Making tax digital for income tax – what should I do now to prepare?

The Making Tax Digital for Income Tax (MTD IT) regime is one of the biggest changes to the tax system in many years and fundamentally changes how taxpayers interact with HMRC.

As HMRC have started writing to taxpayers about the Making Tax Digital for Income Tax rollout, we wanted to give a brief refresher on what it is, when it starts and who it affects, before covering what practical steps you should be taking now to prepare!

So, what is MTD IT?

The MTD for IT regime is the new way that taxpayers will need to keep and submit their records to HMRC. It is a requirement to keep, maintain and submit digital records to HMRC. Paper records will no longer suffice.

Those taxpayers who are affected will also change from submitting one annual self-assessment tax return to submitting four quarterly updates to HMRC as well as one annual final declaration.

When does it start and who does it affect?

The regime will be mandated from 6 April 2026 and rolled out in 3 tranches:

• From 6 April 2026 - sole trade businesses and landlords with qualifying income over £50,000 are required to register and comply.
• From 6 April 2027 - sole trade businesses and landlords with qualifying income over £30,000 are required to register and comply.
• From 6 April 2028 - sole trade businesses and landlords with qualifying income over £20,000 are required to register and comply.

It is important to note that qualifying income is based on the combined income (not profits) from sole trades and property only. Other income sources such as employment, pensions, interest on savings or anything else for that matter will not count as qualifying income.

How are HMRC judging who will be affected?

HMRC will be using the submitted tax returns for the tax year ending 5 April 2025 when assessing whether a taxpayer is mandated to use the MTD IT regime.

The deadline for filing these tax returns is 31 January 2026, leaving very little time for the next steps should you chose to file your tax return near the deadline. The next steps are:

• Sign up to MTD for IT with HMRC
• Provide authority to your agent (e.g. Albert Goodman)
• Transfer your records onto MTD compatible software Link this software to your agent’s platform
• Start keeping your records digitally on the new software

Practical Steps – What should I do now?

1. Talk to an advisor that understands the MTD for IT regime – at Albert Goodman, we are working with HMRC and leading software providers, and are ensuring that we stay at the forefront of this change, so please get in touch if you need any help.

2. Prepare and submit your tax return for the year ending 5 April 2025 as soon as possible – Don’t wait until the end of the tax year to do this! Preparing your tax return now will help you to understand your qualifying income for the year of assessment. In turn, this will enable you or your agent to carry out many of the preparatory steps in advance. Also, contrary to many opinions, you don’t have to pay your liability as soon as it's filed. You are well within your rights to submit now and pay just before the usual deadline.

3. Ensure you have a dedicated business bank account for each type of business – Doing this will dramatically reduce admin time when it comes to keeping digital records. It will also allow you to receive the admin benefits that automation provides. As an example, an individual with a sole trade business and a rental property will ideally have a dedicated business bank account for each business.

4. Get into the habit of completing your bookkeeping on a regular basis – MTD IT will require quarterly submissions and the time between the quarter ending and the submission deadline can be as small as one month and two days! Therefore, regular record-keeping will maximise this filing window and make the process much less daunting.

5. Consider being part of the Beta Testing Phase – at Albert Goodman we are part of the MTD IT Beta testing phase. This allows us to work with HMRC to test and have a say in how the regime will work. Being part of the testing phase will help you understand exactly how this will work and set you up nicely and ahead of the game!

Please do not hesitate to contact us should you have any queries regarding any of the above.