Making Tax Digital for Income Tax: What Every Self-Employed Person and Landlord Needs to Know

If you’re self-employed or earn rental income, Making Tax Digital for Income Tax (MTD for IT) is not something on the horizon – it’s here now. Let’s not mince our words here: the ideal time to have got prepared was months ago, but we’re all human and leave stuff to the last minute. Acting now is far better than a last-minute rush before the first filing deadline of 7th August.

Here’s what you need to know.

What is Making Tax Digital for Income Tax?

MTD for IT is HMRC’s move to bring income tax reporting into the digital age. Instead of one annual Self Assessment tax return, there are now three requirements:

The End of Period Statement (EOPS) that featured in earlier versions of the plan has been dropped, and there are no changes to when tax is actually paid – 31 January and 31 July stay the same.

Does This Apply to Me?

MTD for IT applies to sole traders and property owners (UK, overseas, residential and commercial) – but not to partnerships, LLPs, or limited companies.

The threshold for the first wave is gross income over £50,000, based on your 2024/25 tax return. It’s important to understand that “gross” means before any deductions at all. For landlords who use a letting agent, that means the full rental income before the agent’s commission is deducted, even if that commission never actually reaches your bank account. It’s easy to underestimate where you sit against the threshold if you’re thinking in net terms.

The threshold looks at your combined income across all qualifying sources. UK property and overseas property are treated as separate businesses, and only your own share is used for jointly owned properties.

If you only traded or let property for part of 2024/25, your income needs to be pro-rated to assess whether you meet the threshold and it gets more complex from there. Factors like basis period reform, averaging rules, cash vs accruals accounting, and whether VAT-inclusive figures were used all affect how the threshold calculation works. This is an area that requires real technical knowledge to get right. Please don’t risk a guess.

Once you’re in MTD, you’re generally in for a minimum of three years – even if your income drops below the threshold during that time. Importantly, you’re still in even if your income has dropped to less than £50,000 since 2024/25. Reducing your income, for example selling one of your properties would not qualify. If you sold all your properties or started trading as a limited company, you might have a case. Again, please don’t guess or ask AI for an answer.

The threshold drops to £30,000 from April 2027 and £20,000 from April 2028, so if you’re not in scope yet, now is a good time to start thinking ahead.

Not wishing to be big-headed but for our clients MTD is no big deal. We already had all the systems and processes in place and made sure that their books were kept up to date throughout the year. If that’s not your experience, that suggests you’re not with the right accountant.

What Does it Mean in Practice?

Income and expenses need to be recorded digitally throughout the year and submitted to HMRC each quarter using compatible software. Sole traders and property owners submit separately – and UK property and overseas property are treated as separate businesses, each requiring their own submission. Multiple properties within the same property business are combined into a single submission.

After each quarterly submission, HMRC will send back a tax estimate including National Insurance – a genuinely useful window into your likely liability throughout the year. It won’t include student loan repayments or the High Income Child Benefit Charge (HICBC), so those still need to be factored in separately, but for most people it removes the January surprise.

The year-end declaration is where a good accountant earns their keep. Between the fourth quarterly submission and the final return, there is significant work to be done – claiming capital allowances, disallowing expenditure that tax law doesn’t permit, and identifying reliefs that can reduce your bill. This goes well beyond simply adding other income sources like bank interest. It’s technical, and it’s not something to leave to chance because it affects how much tax you end up paying.

Registration and Deadlines

Registration is not automatic – you need to sign up now if you haven’t already. At the point of registration, you also need to appoint your accountant as your agent, which brings us to an important distinction.

There are two types of agent – a supporting agent and a main agent. A supporting agent can file quarterly returns but only the main agent can file the year-end declaration. Composure acts as main agent for all our clients, handling both the quarterly submissions and the year-end return.

The quarterly filing deadlines are:

The year-end declaration deadline remains 31 January.

Are There Any Exemptions?

Some people may qualify for an exemption – for example, those with no internet access, or where age, health, disability or mental capacity makes digital filing impractical. However, simply preferring paper, only having few transactions, or finding it time-consuming does not qualify. Importantly, an exemption is not granted automatically – you must actively apply for one. If you think this might apply to you, get in touch with us as soon as possible.

Why is HMRC Doing This?

MTD is a cornerstone of HMRC’s 10-year strategy to close the UK’s “tax gap” – the difference between what is owed and what is actually collected, much of which stems from avoidable errors and non-compliance. More frequent digital reporting is designed to catch mistakes earlier and improve accuracy across the board.

How We Can Help

All our existing clients are already on compatible software – we’ve been ready for MTD for years. For existing clients, the good news is that the transition is straightforward and we’re managing everything on their behalf.

For new clients, we offer full support to get you set up and migrated – plenty of help, clear explanations, and you’re always welcome to come into the office. We don’t want you to get stressed. We’ll make sure you’re registered correctly, your software is set up properly, and that nothing falls through the cracks.

We’re running two free in-person workshops on Wednesday 14th May with plenty of opportunity to ask questions and get some hands-on help. One in the morning and one around lunchtime to make it as easy as possible to fit into your day.

Click here to book the morning workshop: 8 AM – 9:30 AM

Click here to book the lunchtime workshop: 12:30 PM – 2 PM

We’ll also be at the Horsham Rugby Club business networking group in June – come and find us there.

We’ve also prepared a series of educational emails on:

1. What is MTD?
2. Who needs to be in MTD?
3. How to operate MTD?
4. When are the MTD deadlines?
5. Why is MTD a good thing?
6. Tips to Make Your Life Easier (and Keep your Accountancy Fees down)

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