Making tax digital for income tax

What is making tax digital for income tax?

Put simply, making tax digital (MTD) for income tax means:

• Keeping transactional records digitally
• Submitting these records quarterly to HMRC
• From April 2026, income tax returns and self-assessments will need to be digitally recorded and submitted quarterly instead of annually, through making tax digital compliant software

This implies that, for many, there will be a big change in adapting to new working methods and digital software.

In terms of process, there will be no change to tax payments and the deadlines for these. VAT returns should also be filed separately.

Who is affected by making tax digital for income tax?

From April 2026

• Landlords (UK and overseas) with rental income greater than £50,000 per year
• Sole traders and self-employed businesses with income greater than £50,000 per year

The above threshold relates to the sum of the businesses, e.g. an individual who has self-employment income below £50,000 may have property income that in total pushes them over £50,000 per annum.

From April 2027

• Landlords and sole traders with annual income between £30,000 and £50,000

From April 2028

• Landlords and sole traders with annual income exceeding £20,000

Who will not be affected by making tax digital for income tax?

Other types of partnership, including limited liability partnerships (LLPs), that are not general partnerships with only individuals as partners, such as:

• Trusts and estates
• Trustees of registered pension schemes
• Non-resident companies

How can you prepare for making tax digital for income tax?

Despite the delay in MTD for income tax, we still recommend starting your digital journey if you haven’t done so already. Using a cloud accounting software to keep your records allows you to know more about your finances, with the ability to run real time reports and track your business’s cash flow position.

Make fewer mistakes by reducing human error and spend less time bookkeeping with clever AI functionality. In addition, access your business records anywhere any time via the cloud and even connect with your accountant for quick advice and important advisory conversations.

Step 1: Are you affected?

Identify whether you are affected by MTD for income tax and which of the above deadlines affects you or your business.

Step 2: Potential exemptions

If you are exempt from MTD for VAT due to digital exclusion, you are not automatically exempt from MTD for income tax (ITSA). You must contact HMRC to confirm your circumstances have not changed and to request the exemption apply to income tax.

Step 3: Bank accounts

Separate your business banking from your personal banking now if you haven’t already done so, to begin practicing the habit of separation. This is because you won’t want to provide HMRC or your accountant with all your personal records mixed in.

Step 4:  Tax basis reform

The periods for which your income tax is assessed will change from 2025-26, so that all ITSA returns from 6 April 2026 will be submitted based on the same quarter-ends. This may trigger an increased tax liability if you don’t already have a 31 March or 5 April year end.

Contact your tax advisor if you think you could be affected.

Step 5: Digital software for making tax digital for income tax

If you’re using digital software already, ask their support team if they will be MTD compatible. Otherwise speak to your adviser about software options that are the best for your business and that you feel comfortable using for example Xero or Quickbooks (the latter being created especially for property bookkeeping for landlords).

Step 6: Support

Get in touch with your accountant to discuss the support you’ll need around making tax digital for income tax. This could include setting up your software, checking your tax returns, submitting them to HMRC, or dealing with the entire quarterly submission process for you.

How to get ready for making tax digital for income tax

There are a range of HMRC resources on making tax digital for income tax including software choices and step by step guidance.

If you would like expert advice on this then PKF Francis Clark has already helped transition over 4,000 VAT registered clients to the new making tax digital compatible software. We have proven experience in supporting our clients in the transfer of their software, keeping in touch at every step.

We have a dedicated cloud accounting team who focus on staying up to date with the latest software and technologies. We engage with software vendors for best practice, research the latest accounting technology and train teams internally to drive the best service and support for their clients.

For support with making tax digital for income tax please contact us using the form below.