Making Tax Digital for Income Tax

MTD IT FAQ: Everything You Need to Know

1. What is MTD IT?

MTD IT(Making Tax Digital for Income Tax) is part of HMRC’s initiative to modernise the tax system. It requires self-employed individuals and landlords to keep digital records of their income and expenses and submit quarterly updates to HMRC using MTD-compatible software.

2. Who does MTD IT apply to?

MTD IT applies to:

•Self-employed individuals and landlords with annual business or property income exceeding £50,000 from April 2026.

•Those earning between £30,000 and £50,000 will need to comply from April 2027.

Future plans for individuals earning below £30,000 are still under consultation.

3. Are partnerships affected by MTD for Income Tax?

Partnerships will indeed be affected by the upcoming Making Tax Digital (MTD) rules, but HMRC has not yet announced when these changes will take effect. It is important to distinguish between partnerships as entities and the individual partners within them, as they may have different compliance obligations. As the situation evolves, I will provide further updates regarding the specific requirements for partners and the compliance related to joint rental income.

4. Who does MTD for IT not apply to?

MTD for ITSA will not apply to individuals whose income is solely from PAYE employment, limited company dividends, investments, savings, and pensions. For instance, a limited company director who earns a PAYE salary along with dividends would be exempt from MTD for IT. However, if this director were to generate additional income through rental properties, resulting in a total income exceeding £50,000, they would then meet the criteria for MTD for IT.

5. When does MTD IT start?

•April 2026: For individuals earning over £50,000 annually.

•April 2027: For individuals earning between £30,000 and £50,000 annually.

6. What records do I need to keep digitally?

You’ll need to maintain digital records of:

•Income

•Expenses

•Bank transactions related to your business or property

These records must be stored in MTD-compatible software and submitted to HMRC via quarterly updates.

7. How often do I need to report under MTD IT?

You’ll need to submit:

•Four quarterly updates summarising your income and expenses throughout the year.

•An End of Period Statement (EOPS) at the end of the tax year to confirm your figures.

•A Final Declaration to declare all your income and confirm your tax liability.

8. What software do I need for MTD IT?

You’ll need MTD-compatible software to manage your records and submit updates. MTD-Compatible Software I work with include:

•Xero

•FreeAgent

We can help you choose the best software for your needs and set it up for you.

9. What happens if I don’t comply with MTD IT?

Failure to comply with MTD IT requirements may result in penalties from HMRC. These could include fines for late submissions or non-compliance with digital record-keeping rules.

10. Do I still need to file a Self Assessment tax return?

No, MTD IT replaces the traditional annual Self Assessment tax return. Instead, you’ll submit quarterly updates, an EOPS, and a Final Declaration through your MTD-compatible software.

11. How can Jane Barnes Bookkeeping help me with MTD IT?

We provide:

•Expert advice tailored to your situation.

•Setup and training for MTD-compatible software.

•Assistance with quarterly updates and year-end submissions.

•Ongoing support to ensure compliance and peace of mind.

12. What should I do now to prepare for MTD IT?

•Determine when MTD IT will apply to you based on your income.

•Choose and set up MTD-compatible software.

•Organise your records to ensure accuracy.

•Seek professional advice to streamline the transition.

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