HMRC is introducing Making Tax Digital for Income Tax (MTD for IT). This new system will change how you report your income if you have self-employment and/or property rental income which combined exceeds £50,000 in the 2024/25 tax year. The £50,000 is income before any expenses or allowances are deducted. There will be a need to record income and expenses transactions on a digital system, and report these quarterly to HMRC as well as submit a final year-end tax.
Here's an overview detailing what's changing, what that means for you and how we can help... You can also download our helpful 'Roadmap' to April 2026.
What's Changing?
If you fall under the criteria, there is a mandatory requirement to:
Keep digital records using HMRC compatible software.
Submit quarterly updates of income and expenses to HMRC.
File an end-of-year digital tax return, replacing the annual Self-Assessment tax return.
The qualifying income threshold refers to total income from self-employment and property combined before any expenses or allowances are deducted.
Who is affected?
Starting from the 6th of April 2026, if your self-employment and/or property rental income combined exceeds £50,000 in the 2024/25 tax year, you will be required to comply with MTD for IT.
Other income bands are as follows:
Income exceeding £30,000 must comply with MTD for IT for 6 April 2027
Income exceeding £20,000 must comply with MTD for IT for 6 April 2028
What does this mean for you?
If you meet the criteria, you will be required by law to have maintained what is termed ‘compatible software’ to:
Keep and retain transaction-level (income and expenses) digital records for each self-employment and/or property business.
Submit quarterly update reports of your year-to-date transactions for each self-employment and/or property business to HMRC.
Finalise your end-of-year position by providing details of your other personal income sources, making adjustments, claiming reliefs as part of the submission of your digital tax return to HMRC.
This process will replace the annual self-assessment tax return starting from the 2026/27 tax year. Non-compliance will result in financial penalties
Note that your income tax payment dates will remain unchanged.
When does it impact you?
If your combined self-employment and property income is at least £50,000 in 2024/25 you will need to comply with MTD for IT from 6 April 2026. You will need to ensure records are being maintained using an appropriate digital record-keeping system by this date. The first quarterly update report for the 2026/27 tax year will need to be submitted by 7 August 2026.
What is compatible software?
HMRC will not provide software, but you may not need to change your current systems if you use one and it is compatible.
We will primarily be offering, as part of our fixed fee packages, either Dext Solo or Xero Simple, which are both compatible. There are various HMRC compatible software options you can choose from if you do not want to use ours. Talk to us and we can advise you.
Alternatively, we can maintain these records for you, reducing the burden and cost of having your own software. We can provide a fixed fee quote for this.
Why is HMRC doing this?
HMRC aims to improve record-keeping and tax accuracy, reducing tax loss to the exchequer. This requirement applies to everyone within the set criteria, regardless of current record quality.
This is an opportunity to review your processes and identify potential advantages of using compatible software, such as cloud record-keeping for real-time data and planning to help grow and support your business.
What are the next steps?
Clayton CCA can work with you to prepare, explore options, and find a solution that works for you and your requirements.
With extensive experience providing accounting and receipt capture solutions, Clayton CCA has supported many clients with similar regimes for VAT.
We are here to help! Email MTD@claytoncca.co.uk or phone 01663 743800
Download the 'Roadmap'...
We've created a helpful 'roadmap' to April 2026 which details the journey you'll need to take if you're impacted by Making Tax Digital for Income Tax, what it means for you and how to work out your start date.
Changing the traditional view of accountancy...
Our scalable solutions adapt to suit your business's individual needs, supported by easy-to-use accounting software and our years of business experience. Talk to us about how we can advise and guide you to achieve your business and financial goals!
