Making Tax Digital for Income Tax (MTD ITSA) will become mandatory from 6 April 2026 and will represent a significant change in how many individuals report their income to HMRC.
From this date, self-employed individuals and landlords with qualifying income will be required to keep digital records and submit information to HMRC on a quarterly basis. While the changes may initially appear to increase the administrative burden, our experience suggests that, when implemented correctly, Making Tax Digital can offer practical benefits for many taxpayers.
What Is Making Tax Digital for Income Tax?
Making Tax Digital for Income Tax is an HMRC initiative designed to modernise the UK tax system by moving from annual tax returns to digital record keeping and more frequent reporting.
Under MTD, individuals within scope will be required to:
- Maintain digital accounting records
- Use HMRC-compatible software
- Submit quarterly updates of income and expenses
- Complete a year-end declaration instead of a traditional Self Assessment tax return
Who Is Affected by Making Tax Digital?
From 6 April 2026, Making Tax Digital will apply to individuals (but not initially to trusts or partnerships) who have:
- Self-employment income, and/or
- UK or non-UK property rental income,
where total qualifying turnover exceeds £50,000.
The scope of MTD will then expand over the following years:
- From April 2027 – turnover threshold reduces to £30,000
- From April 2028 – turnover threshold reduces to £20,000
This means that a growing number of self-employed individuals and landlords will be brought into Making Tax Digital over time.
Is Making Tax Digital Mandatory?
Yes. Making Tax Digital is mandatory and represents a statutory obligation imposed by HMRC.
As a result, some may view MTD as an HMRC-led compliance exercise. However, based on our work over the last couple of years with a small number of clients to design and test the various services that can be provided, we have also observed practical benefits.
Are There Any Benefits to Making Tax Digital?
Self-employed individuals
Quarterly filings provide the ability to:
- Track turnover and profit on a cumulative basis throughout the tax year
- Better understand potential tax liabilities during the year
- Improve planning for tax payments, particularly where income is volatile
Where this information has not been historically available, planning for tax payments has often been difficult.
Individuals with rental properties
For individuals with multiple rental properties, the ability to report at profit and loss level for individual properties has provided valuable commercial information that was not necessarily obvious historically.
Our Experience of Making Tax Digital in Practice
Based on our testing, attendance at sessions with Xero, and presentations from HMRC, the following points are clear:
HMRC will not delay implementation
While penalties will not be implemented until 6 April 2027, the overall rollout timetable remains unchanged.
There will be an administrative burden, but technology can reduce it
Using accounting software such as Xero, linked to a dedicated business bank account, and feeding expenses via receipt-scanning software or direct emails can reduce the need for manually collating and submitting hard-copy or soft-copy records. For larger self-employment or rental businesses, this may lead to a significant time saving.
Client involvement can be beneficial
While Menzies can provide a full service in connection with Making Tax Digital, there are advantages for clients being involved in at least part of the process.
Accuracy of quarterly filings matters
To obtain the most benefit, individuals should aim for quarterly filings to be as accurate as possible. HMRC does not initially appear to be prescriptive, provided filings are not zero. There is no requirement to make tax adjustments on a quarterly basis, as these can be completed at the year end.
Changes at HMRC
From a personal tax perspective, individuals will be moved from HMRC’s legacy IT system to a new enterprise IT system. This is expected to enhance the pre-population of tax returns for known information in a way that is not currently possible.
If you wish to discuss Making Tax Digital further, please contact your normal Menzies contact, who will be able to assist.
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