5 August 2025

Crystal’s Calculations: MTD for Income Tax – a new way of doing tax returns

Making Tax Digital (MTD) for Income Tax is changing how sole traders and landlords record and report their income and expenses.

Under MTD for Income Tax, you will need to use HM Revenue & Customs (HMRC) compatible software to:

Keep digital records of income and expenses
Submit quarterly updates to HMRC
Send an end-of-year final declaration instead of a traditional Self-Assessment tax return

This shift to digital reporting aims to make tax more accurate, efficient, and easier to manage.

Who needs to comply with MTD for Income Tax?

The qualifying income is your gross income (before expenses and tax) from both self-employment and property in a single tax year.

If you meet the threshold, you will be legally required to use MTD software from:

April 2026 – if your qualifying income is over £50,000 in the 2024/25 tax year
April 2027 – if your qualifying income is over £30,000 in the 2025/26 tax year
April 2028 – if your qualifying income is over £20,000 in the 2026/27 tax year (subject to legislation lowering the threshold)

This applies whether you are a sole trader, a landlord, or both.

How to prepare for MTD for Income Tax

HMRC has launched a dedicated MTD for Income Tax webpage and offers several free resources to help you get ready:

Recorded webinars explaining the legal requirements
Live webinars with Q&A sessions covering planning, signing up, and what to do after joining
Regular updates on their external communications approach ahead of April 2026

It’s a good idea to review your current record-keeping and accounting software now to ensure it will be compatible with MTD for Income Tax.

The benefits of early testing

Joining the HMRC pilot scheme for MTD can make the transition smoother. Benefits include:

Building confidence with the new processes before the mandatory deadline
Early access to HMRC’s dedicated MTD Customer Support Team for tailored guidance
Time to resolve any software or process issues ahead of full implementation

To take part in testing, you can:

Sign up your business or client for MTD through HMRC.
Contact HMRC for support and guidance during the sign-up process.

MTD for Income Tax is not just another compliance exercise – it’s a shift in how small businesses and landlords will interact with the tax system.

While it may feel like another layer of admin, the reality is that early adoption can transform how you track, understand, and respond to your financial position.

By embracing digital record-keeping now, you will not only meet the legal requirements when they arrive but also gain better visibility over your income, spot opportunities for tax efficiency, and avoid the year-end rush.

In short, those who prepare early will spend less time firefighting and more time making informed business decisions.