Making Tax Digital for Income Tax

From April 2026, the way you report rental and self-employed income to HMRC changes permanently. If your qualifying income from self-employment and property was more than £50,000, you are legally required to keep digital records and send HMRC a quarterly update through Making Tax Digital-compatible software. So what does Making Tax Digital for Income Tax actually mean for you, when does it start, and what should you be doing right now to avoid penalties?

What is Making Tax Digital for Income Tax?

Making Tax Digital for Income Tax Self Assessment (MTD for Income Tax, or MTD ITSA) is HMRC’s move to a fully digital tax system. Instead of one Self Assessment tax return a year, you keep your records digitally and submit four quarterly updates plus a final declaration. It is the biggest change to personal tax reporting in a generation, and landlords and the self-employed are first in line.

When does MTD for Income Tax start, and does it apply to you?

The rollout is phased by qualifying income. This means your gross income before expenses, not your profit. From 6 April 2026, it applies if your combined self-employment and property income exceeded £50,000. From April 2027, the threshold falls to £30,000, and from April 2028, it falls again to £20,000.

There is a detail here that catches people out, and it is the first thing to check. Whether you are in from April 2026 is decided by the qualifying income on your 2024/25 tax return, the one you have already filed. It is not a live test based on this year’s income. So the question is not “will I earn over £50,000 this year”; it is “what did my 2024/25 return say?”

Note. It is gross income that counts, not profit. You can make a loss and still be caught, because HMRC looks at turnover, not what is left after costs. If you have both a rental property and a side trade, the two are added together. Each can be comfortably under £50,000 on its own and still take you over the line when combined. Having worked inside HMRC, we know this is the first figure they check.

What will you actually have to do under MTD?

Four things change. You must keep income and expense records digitally rather than on paper or in a loose spreadsheet. You must use MTD-compatible software that connects directly to HMRC. You must send a summary update every quarter. After the year end, you submit a final declaration, which replaces your old Self Assessment return. This is where any other income, including employment, dividends and savings, is brought in.

How much will Making Tax Digital cost, and is there a hidden upside?

There is an admin cost to going digital, and it would be dishonest to pretend otherwise. But there is a genuine commercial upside. Quarterly reporting forces real-time bookkeeping, which means you always know your numbers, your tax bill stops being an annual ambush, and you can make planning decisions during the year rather than twenty-two months later. Having built businesses from the ground up ourselves, we consistently see clients who treat MTD as the prompt to finally get on top of their finances end up better off, not worse.

Example. Sarah has two buy-to-let flats producing £38,000 of rent and a small consultancy turning over £16,000. Each is comfortably under £50,000 on its own, but combined, her qualifying income is £54,000, so she is inside MTD from April 2026. By moving to cloud software a year early, she spreads the learning curve, identifies £2,300 of expenses she had never been claiming (worth £920 a year to her as a higher-rate taxpayer), and avoids the March scramble entirely.

What happens if you ignore MTD for Income Tax?

MTD brings a points-based penalty system. You collect a penalty point for each missed submission, and once you hit the threshold, a £200 penalty applies, with further penalties for continued non-compliance. Late payment penalties run separately and have become sharper. The system is designed to catch a pattern of lateness rather than a single slip. This means the risk builds quietly until it lands all at once.

Warning! Do not wait until March 2026 to act. Software needs setting up, historic records need digitising, and your accounting basis may need reviewing. Leaving it late is the single most common and most expensive mistake we expect to see this year.

How Merit gets you MTD-ready?

As Chartered Tax Advisers rather than accountants alone, we do not simply tick the compliance box. We use the transition as a planning trigger by considering whether MTD changes the case for incorporating, how to structure your records so they are efficient rather than merely legal, and how the switch can be used to cut your overall tax bill. Because members of our team have worked inside HMRC, we set your systems up the way HMRC expects to see them, which is the best protection you can buy against an enquiry. Because we have built and run businesses ourselves, the advice is commercial, not just correct.

If you are affected from April 2026, the practical next steps are simple: check the qualifying income on your 2024/25 return, choose and set up MTD-compatible software now rather than in the spring, digitise your existing records, and get a professional to review whether your current structure is still the right one. We can do all four with you.

Worried about being MTD-ready before April 2026? Merit Accountants are Chartered Tax Advisers and former HMRC insiders. We set your digital records up the right way and use the switch to cut your tax bill, not just keep you compliant.