Hot Topic

MTD for Income Tax

The introduction of Making Tax Digital (MTD) for Income Tax is just around the corner. Those with qualifying income over £50,000 in the 2024/25 tax year will need to use MTD from next April. Here we look at who will be affected and what they need to do now.

Qualifying income

For the first phase of MTD for Income Tax the mandated income types are property (including foreign property) and self-employment for those not in a partnership.

Those that qualify will legally be required to use MTD from the following dates:

• April 2026, if qualifying income is over £50,000 in the 2024/25 tax year
• April 2027, if qualifying income is over £30,000 in the 2025/26 tax year
• April 2028, if qualifying income is over £20,000 in the 2026/27 tax year.

How does MTD apply?

HMRC research suggests many people are unsure which developments apply to them. So, what are the rules on records and software?

MTD involves keeping and preserving specific accounting records in a prescribed digital format and transmitting information to HMRC digitally. It does not mean having to scan and store receipts and invoices digitally, as originally envisaged.

MTD rules require what is called functional compatible software for record keeping purposes. To make submissions to HMRC, the software is linked with HMRC systems, and there is a specific authorisation process at the outset (and every 18 months afterwards) to do this.

The rules require an uninterrupted digital journey to HMRC, information flowing from the accounting records to the digital filing, without manual input.

Spreadsheets can form a component part of digital record keeping, provided that the product that consolidates records or summary records from the spreadsheet is digital.

The penalty regime

Self assessment taxpayers due to join MTD for Income Tax next April will not face penalties if late filing quarterly updates.

In the Autumn Budget 2025 documents, the government said it will not charge penalty points if those joining MTD fail to submit any of their compulsory quarterly updates of income and expenses late during 2026/27. 

This means that the first group of taxpayers earning non-PAYE income over £50,000 will not be liable for new penalty regime under MTD until April 2027.

HMRC will apply the new penalty regime for late submission and late payment to all income tax taxpayers due to join the new system from 6 April 2027.

The new system is based on a points-based sanctions regime and will penalise those who persistently do not comply by missing filing and payment deadlines.

Under the new regime, when a taxpayer misses an annual submission deadline, they will incur a penalty point. A taxpayer becomes liable to a fixed financial penalty of £200 only after they have reached the points threshold of two for late submission of their final declaration.