From November, H M Revenue & Customs will be writing to Taxpayers who have filed their self-assessment Tax Returns for 2024/25 if those Returns show that they need to comply with the Making Tax Digital for Income Tax requirements from April 2026.
Here’s a reminder of what this means and what you may need to do. Please get in touch if you have any questions or concerns or would like more information.
Am I within Making Tax Digital for Income Tax?
You will be required to submit quarterly reports to HMRC from April 2026 if you are self-employed or a residential property landlord with an annual turnover of £50,000 or more. This will drop to £30,000 from April 2027 and then to £20,000 from April 2028.
The relevant year for assessing turnover will be the tax year ending the previous April.
This means that you will need to submit quarterly reports from April 2026 if your turnover for the tax year ended 5 April 2025 exceeds £50,000.
You will need to submit quarterly reports from April 2027 if your turnover for the tax year ended 5 April 2026 is more than £30,000.
You will need to submit quarterly reports from April 2028 if your turnover for the tax year ended 5 April 2027 is more than £20,000.
If you are self-employed AND a residential landlord, then it is the combined turnover that is considered.
Limited companies, trustees, partnerships and limited liability partnerships are all exempt at the moment.
What if my turnover falls?
If your turnover falls below the threshold for three consecutive tax years, then you would not be required to file quarterly reports in the fourth year.
You do not have to continue to make quarterly reports if your business ceases.
What is Making Tax Digital for Income Tax?
The requirements for income tax are broadly the same as for VAT. There are two main requirements:
- Records must be kept digitally, using ‘functionally compatible software’.
- Quarterly returns must be submitted to HMRC using that software.
What records must be kept digitally?
The following information must be kept digitally:
- Details of all transactions – income and expenditure
- Relevant amounts
- Dates of invoice and/or receipt or payment
- Categories of expenditure
- There is to be a simplification where turnover is below the VAT threshold to ‘three-line accounts’ so that expenditure does not need to be split between categories
- There will be a simplification for retailers to record daily gross takings rather than each separate sale
- Landlords will have to split their property income between UK and overseas residential lets and UK and overseas Furnished Holiday Lets.
This does not mean that your invoices, bills and receipts must be kept digitally – these can be kept separately in a paper file – but details of those documents will need to be recorded digitally. However, most software packages will be capable of holding a digital picture of these docum ents alongside the relevant information.
What is ‘functionally compatible software’?
HMRC are not intending to produce their own software for this, so individuals will need to use commercial software which must be capable of connecting to and submitting information directly to HMRC.
The vast majority of software packages will have this capability, including the well-known companies such as Xero, Quickbooks and FreeAgent and many, many others.
You can use spreadsheets, with bridging software to link the spreadsheet to HMRC and extract the required information. The required information must be obtained directly from the digital records without using copy-and-paste or manual re-entry of any figures.
What returns will I need to submit?
Four quarterly returns will be needed, along with an annual return which is intended to replace the self-assessment Tax Return.
The quarterly returns should report income received and expenses paid on a cash basis. There are prescribed headings to use for different types of income and expenses, however you can just report the totals if your turnover is less than £90,000.
The quarterly returns are cumulative, so the second return will include the information for the first two quarters, and the third return will include the information for the first three quarters and so on.
The annual return will include any necessary adjustments for capital allowances and other tax adjustments. Other income, such as employment or investment income, will also be part of the annual return.
The annual report must also be submitted online and should be ‘pre-populated’ with the information from the quarterly reports.
What are the four quarters and the filing deadlines?
It is intended that all quarterly returns will run from April to June, July to September, October to December and January to March.
Quarters will either be for calendar months – for example 1 April to 30 June – or will follow the ‘tax months’ – for example from 6 April to 5 July.
The filing deadlines will be the same for both types, so for the first year will be as follows:
- Quarter 1 filing deadline 7 August 2026
- Quarter 2 filing deadline 7 November 2026
- Quarter 3 filing deadline 7 February 2027
- Quarter 4 filing deadline 7 April 2027
- Annual Report to be submitted as usual by 31 January 2028
Deadlines for payment of tax and national insurance would remain the same, at least to begin with, with payments on account in January 2027 and July 2027 and a balancing payment in January 2028.
It should be noted that Making Tax Digital for VAT requirements remain unchanged, the VAT records will still have to be maintained and submitted to HMRC with the VAT Returns.
Will there be penalties for late filing?
More information about this will be available in due course, however It is expected that Making Tax Digital for Income Tax will follow a similar penalty system to Making Tax Digital for VAT.
In the VAT system, each time there is a late filing, you receive a penalty point. Once you receive a total of three penalty points then you begin to be charged penalties for subsequent late filings.
Penalty points do have an expiry date so are removed from the record after a period of compliance.
What should I do now?
HMRC should have already written to you with information relating to Making Tax Digital for Income Tax if your turnover for 2023/24 was above, or close to, the £50,000 threshold. They should also write to you again if your 2024/25 Return, when filed, indicates that you exceeded that threshold.
If you have exceeded the threshold in 2024/25 then you will need to register for Making Tax Digital for income tax and there is information about when and how to do this on HMRC’s website at this link: https://www.gov.uk/guidance/sign-up-your-business-for-making-tax-digital-for-income-tax.
If you are already using accounting software to maintain your records, then you are likely to be ready to go – particularly if you already file VAT returns. Your software provider should update the software to enable the quarterly and annual report to be filed.
If you are not currently using accounting software, then you will need to decide how you are going to keep those digital records and file returns.
Either way, you should have a discussion with your accountant to make sure that you will be ready to meet your filing obligations and to clarify what actions you need to take.
