April 2, 2025

Making Tax Digital for Income Tax (MTD IT) – Obligation confirmed from April 2026 

What is it and why is it happening?

Making Tax Digital for Income Tax (MTD IT) aims to reduce the tax gap by enabling more accurate and timely submissions through digital tools. It is reported that every year, errors and poor record-keeping practices contribute to the UK’s tax gap. By requiring businesses to keep digital records, HMRC is bringing all tax processes into one digital environment, making it easier for agents to manage client tax affairs under a single system.

Who is impacted?

Individuals with combined income from self-employment and/or property over the relevant thresholds will need to comply with the new rules.
MTD IT starts in April 2026 for those with qualifying income over £50,000.

What is ‘qualifying income’?

The term qualifying income refers to your gross income, before expenses and tax.

When do the changes come into effect?

April 2026 – Mandatory for individuals with combined gross income over £50,000 from self-employment and/or property.
April 2027 – Mandatory for individuals with combined gross income over £30,000 from self-employment and/or property.
April 2028 – Mandatory for individuals with combined gross income over £20,000 from self-employment and/or property.

What are the changes?

If you meet the criteria, three main areas must be complied with are:
1. Quarterly submissions – you must submit quarterly income and expenditure submissions to HMRC
2. Digital record keeping – HMRC requires that you maintain digital records of business income and expenses
3. Use MTD-Compliant software – You must make quarterly submissions using approved MTD software. You will no longer be able to file on paper or solely through HMRC online tax return.

How do I know if I am over the threshold?

The final status for each tax year will be based on the tax return information due 31st Jan before the 6th April start date. Therefore, any requirement to comply with MTD IT from April 2026 will be based on the 24/25 tax return information (6th April 2024 – 5th April 2025), due for submission by 31 January 2026. This means the submission of your 24/25 return in January 2026 will identify for certain whether you meet the criteria. HMRC will also be contacting individuals directly from April 2025 who currently have qualifying income over the relevant threshold, to notify them of the changes ahead. Further letters will be issued in February 2026, after the submission of the 24/25 tax return.

Can I opt out?

No, these changes are part of legislation and therefore mandatory unless an exemption applies. For a full list of exclusions, please see this link as outlined by HMRC – https://www.gov.uk/guidance/apply-for-an-exemption-from-making-tax-digital-for-income-tax . HMRC will also be introducing a new points-based penalty system. Penalty points will be accrued for each late submission and a financial penalty will be imposed once a points threshold has been met.

How can Alexander Sloan help?

We are here to support you and ensure you meet your submission obligations, whether you are an existing or prospective client. If you have any concerns or questions regarding Making Tax Digital for Income Tax, please reach out to your regular Tax advisor at Alexander Sloan or contact us and we would be happy to discuss.

March 27, 2025

The Government has reaffirmed its commitment to the economic course set out in the 2024 Autumn Budget, emphasising a drive for accelerated growth, strengthened security, welfare reforms, and enhanced efficiency measures. Central to this strategy is a renewed focus on tackling tax avoidance and evasion, alongside the introduction of stricter penalties for late payments.

Ahead of the Spring Statement, there was widespread speculation that the Chancellor might announce further tax changes. However, no such measures were introduced. Instead, the focus remained on economic growth and stability, reaffirming the Government’s long-term goals.

While no additional tax increases were announced, businesses still face significant financial pressures. From April 2025, businesses will contend with a 1.2% rise in employers’ National Insurance (NI) contributions, a lower threshold for NI payments, and an increase in the National Living Wage (NLW). These changes will inevitably add to operational costs and financial planning considerations for many organisations.

Meanwhile, changes to Inheritance Tax, announced in the Autumn Budget, will affect a greater number of individuals. However, taxpayers have been granted a one-year grace period to make any necessary adjustments, providing a crucial window for financial planning.

The Government’s strategy remains clear: fostering a stable and growth-focused economic environment while reinforcing compliance and efficiency measures. As businesses and individuals navigate these evolving fiscal policies, careful planning and strategic financial management will be essential to mitigating the impact of these forthcoming changes.
While the Spring Statement did not introduce any major new measures impacting businesses—unlike the Autumn Budget—several key developments warrant attention.

Building on measures announced in the Autumn Budget to raise £6.5 billion through stricter enforcement on tax avoidance and evasion, the Chancellor has committed to further increasing this amount by an additional £1 billion. This reinforces the critical importance of maintaining accurate and up-to-date tax records to ensure compliance.

The continued rollout of Making Tax Digital for Income Tax MTD for IT) will be expanded to include sole traders and landlords with annual incomes exceeding £20,000 from April 2028. Additionally, from April 2026, all end-of-year tax returns must be submitted via MTD-compliant software, replacing the use of HMRC’s online filing service.

Furthermore, the Government will introduce stricter late payment penalties for VAT and income tax Self Assessment taxpayers as they transition to MTD, effective from April 2025. The revised penalties will be structured as follows:

-A 3% charge on tax outstanding for more than 15 days.
-An additional 3% charge if tax remains unpaid after 30 days.
-An annualised 10% charge on amounts overdue beyond 31 days.

These measures reflect the Government’s ongoing commitment to strengthening tax compliance while encouraging businesses and individuals to adopt digital tax reporting systems. As such, taxpayers should take proactive steps to ensure they are prepared for these upcoming changes.

If you would like to discuss any of the announcements from the Spring Statement, please contact us.