News & Events
Making Tax Digital for Income Tax: What you need to know
6th November 2025
The way that many self-employed individuals and landlords report their income to HMRC is changing. From April 2026, Making Tax Digital for Income Tax Self Assessment (MTD) will come into effect, transforming how income tax is recorded and reported.
At Rowleys, we’re helping clients prepare early to ensure a smooth transition. Here’s a summary of what you need to know.
What is MTD for Income Tax?
MTD for Income Tax is a new way to report income to HMRC using compatible software such as Xero.
Rather than submitting one annual tax return, those affected will need to:
- Keep digital records of income and expenses.
- Submit quarterly updates to HMRC showing turnover and expenses.
- Submit a Final Declaration (the annual tax return) by 31 January, as normal.
Each business or source of profit (for example, a sole trade and a rental property) will require a separate submission, although this does not always mean a separate software license for each.
Who Must Comply and When?
From April 2026:
- Sole traders and landlords with annual income over £50,000.
From April 2027:
- Those with annual income over £30,000.
Income from all businesses and properties will be combined to determine eligibility. The income is based upon the gross income before deductions, such as agency fees for managing rental properties. The threshold is based on the previous tax year’s income (e.g. 2024/25 for those joining in April 2026).
Exemptions apply for:
- Trusts, partnerships, estates, pension scheme trustees, and non-resident companies.
- Digitally excluded individuals who meet certain conditions.
Quarterly update deadlines
You’ll need to send quarterly updates either using calendar quarters (ending June, September, December, and March) or tax quarters (ending 5 July, 5 October, 5 January, and 5 April).
Most businesses will use calendar quarters, as this aligns with month-end reporting.
Quarterly updates must be submitted by the 7th of the following month after the tax quarters, for example the June calendar quarter or the 5 July tax quarter will need to be filed by 7 August.
Penalties for late submissions
Each late quarterly submission will result in one penalty point.
Once four points are accumulated, a £200 penalty is applied. Further late submissions will incur additional £200 penalties until points are cleared.
Penalty points expire 24 months after issue.
The benefits of going digital
Although MTD introduces new requirements, it also brings several benefits:
- More accurate, up-to-date financial data throughout the year.
- Easier budgeting and cash flow forecasting.
- The ability to view an estimated tax liability via your HMRC digital account.
- Simplified, centralised digital record-keeping.
How to sign up
- Sign up via the HMRC website.
- Use MTD-compatible software (such as Xero).
- Authorise your software by linking it to your Government Gateway account.
If Rowleys is already authorised with HMRC for your Self Assessment, there’s no need to reauthorise for MTD purposes.
How Rowleys can help with MTD
We’re here to support you every step of the way with MTD. Our team can:
- Help you choose and set up compatible software.
- Provide training on processing transactions and making submissions.
- Offer guidance on completing quarterly returns.
- Manage your bookkeeping and submissions on your behalf.
We can also help you review your business structure and identify opportunities to optimise your tax position, for example:
- Pension contributions to reduce liabilities.
- Capital expenditure planning.
- Early identification of tax payments to support cash flow.
- Monitoring VAT thresholds and compliance.
Preparing for MTD
The best thing you can do now is get familiar with MTD software early.
If you’re unsure where to start or want to understand how MTD will impact your business, get in touch with your usual Rowleys contact or speak to our team today.
We’ll make sure you’re ready for MTD and confident in managing your obligations when the time comes.