HMRC is modernising the UK tax administration system to enable real-time digital reporting. Making Tax Digital (‘MTD’) is a key part of this initiative, requiring taxpayers to maintain digital records and submit tax data electronically. MTD is being introduced gradually, tax by tax, with income tax self-assessment (‘MTD ITSA’) being the next major change. From 6 April 2026, sole-traders and landlords with annual income over £50,000 will come within the regime.

Timeline 

MTD for VAT has been compulsory since April 2022. The start dates for MTD for other taxes are set out in the below table:

The combined income from all relevant sources must be taken into account when considering the income thresholds.

What Are the Reporting Requirements?

From 6 April 2026, affected self-employed individuals and landlords must:

1. Maintain digital records for business transactions using MTD-compatible software or by using spreadsheets linked to HMRC via appropriate bridging software. HMRC does not provide its own software; however, some free software is available for small and uncomplicated businesses. HMRC has published a list of software providers with MTD-compatible products, available here: www.gov.uk/guidance/find-software-thats-compatible-with-making-tax-digital-for-income-tax.
2. Submit income and expenses to HMRC quarterly (or monthly by election) for each income source. The quarters will end on 5 July, 5 October, 5 January, and 5 April. The report must be submitted to HMRC within one month after the tax quarter ends.
3. Submit an End of Period Statement (‘EOPS’) and Final Declaration (which replaces the current self-assessment tax return) by 31 January following the tax year end. The EOPS will include accounts adjustments such as capital allowances or disallowed expenses, whilst the Final Declaration will include other sources of taxable income, gains and claims.

Penalties

Late submission penalties for MTD will follow a points-based system. Penalty points may be issued for late submissions. Once you reach the penalty threshold, you will receive a £200 fine, with additional fines for each subsequent late submission. The penalty thresholds vary depending on whether submissions are made annually, quarterly, or monthly. Late payment penalties will be charged where any payment, other than a payment on account, is more than 15 days overdue. Daily penalties may be levied for failure to maintain digital records.

Start Preparation Now

We recommend digitalising your records as soon as possible to ensure the necessary processes are in place ahead of the MTD ITSA start date. You should also activate your Business Tax Account, which allows you to review all taxes paid by your business: www.gov.uk/guidance/sign-in-to-your-hmrc-business-tax-account.

If affected by the upcoming changes, you may be able to voluntarily sign up for MTD under the pilot scheme before the start date. This would allow you to familiarise yourself with the processes during a testing period where a reduced penalty system is operated.

How Can We Help?

If you need guidance in planning for the transition to MTD ITSA, speak to your Barnes Roffe contact. We can assist in setting up MTD-compliant systems and ensure you are proficient in using them.  If authorised, we can access your accounting software directly and submit the necessary reports to HMRC on your behalf.