will need to comply with the laws.

In their recent report, HMRC predicted around 42 per cent of those currently filing self-assessment tax returns will be following the new MTD for Income Tax laws which is around 2.916 million people.

Your income for the 2024/25 tax year will determine if and when it applies to you, so it’s important to check where you stand now.

The MTD for Income Tax laws will come into effect from April 6, 2026, initially applying to individuals with an annual turnover of over £50,000 a year. The threshold will gradually decrease, applying to individuals with a £30,000 or more turnover from April 2027 before reducing further to £20,000 from April 2028.

How will MTD for Income Tax work?

If you’re within the scope of MTD for Income Tax, there are new steps you’ll need to follow to remain compliant.

Under the new laws, you must keep your tax records digitally as paper records will not be accepted. This can be done using accounting software or spreadsheets, but they must meet MTD requirements.

You will also need to send a summary of your income and expenses to HMRC every three months. These updates must be submitted through compatible software or by an agent acting on your behalf.

After the final quarterly update, you’ll confirm your tax position with HMRC and submit a final declaration.

All of this means you’ll need to be more proactive and possibly get comfortable with new software tools. It might feel like a lot at first, but getting ready ahead of time can make the transition smoother.

How can I confirm if MTD for Income Tax will apply to me?

With MTD for Income Tax starting to roll out soon, you must clarify if the new laws apply to you and more importantly when.

Understanding your position now means you can start preparing, put the right systems in place. If you’re unsure about MTD for Income Tax, speak with a tax advisor or financial professional.

They’ll be able to walk you through the requirements, help you work out your responsibilities, and make sure you’re ready when your start date comes around.

Plan ahead of time, if you’re concerned about MTD and self-assessment returns, contact our team.