The introduction of Making Tax Digital for Income Tax (MTD for IT) is approaching quickly. From April 2026, individuals with qualifying income over £50,000 will be required to comply with the new rules.

It is important to understand whether you are affected and what steps you should be taking now to prepare.

Qualifying income

For the first phase of MTD for IT, the mandated income sources are self-employment (for those not in a partnership) and property income, including income from overseas property.

Individuals will be legally required to use MTD for IT from the following dates:

• April 2026 if qualifying income exceeds £50,000 in the 2024/25 tax year
  
  
• April 2027 if qualifying income exceeds £30,000 in the 2025/26 tax year
  
  
• April 2028 if qualifying income exceeds £20,000 in the 2026/27 tax year

How does MTD apply?

HMRC research indicates that many taxpayers remain unsure about how MTD applies to them in practice. The core requirement is to keep and preserve specific accounting records in a prescribed digital format and submit information to HMRC digitally.

MTD does not require receipts or invoices to be scanned and stored digitally, as was initially proposed. Instead, it focuses on how records are maintained and how information is submitted.

Taxpayers must use functionally compatible software to meet the record-keeping requirements. This software must be capable of linking directly with HMRC systems, which involves an authorisation process at the outset and a renewal every 18 months.

A key principle of MTD is the requirement for an uninterrupted digital journey. Information must flow from the accounting records through to submission to HMRC without manual re-entry.

Spreadsheets can still be used as part of the process, provided that the software used to consolidate or submit the data is fully digital and meets HMRC’s requirements.

The penalty regime

Taxpayers joining MTD for IT in April 2026 will not face penalties for late submission of quarterly updates during the initial transition period.

In the Autumn Budget 2025 documents, the government confirmed that no penalty points will be charged for missed quarterly updates during the 2026/27 tax year. As a result, those earning non-PAYE income over £50,000 will not be subject to the new MTD penalty regime until April 2027.

From 6 April 2027, the new penalty regime for late submission and late payment will apply to all income tax taxpayers within MTD.

This regime operates on a points-based system, targeting persistent non-compliance. Each missed annual submission will result in a penalty point. Once a taxpayer reaches the threshold of two points for late submission of their final declaration, a fixed financial penalty of £200 will be charged.

Need help preparing for MTD?

If you are unsure whether MTD for Income Tax applies to you, or you would like support in preparing your systems and records, we can help. Early planning can make the transition far smoother and help you avoid unnecessary issues once the rules come into force.

To discuss your situation or to get advice, please contact us on 01904 787 973 or book a call with Donald Inglis.