As someone who works within the tax and accountancy profession it is becoming difficult to remember a time before we heard the words ‘Making Tax Digital’.
Since it was first mentioned way back in 2015, Making Tax Digital for VAT underwent a number of changes, delays and deferrals before it was eventually introduced from April 2019.
Making Tax Digital for Income Tax has encountered similar delays but the expectation now is that it will become mandatory from April 2026.
This may seem a long way off, but depending on your business there may be a lot to do before then, so here’s a summary of where we are at the moment.
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 landlord with an annual turnover of £50,000 or more. This will drop to £30,000 from April 2027.
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 – this current tax year – 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.
If you are self-employed AND a residential landlord, then it is the combined turnover that is considered.
At the moment, limited companies, trustees, partnerships and limited liability partnerships are all exempt.
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?
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?
We are still waiting for further guidance on this, however it’s likely that the following details will need to be kept digitally:
- Details of all transactions – income and expenditure
- Relevant amounts
- Dates of invoice and/or receipt or payment
- Categories of expenditure – these are likely to follow the self-assessment tax return categories
- 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.
What is ‘functionally compatible software’?
HMRC have said that they 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, but will need 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 the usual annual tax return.
The annual return will include adjustments for capital allowances and other tax adjustments. It is expected that this would be pre-populated with the figures from the quarterly returns, and the self-assessment tax return might be re-designed to accommodate this.
It is intended that all quarterly returns will run from April to June, July to September, October to December and January to March.
The filing deadlines will be one month and seven days from the end of the quarter.
The returns required and filing deadlines for the first year would therefore be as follows:
- Quarter 1: From 1 April to 30 June (or 6 April to 5 July) filing deadline 7 August 2026
- Quarter 2: From 1 July to 30 September (or 6 July to 5 October) filing deadline 7 November 2026
- Quarter 3: From 1 October to 31 December (or 6 October to 5 January) filing deadline 7 February 2027
- Quarter 4: From 1 January to 31 March (or 6 January to 5 April) filing deadline 7 April 2027
- Annual Return 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.
