Get Ready Now - Making Tax Digital for Income Tax
Business owners and Landlords should begin to plan their accounting systems for Making Tax Digital (“MTD”).
What is Making Tax Digital ? MTD is the government’s plan to create a fully digital tax system in the UK. The aim is to make tax administration more efficient and easier for taxpayers through the implementation of a fully digital tax system.
MTD for Income Tax will replace the current system of annual Tax Returns. For landlords and self-employed business owners with a total business and/or property income above £50,000 per year, MTD will come into effect in April 2026. Those with an income of more than £30,000 will have to follow the rules from April 2027.
Under these rules, HMRC will require you to use software to:
1. keep digital records of your business and/or property income and expenses, and
2. send quarterly updates of your property and/or business income and expenses to HMRC, and
3. finalise your property and/or business income for each tax year by submitting an end of period statement and final declaration to HMRC
Digital records and sending quarterly updates
From 6th April 2026, business owners and landlords whose annual gross income exceeds £50,000 will be required by law to keep digital records of all of their income and expenses. They will then need to send a summary of their business income and expenses to HMRC every three months using compatible software. i.e. compatible with the HM Revenue software.
The deadlines for submitting quarterly updates will be the same for everyone who has to follow MTD for Income Tax rules. From 2026 onwards, the standard quarterly periods and deadlines in each tax year are given in this table :
Quarterly period Quarterly deadline
6 April to 5 July 5 August
6 July to 5 October 5 November
6 October to 5 January 5 February
6 January to 5 April 5 May
In other words the records need to be completed and with HM Revenue within 30 days following the end of each quarter. These dates are shown by the tax calendar in which periods end on the 5th day of the month but it will be possible to change to calendar quarters i.e. ending on the calendar month end for June, September, December and March.
Following the end of each tax year there will be an end of period statement and final declaration. This may include any final adjustments to the originally filed quarterly figures. As with the present system the deadline for the final declaration to be filed is 31st January following the end of the tax year.
We highly recommend that all clients whose business and property income exceeds £50,000 per annum should begin to plan now to ensure that their accounting systems will be ready for MTD. There are essentially two alternatives:
1. For those clients who wish to raise invoices for sales or rental income from their software, or those who may owe money to their suppliers and others for outstanding invoices and expenses, we recommend a cloud based accounting platform. With a cloud based accounting platform a high level of efficiency is obtained by setting up a bank feed by which the transactions are downloaded from the bank into the accounting records. The system will itself learn how to handle a significant number of transactions and by keeping up to date with transactions the details will always be accurately recorded. A cloud based system has the added benefit that there is no need for the client to send their quarterly or annual information to us, since we can access the system directly, and also that we can immediately help with recording transactions or correcting those records when necessary. We recommend SAGE business cloud and we also work with Xero Accounting software and with QuickBooks.
Landlords may wish to look at the software “Hammock” which is a specialised cloud based system for Landlords.
2. Where income invoicing and/or recording of balances owing on purchase invoices is not required, it can be the case that simply a bank download will provide a complete list of the relevant transactions. Those figures can then be analysed on an excel spreadsheet to distinguish between the different reasons for receipts and payments. We then utilise bridging software to file the figures taken from the spreadsheet with HM Revenue.
We are always pleased to advise on the optimum solution for your business and to help set this up for clients.