Making Tax Digital (MTD) is changing how businesses report to HMRC. We explain the core changes to help you understand the essentials.

Making Tax Digital (MTD) is an initiative introduced by HMRC to help individuals and businesses maintain accurate records and reduce tax errors. It marks a shift away from traditional paper-based accounting and encourages the use of digital accounting software.

MTD 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

What Individuals need to do

Under MTD for Income Tax Self Assessment (ITSA), individuals within the scope will need to:

  • Keep digital records for trading, property income, and expenses. Record each individual transaction (e.g., with dates, amounts, and nature of transactions) in real time to reduce errors. 
  • Make quarterly returns of their income and expenses to HMRC, using compatible software
  • Submit a final declaration, which will replace the self-assessment return. This is the means of notifying other income and relief claims. 

MTD changes the way in which the records are held and processed to file – it does not change the underlying tax rules.

Who does MTD apply to?

MTD will apply to self-employed/sole traders and landlords with gross ‘qualifying income’. The thresholds are:

If your income is more than £50,000 in your 2024-25 self-assessment return, you will need to use Making Tax Digital for income tax from 6th April 2026 (unless you are exempt). 

If you consider that you are digitally excluded, you can apply for an exemption if:

  • It’s not practical for you to use software to keep digital records or submit them — this may be due to your age, disability, location or another reason
  • You are a practising member of a religious society (or order) whose beliefs are incompatible with using electronic communications or keeping electronic records

Who is automatically exempt from making tax digital?

Taxpayers in the following are exempt from MTD for ITSA:

  • Taxpayers who have a power of attorney 
  • Trustee (including charities or trustees of non-registered pension schemes)
  • Lloyd’s underwriters 
  • Recipients of married couple’s allowance
  • Recipient of blind person’s allowance 
  • A non-resident company 
  • An individual without a National Insurance number as of 31 January before the start of the tax year in question
Share this post: