Making Tax Digital for Income Tax (MTD IT) will be effective from 6 April 2026 and phased thereafter based on income levels. Its introduction marks one of the most significant shifts in how individuals report tax. That said, the earlier you get to grips with the changes, the easier the transition will be.
We have been working closely with clients to support the move to digital record-keeping for some time now. Below, we’ve rounded up answers to some of the most frequently asked questions we get asked.
Who will be affected, and when?
MTD for IT will apply to individuals with income from self-employment and/or property once they pass specific thresholds:
- From 6 April 2026: Income over £50,000 (from 2024/25 tax year)
- From 6 April 2027: Income over £30,000 (from 2025/26 tax year)
- From 6 April 2028: Income over £20,000 (from 2026/27 tax year)
If you have not already heard from your accountant but think you may be required to comply, you will receive confirmation from HMRC in due course.
What counts as ‘qualifying income’?
Qualifying income is a person’s gross income (turnover), before expenses are deducted, from self-employment and property combined.
Does qualifying income include VAT?
HMRC will look at the tax return ‘income’ boxes to calculate qualifying income. For those using the Cash Basis, it is possible to include VAT in the tax return figures for income and expenses. If VAT is included, HMRC will include it in the individual’s qualifying income, therefore it’s best not to use VAT-inclusive figures in the tax return.
Are there exemptions for those with low transaction volumes?
No. If your qualifying income exceeds the threshold, you are mandated to comply regardless of how many transactions you process.
What’s required once I’m mandated?
You’ll need to:
- Keep digital records using MTD-compatible software (At Harold Sharp, we’re working with Xero and FreeAgent)
- Submit quarterly updates to HMRC
- File a final end-of-year return to include any other income (e.g. employment, interest, dividends). The end-of-year return also needs to be submitted using MTD-compatible software.
Will I need to make quarterly payments?
No, there are not currently any plans to mandate quarterly payments. As at the date of publication, payment dates will remain 31 January and 31 July.
Is there an easement for those earning below £90,000?
Yes, there is an easement but it’s not as generous as we would like! The easement allows businesses with turnover below the VAT threshold to send totals for ’income’ and ‘expenditure’ to HMRC each quarter, instead of totals for a longer and more detailed list of income and expense categories. Each individual item of income and expenditure will still need to be entered into the MTD-compatible software, although each item can be simply categorised as either ‘income’ or ‘expenditure’.
What about jointly held property?
There is a separate easement for recording and reporting jointly held property income, which can be used in conjunction with the above easement.
If your jointly held property income is below £90,000, you can:
- Submit a single income figure per quarter
- Submit one total expense figure in Q4
However, mortgage interest must be reported separately, even under this easement.
How does this work if I already file VAT returns?
MTD for IT uses fixed quarters ending 5 April, 5 July, 5 October, and 5 January. You can opt for calendar quarters (e.g. 30 June, 30 September etc.) if preferred. If your VAT quarters do not align with the calendar quarters for MTD for IT, it may be worth considering changing your VAT stagger, so that your VAT returns are aligned with your MTD for IT quarterly updates.
What if I don’t comply?
A new penalty regime will apply for late submissions, late payments and failure to keep digital records.
Penalties for errors will apply to the end-of-year tax return, but not the quarterly updates. This does not mean that erroneous ‘nil’ returns can be submitted for the quarterly updates
HMRC may issue fines of up to £3,000 per quarter for non-compliance, though further guidance on this is still pending.
What are the benefits of early adoption?
- There are many benefits to your business, from getting real-time insights into your finances to features like online invoicing, job tracking and receipt capture which make it quick and simple to manage admin tasks on the go.
- Adopting early gives you a valuable head start before MTD becomes mandatory, allowing plenty of time to get comfortable with the software and integrate it smoothly into your business.
- Plus, as a Harold Sharp client, taking action now will make this a cheaper option longer term with our Early Adopter packages.
What action do I need to take now?
- Check your current gross income to understand when you’ll be affected
- Review your record-keeping setup and consider switching to MTD-compatible software
- Plan whether your VAT and MTD quarters should be aligned
- Talk to your adviser to explore easement options and reporting obligations
How can we help?
If you’re a Harold Sharp client impacted by MTD IT, the way we submit your Income Tax Self Assessment will change from April 2026, moving to quarterly returns. You will continue to receive communications and tailored guidance from us to ensure a seamless transition.
Not a Harold Sharp client? If you’re unsure how MTD IT will affect you or need guidance on choosing the right software, our tax team is here to help. Contact us on 0161 905 1616 or email tax@haroldsharp.co.uk.