Making Tax Digital for Income Tax (MTD IT) is a major change in the way self-employed individuals and landlords in the UK manage and report their taxes. It’s part of the government’s initiative to modernise the tax system, making it more efficient and less error-prone.

If you’re self-employed, this change will likely affect how you record your income and submit your tax returns. Let’s explore what MTD IT is, how it will impact you, and what steps you need to take.  This is huge change but we are here to help so please do not panic!

What Is MTD IT?

MTD IT stands for Making Tax Digital for Income Tax. It’s an extension of the government’s Making Tax Digital (MTD) initiative, which already applies to VAT. MTD IT focuses on streamlining the process of reporting income tax for:

•Self-employed individuals.

•Landlords with annual rental income or income from other property like furnished holiday lets.

Under MTD IT, you’ll need to:

1.Keep digital records of your income and expenses.  No more paper!

2.Submit quarterly updates to HMRC through MTD-compatible software.

3.File an End of Period Statement (EOPS) and a Final Declaration to confirm your annual income and tax obligations.  This is effectively what is currently your annual self assessment tax return.

Who Does MTD IT Apply To?

MTD IT will apply to:

•Self-employed individuals and landlords with an annual business or property income exceeding £50,000 starting from April 2026.  Your 24/25 tax return figures will be what is used to determine whether you are over the £50,000 threshold.  Note this is combined turnover (not profit!) from all self employed and property income combined.

•Those with income between £30,000 and £50,000 starting from April 2027.

HMRC is still consulting on how MTD IT will apply to individuals earning below £30,000 annually, but it’s important to stay informed about future changes.

How Will MTD IT Affect You?

1.Digital Record-Keeping

If you’re used to keeping paper records or spreadsheets, you’ll need to switch to MTD-compatible software to maintain your records digitally.

2.Quarterly Reporting

Instead of filing a single Self Assessment tax return once a year, you’ll submit four quarterly updates to HMRC. These updates provide a snapshot of your income and expenses throughout the year.

3.End of Year Submissions

You’ll still need to finalise your accounts at the end of the year, but the process will be streamlined through digital tools.

4.Increased Transparency

With regular updates, you’ll (theoretically) have a clearer picture of your tax obligations throughout the year, reducing the risk of surprises at year-end.  This is what HMRC says is the biggest benefit of this massive change.

What Do You Need to Do to Prepare for MTD IT?

1.Determine If MTD IT Applies to You

Check your annual income from self-employment or property to see when you’ll need to comply with MTD ITSA.

2.Choose MTD-Compatible Software

Popular options like Xero, Coconut and FreeAgent are all MTD-compatible.  If you are a Kennedy Accountancy client already then we will be advising on this.

3.Organise Your Records

Ensure your income and expense records are accurate and up to date. If you’ve been relying on paper receipts, it’s time to transition to a digital system.

4.Learn the New Process

Familiarise yourself with how to submit quarterly updates, End of Period Statements, and the Final Declaration.  Again, if you are a Kennedy Accountancy client we will be in touch to discuss this and how things will change.

5. Read our MTD IT FAQ blog

We have written an FAQ blog which might answer some of your questions.  The blog can be read here.

5.Seek Professional Advice

Navigating MTD IT can be complex, especially if you’re new to digital accounting. A great accountant can guide you through the transition and ensure compliance…so if you aren’t already a Kennedy Accountancy client then here’s your sign to come on board!