Your Guide to Making Tax Digital for Income Tax
Everything You Need to Know About the New Quarterly Reporting Requirements from April 2026
📋What This Guide Covers
This comprehensive guide explains the new Making Tax Digital for Income Tax (MTD-IT) requirements that will fundamentally change how self-employed individuals and landlords report their income and expenses to HMRC from April 2026.
We understand that moving from annual tax returns to quarterly digital reporting represents a significant change and may seem daunting. That’s why we’ve created this detailed, step-by-step guide that explains everything in plain English. By the end of this guide, you’ll understand exactly what MTD-IT means for you, when you need to comply, what you need to do, and how Jack Ross Chartered Accountants will support you through this transition.
What is Making Tax Digital for Income Tax?
Making Tax Digital for Income Tax (MTD-IT) is a fundamental change to how self-employed individuals and landlords report their income and expenses to HMRC. It’s part of the Government’s wider Making Tax Digital programme, which aims to modernise the tax system and make it “digital by default”.
Under MTD-IT, instead of submitting a single annual Self Assessment tax return, you will be required to:
- Keep digital records of all your business income and expenses throughout the year
- Submit quarterly updates to HMRC summarising your income and expenses for each quarter
- Use MTD-compatible software to maintain your records and submit your updates
- Submit a final declaration at the end of the tax year (still by 31st January following the tax year)
This is a legal requirement, not optional. If your income exceeds the relevant threshold, you must comply with MTD-IT from the date it applies to you.
ℹ️Important to Understand
MTD-IT does not change when you pay your tax. The payment dates remain the same – you’ll still make payments on account on 31st January and 31st July, with a balancing payment by the following 31st January. What changes is how often you report your income and expenses to HMRC.
Who Needs to Comply with MTD-IT?
MTD-IT applies to individuals who are self-employed (sole traders) and/or receive income from property rental. The requirement to join MTD-IT depends on your qualifying income, which means your combined gross income from self-employment and property before deducting any expenses.
You need to comply with MTD-IT if:
- You are self-employed as a sole trader
- You receive rental income from property (whether UK or overseas property)
- Your combined gross income from these sources exceeds the relevant threshold (see below)
✓Calculating Your Qualifying Income
Your qualifying income is the gross income figure before you deduct any expenses. For example:
- If you’re self-employed and have gross sales of £45,000, even though your net profit after expenses might only be £20,000, your qualifying income is £45,000
- If you also receive gross rental income of £12,000, your total qualifying income is £57,000 (£45,000 + £12,000)
- For jointly owned property, only your share of the gross rent counts towards your qualifying income
Who is NOT required to join MTD-IT?
The following are currently exempt from MTD-IT:
- Partnerships: General partnerships, limited partnerships, and LLPs are not included in the initial rollout. A start date for partnerships has not yet been confirmed
- Trustees and personal representatives
- Non-resident companies
- Those without a National Insurance number on 31st January before the relevant tax year
- Digitally excluded individuals: Those who can demonstrate it is not reasonably practicable for them to use digital tools due to age, disability, remoteness of location, or religious beliefs
When Does MTD-IT Start?
MTD-IT is being introduced in three phases over three years, based on income thresholds. Your start date depends on your qualifying income as reported on specific tax returns.
| Phase | Start Date | Who Must Comply | Based On |
|---|---|---|---|
| Phase 1 | 6th April 2026 | Qualifying income over £50,000 | Income reported on your 2024/25 tax return (due 31st January 2026) |
| Phase 2 | 6th April 2027 | Qualifying income over £30,000 | Income reported on your 2025/26 tax return (due 31st January 2027) |
| Phase 3 | 6th April 2028 | Qualifying income over £20,000 | Income reported on your 2026/27 tax return (due 31st January 2028) |
⚠️HMRC Will Contact You
HMRC has started writing to taxpayers who they believe will need to comply with MTD-IT from April 2026, based on income reported in their 2023/24 tax returns. If you receive a letter from HMRC about MTD-IT, please contact Jack Ross immediately so we can confirm your requirements and begin preparing you for compliance.
However, even if you don’t receive a letter, if your qualifying income exceeds the relevant threshold, you are still legally required to comply with MTD-IT from the applicable start date.
What Does MTD-IT Involve?
Under MTD-IT, there are three main requirements you must meet:
1. Keep Digital Records
You must maintain digital records of all your business income and expenses. This means:
- Recording each transaction digitally (not just keeping paper receipts and invoices)
- Using MTD-compatible software or spreadsheets to record your income and expenses
- Recording sufficient detail including the date, amount, and category of each transaction
- Maintaining these records throughout the year, not just at tax return time
💡You Don’t Need to Digitise Paper Records
Whilst your transaction records must be kept digitally, you can still keep physical invoices and receipts in paper form if you prefer. What matters is that the record of each transaction (the amount, date, and category) is maintained in a digital system.
2. Submit Quarterly Updates
You must submit quarterly summaries of your income and expenses to HMRC using MTD-compatible software. These quarterly updates are not tax returns – they’re simply summaries of your income and expenses for the quarter.
Default Quarterly Periods and Deadlines:
| Quarter | Period Covered | Submission Deadline |
|---|---|---|
| Quarter 1 | 6th April – 5th July | 7th August |
| Quarter 2 | 6th July – 5th October | 7th November |
| Quarter 3 | 6th October – 5th January | 7th February |
| Quarter 4 | 6th January – 5th April | 7th May |
📅Calendar Quarters Option
You can elect to use calendar quarters instead of tax year quarters if this better suits your business. Calendar quarters run from 1st April, 1st July, 1st October, and 1st January. The submission deadlines remain the 7th of the following month, giving you an extra five days compared to tax year quarters.
Important Points About Quarterly Updates:
- You must submit a separate quarterly update for each business or property you operate. For example, if you’re self-employed and also rent out a property, you’ll need to submit eight quarterly updates per year (four for your self-employment, four for your property)
- UK property income and overseas property income are treated as separate businesses
- The quarterly updates are cumulative for the year, so errors in earlier quarters can be corrected in later quarters
- You don’t need to make tax adjustments or claim reliefs in the quarterly updates – these are saved for the final declaration
3. Submit an End of Year Declaration
After the fourth quarterly update, you must submit a final declaration for the tax year. This is similar to the current Self Assessment tax return, but will be pre-populated with the information from your quarterly updates.
At this stage, you will:
- Review and adjust the figures from your quarterly updates for any accounting or tax adjustments
- Report any other sources of income (employment, pensions, bank interest, dividends, etc.)
- Declare any capital gains
- Claim any tax reliefs and allowances
- Finalise your tax liability for the year
Deadline: The final declaration must be submitted by 31st January following the end of the tax year, just like the current Self Assessment deadline.
What Software Do You Need?
To comply with MTD-IT, you will need to use software that is compatible with HMRC’s Making Tax Digital system. There are three main types of software available:
Software Options:
- Full accounting packages: Complete MTD-compatible accounting software that can maintain your digital records and submit returns directly to HMRC (e.g., Xero, QuickBooks, FreeAgent, Sage)
- Spreadsheets with bridging software: You can continue using spreadsheets (such as Microsoft Excel or Google Sheets) but must use “bridging software” to submit your updates to HMRC. The bridging software creates a digital link between your spreadsheet and HMRC’s system
- Simplified packages: Basic software designed specifically for small businesses and landlords with straightforward affairs
HMRC has committed to making free software available for taxpayers with the most straightforward affairs (unincorporated businesses with income below the VAT threshold and no employees).
💻Digital Links Requirement
An important MTD requirement is that data must flow digitally from your records to HMRC. You cannot manually retype figures from one system to another. This is why bridging software is needed if you use spreadsheets – it creates the required digital link.
How Jack Ross Will Support You
Jack Ross Chartered Accountants has been serving clients since 1948, and we are fully prepared to support you through the transition to Making Tax Digital for Income Tax. We understand that this represents a significant change to how you manage your tax affairs, and we’re here to make the transition as smooth and stress-free as possible.
✓We Are MTD Experts
Our team has extensive experience with Making Tax Digital, having already supported hundreds of clients through MTD for VAT since 2019. We are fully trained on the MTD-IT requirements, have invested in the necessary technology and software, and are ready to guide you through every step of the process.
Our MTD-IT Support Services
We offer comprehensive support tailored to your specific needs and circumstances. Depending on your requirements, we can:
- Assess your MTD requirements: Confirm whether you’re in scope for MTD-IT and from which date
- Recommend appropriate software: Based on your business complexity, budget, and existing systems, we’ll recommend the most suitable MTD-compatible software for your situation
- Set up your digital systems: Help you implement and configure your chosen software, including importing opening balances and setting up categories
- Train you or your staff: Provide training on how to use the software effectively for daily record-keeping
- Maintain your records: For clients who prefer full support, we can maintain your digital records on your behalf using information you provide
- Submit quarterly updates: Review and submit your quarterly updates to HMRC, ensuring accuracy and compliance
- Complete your final declaration: Prepare and submit your end of year declaration, including all tax adjustments and reliefs
- Provide ongoing support: Answer questions and provide guidance throughout the year as you adapt to the new system
📧We Will Contact You Individually
Over the coming months, we will be writing to each client individually to discuss your specific MTD-IT requirements. In this communication, we will:
- Confirm whether you need to comply with MTD-IT and from which date
- Assess your current record-keeping practices and identify any changes needed
- Propose a digital solution tailored to your circumstances and preferences
- Explain the level of support we recommend and our fees for providing this support
- Set out a timeline for implementation to ensure you’re ready before your compliance date
You don’t need to wait for us to contact you. If you have questions or concerns about MTD-IT now, please contact us at any time. We’re here to help and would rather discuss your requirements early than leave you worrying.
Getting Prepared: What You Should Do Now
Even if your MTD-IT start date is some time away, there are steps you can take now to prepare:
📋Your MTD-IT Preparation Checklist
- Understand your start date: Check the table above to see which phase applies to you based on your income level
- Improve your record-keeping habits: Start keeping more regular and detailed records of your income and expenses. Getting into good habits now will make the transition easier
- Consider your software needs: Think about whether you’re comfortable using accounting software or whether you’d prefer Jack Ross to handle the digital record-keeping for you
- Review your current systems: If you already use accounting software, check whether it is MTD-compatible (most modern packages are, but older versions may not be)
- Talk to Jack Ross: Contact us to discuss your specific situation. We can advise on the best approach for your circumstances
- Respond to HMRC letters: If you receive a letter from HMRC about MTD-IT, don’t ignore it – contact us so we can confirm your requirements
- Plan your cashflow: With quarterly reporting, you’ll have a clearer view of your tax liability throughout the year. This can help with cashflow planning, but it also means being prepared for payments on account
Benefits of MTD-IT
Whilst the change to quarterly reporting requires adjustment, there are genuine benefits to the new system:
- Better financial visibility: Regular reporting means you’ll have a much clearer picture of your income, expenses, and tax liability throughout the year, rather than getting a shock in January
- Reduced year-end stress: By keeping records throughout the year and submitting quarterly updates, there’s far less work to do at tax return time
- Improved cashflow planning: Knowing your approximate tax liability early allows you to plan ahead and set money aside regularly, rather than facing a large bill in January
- Fewer errors: Regular digital record-keeping reduces the risk of errors and omissions that can occur when trying to reconstruct a year’s worth of transactions from memory
- More timely information: HMRC will have more current information about your income, which may enable them to provide more accurate tax code adjustments and reduce underpayments or overpayments
Common Concerns and Questions
Frequently Asked Questions
Q: Do I have to do my own bookkeeping?
A: No. You can choose to maintain your own digital records if you’re comfortable doing so, or Jack Ross can handle all the record-keeping and quarterly reporting on your behalf. Many of our clients prefer to provide us with their invoices and receipts, and we take care of entering the information and submitting the updates. The choice is yours.
Q: I’m not very computer-literate. Can I still comply with MTD-IT?
A: Yes. There are exemptions available for people who are genuinely digitally excluded due to age, disability, or other factors. If you believe you might qualify for exemption, please speak to us and we can help you apply to HMRC. Alternatively, many clients who are not confident with technology choose to have Jack Ross handle all the digital aspects on their behalf.
Q: Will MTD-IT cost me more?
A: The increased frequency of reporting means that accountancy fees may increase slightly to reflect the additional work involved in submitting quarterly updates rather than one annual return. However, many clients find that the benefit of better financial visibility and reduced stress is worth the additional cost. We will discuss fees openly with you when we propose your digital solution.
Q: What if I miss a quarterly deadline?
A: MTD-IT uses a penalty points system for late submissions. You receive one penalty point for each missed quarterly update deadline. Once you reach a certain threshold of points (depending on your filing frequency), you’ll face a £200 penalty. Further late submissions after reaching the threshold result in immediate £200 penalties. This is why we strongly recommend letting Jack Ross handle your quarterly submissions to ensure you never miss a deadline.
Q: Can I opt out of MTD-IT?
A: No, not if your qualifying income exceeds the relevant threshold. MTD-IT is a legal requirement. The only way to avoid it is if you qualify for automatic exemption (e.g., partnerships, which are not yet included) or if you can demonstrate to HMRC that you’re digitally excluded and it’s not reasonably practicable for you to comply.
Q: What if my income drops below the threshold?
A: Once you’re in MTD-IT, you only exit the regime if your qualifying income falls below the threshold for three consecutive years based on your filed tax returns. This prevents people moving in and out of MTD-IT repeatedly due to fluctuating income.
Q: I have multiple businesses. Do I really need to submit separate quarterly updates for each one?
A: Yes. Each trade you operate and each property business (UK property and overseas property are treated as separate businesses) requires its own set of quarterly updates. So if you have two trades and a rental property, you’ll be making twelve quarterly submissions per year (four for each business). This is one reason why many clients choose to have Jack Ross handle the quarterly reporting on their behalf.
Q: My accounting year end is not 5th April. How does that work with quarterly updates?
A: The quarterly updates are based on the tax year (6th April to 5th April) by default, regardless of your accounting year end. At the end of year stage, adjustments are made to align your accounting profits with the tax year. You can elect to use calendar quarters (starting 1st April) if this suits your business better, but the tax year basis still applies to your final tax liability calculation.
Q: Can I sign up for MTD-IT early?
A: Yes. HMRC is operating a voluntary pilot programme that allows eligible taxpayers to join MTD-IT before they’re legally required to do so. This can be helpful if you want to familiarise yourself with the system before it becomes mandatory. However, once you voluntarily join, you must continue to comply with the requirements. Speak to Jack Ross if you’re interested in joining early.
Q: Will my tax payments change?
A: No. The dates you pay your tax remain the same. You’ll still make payments on account on 31st January and 31st July, with a balancing payment by the following 31st January. What MTD-IT changes is how often you report your income and expenses, not when you pay your tax.
Q: What about partnerships?
A: General partnerships, limited partnerships, and LLPs are not included in the initial MTD-IT rollout. HMRC has confirmed that partnerships will be brought into MTD-IT at a later date, but no timeline has been announced yet. We will keep partnership clients informed as soon as more information is available.
Q: I already use accounting software. Am I ready for MTD-IT?
A: Possibly, but not necessarily. You need to check that your software is MTD-compatible and can submit quarterly updates directly to HMRC’s API. Most modern cloud-based accounting software (Xero, QuickBooks, FreeAgent, etc.) is MTD-compatible, but older desktop versions may not be. Contact Jack Ross or your software provider to confirm compatibility.
Q: What if I’m winding down my business?
A: If you’re in the process of winding down your business and expect to cease trading soon, you may be able to apply for exemption from MTD-IT on the grounds that compliance would be disproportionately burdensome given your low profits and imminent cessation. This is assessed on a case-by-case basis. Contact Jack Ross to discuss your specific situation.
What Happens If You Don’t Comply?
Failure to comply with MTD-IT requirements can result in serious consequences:
⚠️Penalties for Non-Compliance
- Late submission penalties: A points-based system where accumulating penalty points eventually results in £200 penalties for each late submission
- Late payment penalties: If tax remains unpaid 15 days or more after the due date, penalties apply
- Inaccuracy penalties: Penalties can be charged for inaccurate information submitted to HMRC
- Interest charges: Interest is charged on any tax paid late
However, with proper planning and support from Jack Ross, meeting the MTD-IT requirements is entirely manageable. We are committed to ensuring you remain fully compliant and avoid any penalties.
Timeline: What to Expect and When
| Date | What Happens |
|---|---|
| Now – January 2026 |
|
| 31st January 2026 |
|
| 6th April 2026 |
|
| 7th August 2026 |
|
| 7th November 2026 |
|
| 7th February 2027 |
|
| 6th April 2027 |
|
| 7th May 2027 |
|
| 31st January 2028 |
|
| 6th April 2028 |
|
Why Choose Jack Ross for Your MTD-IT Support?
Experience You Can Trust
Jack Ross Chartered Accountants has been serving clients in Manchester and throughout the UK since 1948. We are:
- Regulated by the Institute of Chartered Accountants in England and Wales (ICAEW)
- Experienced in supporting clients through major tax changes (including MTD for VAT since 2019)
- Invested in the latest technology and MTD-compatible software
- Committed to providing clear, jargon-free guidance and support
- Available to answer your questions and address your concerns at every stage
We understand that change can be unsettling, particularly when it involves additional compliance requirements and new technology. That’s why we’re committed to making your transition to MTD-IT as smooth and stress-free as possible. We will work with you to find a solution that fits your circumstances, your preferences, and your budget.
What You Need to Do Now
📋Your Action Plan
- Don’t panic: MTD-IT is manageable with the right support and preparation
- Check your income level: Use the tables in this guide to understand whether and when MTD-IT will apply to you
- Await contact from Jack Ross: We will be writing to affected clients individually to discuss your specific requirements and propose tailored solutions
- Or contact us first: If you have questions or concerns now, don’t wait – contact Jack Ross at any time and we’ll be happy to discuss your situation
- Start thinking about software: Consider whether you’d like to maintain your own digital records or prefer Jack Ross to handle this on your behalf
- Improve your record-keeping habits: Start keeping more regular records now, even if your MTD-IT start date is some time away
- Respond to HMRC: If you receive a letter from HMRC about MTD-IT, let us know so we can confirm your compliance requirements