Making Tax Digital: What is it and who does it affect?  

The UK tax system is undergoing its biggest digital transformation in decades under HMRC’s Making Tax Digital (MTD) programme.

While Making Tax Digital for VAT is already in place, the next big milestone is MTD for Income Tax Self Assessment (ITSA), which will affect millions of landlords and sole traders. 

If you earn income from self-employment or property, it’s vital to understand what’s changing, when it applies to you, and how to prepare.

What is it:  

MTD for ITSA is an upcoming change to legislation from HMRC which aims to tackle how individuals report on their income tax. This is a shift to a digital-first approach to reporting on tax. This legislation means that taxpayers will need to:  

• Keep digital records of income and expenditure 

• Submit quarterly updates via MTD-compatible software. 

• Submit a final declaration at the end of each tax year.  

The aim of this change is to enhance the accuracy of tax returns and help taxpayers see a real-time picture of their tax status.  

Whilst these quarterly updates mean more administration at first glance, MTD compliant software such as Xero often include inbuilt automation which can make the process much more streamlined.  

Who will be affected:  

From the 6^th April 2026 MTD for IT will apply is an individual’s gross income is above £50,000 for the 2024-2025 return. This will encompass income from self-employment and/or property.  

From the 6^th April 2027 the threshold lowers to £30,000 based on the 2025-2026 tax return.  

From 6^th April 2028 we expect this to further reduce to £20,000 in the 2026-2027 return.  

As the MTD thresholds are based on gross income, it’s important to understand the difference between this and profit 

• Gross income = Total amount received from self-employment and/or property before expenses are deducted.  

• Profit = What is left after subtracting any allowable expenses.  

There may be some exemptions available for this which can be discussed with your Account Manager or Tax Advisor.  

What next?

The introduction of MTD for ITSA is a significant change to how individuals manage their tax and understanding how to comply with the new legislation can feel challenging. We’ve broken this down into some first steps:  

• Review your gross income to understand whether the rules apply to you (or ask your accountant).  

• Prepare for the change early and get set up on an MTD-compatible software such as Xero, which is well-suited to both sole traders and landlords. 

• If in doubt, seek advice from an accountant.  

Taking early action means you’re ready for these changes before they arise, meaning the change will feel less sudden. 

Learn more about our Platinum Partnership with Xero.