Making Tax Digital for Income Tax
What is Making Tax Digital for Income Tax?
What is Making Tax Digital for Income Tax?
Making Tax Digital (MTD) is HM Revenue & Customs’ (HMRC) plan to modernise the UK tax system. It replaces the traditional Income Tax Self Assessment process with a fully digital system, requiring digital record keeping and quarterly updates.
For self-employed individuals and landlords, this means moving away from paper records and spreadsheets. Instead, you’ll need to use MTD-compatible software to track your income and expenditure, submit quarterly figures, and complete a year-end final declaration.
When does MTD for Income Tax start?
If you’re wondering “MTD – when does it start?”, here’s the timeline:
- April 2026 – MTD becomes mandatory for self-employed individuals and landlords with an annual income above £50,000.
- April 2027 – the threshold lowers to £30,000, bringing more small businesses and landlords into scope.
If your income is currently below £30,000, you don’t yet qualify. However, moving to digital record keeping now will help you future-proof your business and avoid a last-minute rush.
Who does MTD affect?
MTD applies to:
- Self-employed business owners and sole traders with qualifying income.
- Landlords with rental property income.
It does not yet apply to partnerships or those with income below ÂŁ30,000, but HMRC has suggested it could be extended further in the future.
What changes under MTD – digital records and quarterly reporting
The most significant change is the requirement to keep MTD digital records. This means:
- All transactions must be recorded in HMRC-recognised, MTD-compatible software such as Xero.
- Quarterly updates of income, expenses, and accounting adjustments must be submitted to HMRC.
- A final declaration replaces the traditional Self Assessment tax return.
Digital records improve accuracy, reduce errors, and give you a clearer picture of your finances throughout the tax year.
Why prepare for MTD now?
MTD for Income Tax may not be mandatory until 2026 or 2027, but waiting until the last minute can create stress and disruption. Preparing now allows you to:
- Transition gradually to digital record keeping.
- Join HMRC’s voluntary trial and test the system before it’s compulsory.
- Benefit from real-time financial insights to improve tax planning.
- Avoid the risk of penalties or non-compliance later.
Watch our explainer video to see the common questions answered:
What does the voluntary trial involve?
The MTD voluntary trial is available during the 2025/2026 tax year. It allows you to get hands-on experience with digital record keeping and quarterly reporting, supported by Cottons and HMRC.
Benefits of signing up early:
- Reduced penalty risks – no penalty points for late updates during the trial.
- Access to HMRC’s dedicated MTD support team.
- Smoother transition – learn the system before it becomes mandatory in 2026.
- Better tax planning – quarterly updates give you a real-time view of tax liabilities.
- Improved financial management – clearer cash flow insights and less admin.
- Fewer errors – software automation reduces manual mistakes.
With Cottons’ guidance, you can use the trial as a safe way to practise before deadlines apply.
How Cottons helps you prepare for MTD 2026
At Cottons, we’re more than just accountants — we’re here to guide you through digital change.
- Dedicated Digital Champions in every office to support clients locally.
- One-to-one training and migration support to move you from spreadsheets or manual books to digital tools like Xero.
- Quarterly reporting support to ensure your submissions are accurate and on time.
- MTD Toolkit with blogs, guides, FAQs, and videos, all updated as legislation and rules evolve.
- Xero specialists to help you get the most from HMRC-recognised software.
Read Xero’s guide to MTD for Self Assessment.Â
How to choose an MTD-ready accountant
With MTD around the corner, it’s important to work with an accountant who is prepared. Look for:
- Experience in digital record keeping and accounting software.
- A structured client support programme (like Cottons’ Digital Champions).
- Clear communication of pricing and services.
- Proactive tax planning advice, not just compliance.
Cottons is already helping hundreds of self-employed people and landlords prepare for MTD 2026. With our hands-on approach and local presence, you can be confident we’ll make the transition smooth.
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Making Tax Digital Useful resources
Articles
What is MTD-compatible software – and what options do I have?
If you’re self-employed or a landlord, you may already be asking: what is MTD-compatible software, and which one should I use? With Making Tax Digital (MTD) for Income Tax rolling out from April 2026, this is an important question to answer now. What is MTD-compatible...
What is MTD-compatible software – and what options do I have?
If you’re self-employed or a landlord, you may already be asking: what is MTD-compatible software, and which one should I use? With Making Tax Digital (MTD) for Income Tax rolling out from April 2026, this is an important question to answer now. What is MTD-compatible...
!New Event! 2025 Autumn Budget impact on businesses – register now
Join us this November for Cottons Group’s Autumn Budget Debrief in Northampton and Rugby. Our experts will give a clear, jargon-free overview of key budget changes, with practical advice on tax and financial planning. Enjoy breakfast, followed by a Q&A and networking. Spaces are limited—register now!
What is MTD-compatible software – and what options do I have?
If you’re self-employed or a landlord, you may already be asking: what is MTD-compatible software, and which one should I use? With Making Tax Digital (MTD) for Income Tax rolling out from April 2026, this is an important question to answer now. What is MTD-compatible...
Further guides
MTD for Income Tax - FAQs
Making Tax Digital for Income Tax is a new HMRC rule that will change how you report your business or property income. Instead of a yearly self assessment return, you’ll need to keep digital records and send updates to HMRC every quarter.
This guide aims to provide insight to FAQs as we head towards MTD.
Xero: MTD for Self Assessment
From April 2026, MTD for IT will change the way the self-employed and landlords do their self assessment. Making Tax Digital for Income Tax forms part of the government’s plan to digitalise the UK tax system, changing the way landlords and self-employed people submit their income tax returns.
This guide by Xero will help to explain how self assessment tax returns are changning.
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