Making Tax Digital for Income Tax – Key questions answered
We recently sat down with Sarah Jenkins, Audit and General Practice Partner, to answer some common questions about Making Tax Digital for Income Tax (MTD for Income Tax) means in practice and what landlords and sole traders should be doing now.
What should you do if you are not sure whether you are affected by MTD for Income Tax?
The starting point is to look at your qualifying income. From 6 April 2026, MTD for Income Tax applies to sole traders and landlords with qualifying income over £50,000. That threshold drops to £30,000 in April 2027 and then to £20,000 in April 2028.
If you are unsure where you sit, reviewing your most recent tax return will usually give a clear answer.
If there is any uncertainty, speak to your accountant sooner rather than later. Leaving it until the rules go live is where we see problems arise.
What steps should be taken now to prepare?
Preparation should begin well before April 2026 and the first step is confirming whether you will be in scope and when.
The next is moving away from paper records or basic spreadsheets and onto MTD-compliant software, such as the many HMRC-compliant cloud-accounting platforms that exist.
MTD for Income Tax requires digital record keeping and quarterly submissions to HMRC, so your systems need to be ready.
Many software platforms make this much easier, but there is still a learning curve. Early preparation allows time to test processes, fix issues and get comfortable with the new way of working.
Do I have to use HMRC-compliant cloud accounting software?
In most cases, yes, you will need to use HMRC-compliant software to meet the requirements of Making Tax Digital for Income Tax.
However, there are some limited exceptions and alternative options worth understanding.
Under MTD for Income Tax, HMRC requires digital record keeping and digital submission of quarterly updates and the final declaration.
This means information must be kept in a digital format and sent to HMRC using software that is recognised as MTD-compatible.
Are there any exemptions?
HMRC does allow limited exemptions from MTD for Income Tax, but these apply only in specific circumstances.
Exemptions may be available where it is not reasonably practicable to use digital tools, for example due to age, disability or the absence of reliable internet access.
There are also certain religious objections to using digital technology that may qualify.
These exemptions are not automatic and must be formally applied for and agreed by HMRC. In practice, they are expected to apply to a relatively small number of taxpayers.
Do I have to use cloud accounting software?
While many people assume MTD means moving fully to cloud accounting software, that is not always the case.
Cloud-based systems are often the simplest and most efficient option, particularly for those with regular income and expenses, but they are not the only route.
HMRC’s rules require digital records and digital links between systems, not necessarily a single piece of software.
What is a bridging solution?
A bridging solution allows you to continue using spreadsheets for your digital records, with the bridging software then used to submit the required information to HMRC in a compliant way.
This can be a useful option for taxpayers who are comfortable with spreadsheets and whose affairs are relatively straightforward.
However, it is important that the spreadsheets are maintained correctly and that digital links are preserved, as manual copying and pasting of figures is not allowed under MTD rules.
Does MTD for Income Tax impact when tax is paid?
No, MTD for Income Tax does not change when tax is paid. Payment dates remain the same. What changes is how and how often information is reported to HMRC.
Quarterly updates give HMRC a clearer picture of your income throughout the year, but they are not tax bills.
This can also prove useful to you to get a clearer picture of what tax may be owed, so you can put the money aside.
The final tax position is still confirmed after the year end through a final digital declaration.
Will this create a lot of additional work for taxpayers?
There will be more frequent reporting, so yes, there is additional administrative work.
However, that does not have to fall entirely on the taxpayer and with the right software and support, much of the process can be streamlined.
Many clients will choose to have their accountant handle quarterly submissions, which will reduce pressure and helps ensure accuracy.
What benefits does MTD for Income Tax provide?
Done properly, MTD for Income Tax can give taxpayers better visibility over their finances.
Quarterly reporting encourages more up-to-date records, fewer surprises at year end and, potentially, better cashflow planning.
It can also reduce errors caused by rushed annual returns and improve overall compliance, which is increasingly important as HMRC relies more heavily on digital data.
Is there still time to prepare for MTD for Income Tax?
Yes, but the window is closing. April 2026 sounds distant, but changing systems and habits takes time. Starting now avoids last-minute decisions and reduces the risk of mistakes.
What happens if those required do not prepare in time?
For the 2026 tax year, there will be no penalties for missing MTD quarterly update deadlines. However, from April 2027 the penalty regime applies.
Each late submission earns a penalty point. Once thresholds are reached, a £200 penalty applies, with further fines for continued non-compliance.
Points only reset after outstanding submissions are filed and a sustained period of compliance.
What was the experience with MTD for VAT?
MTD for VAT showed a clear pattern. Many businesses left preparation too late, underestimated the changes and struggled with software and processes close to the deadline. This led to stress, errors and avoidable penalties.
MTD for Income Tax is a bigger change, affecting far more people. Learning from VAT, early preparation is the best way to avoid disruption and ensure compliance.