Making Tax Digital for Income Tax: what does it mean for you?

Making Tax Digital for Income Tax, previously known as MTD for Income Tax Self Assessment (MTD for ITSA), will change the way millions of business owners and landlords report their earnings to HMRC. The 2024 Autumn Budget confirmed MTD for Income Tax will be implemented for all self-employed individuals and landlords with incomes (not profit) of over £20,000 by the end of this parliament.

If you’re wondering how this might affect you, here’s a simple guide to the new rules.

Making Tax Digital: the story so far

Making Tax Digital is a government initiative that sets out a bold vision for the UK to have “one of the most digitally advanced tax administrations in the world”. It promises to “transform tax administration so that it is easier for taxpayers to get their tax right”.

• The first stage of Making Tax Digital, Making Tax Digital for VAT, began in 2019. It first required certain VAT-registered businesses to keep their digital records and use MTD-compatible software to submit their VAT returns electronically. The scope expanded on 1st April 2022 and all VAT-registered businesses are now required to follow these rules.
• Making Tax Digital for Income Tax is the second stage of Making Tax Digital and will replace the current system of annual Self Assessment tax returns. MTD for Income Tax will come into effect in April 2026 for self-employed business owners and landlords with income over a certain threshold. Partnerships will be required to join at a date yet to be announced. HMRC has started ‘private beta’ testing its systems for MTD for Income Tax.

What is changing under Making Tax Digital for Income Tax?

The most significant change under the MTD for Income Tax rules is that instead of sending a Self Assessment tax return to HMRC once a year, those affected will have to submit four quarterly updates about their business income and expenses. At the end of the tax year, they will also have to send a final declaration.

Who will Making Tax Digital for Income Tax affect?

Initially, MTD for Income Tax will affect self-employed business owners and landlords with a total business or property income above £50,000 per year. These individuals will have to follow MTD for Income Tax rules from 6th April 2026. 

Those with an income of more than £30,000 will have to follow the rules from April 2027. Individuals with income of more than £20,000 will be included before the end of this parliament (by 2029 at the latest). The exact timing for this last group will be announced at a later date. Partnerships will be required to join at a date yet to be announced. 

What will I have to do under the new rules?

If you’re a self-employed business owner and/or landlord and you’re affected by MTD for Income Tax, you’ll have to take the following actions from 6th April 2026:

• Keep records of your business income and expenses in a digital format.
• For each type of revenue (self-employed business or property), send quarterly updates of your business income and expenses to HMRC.
• Finalise your business income by submitting a final declaration.

Keep digital records

Under MTD for Income Tax, you’ll need to keep digital records of all your business income and expenses, including all your income from self-employment or property. It’s a good idea to start doing this as soon as possible so that you have plenty of time to prepare.

You can keep digital records using accounting software such as FreeAgent. You can pull your bank transactions directly into FreeAgent by setting up a bank feed, and the software offers powerful tools to manage all of your invoices, expenses, projects and more.

Send quarterly updates 

Once you’re signed up to MTD for Income Tax, you’ll need to send a summary of your business income and expenses to HMRC every three months through MTD-compatible software. FreeAgent is on HMRC's list of providers with software that works with MTD for Income Tax. This means you'll be able to use FreeAgent to follow the rules of MTD for Income Tax and make the required tax submissions.

The deadlines for submitting quarterly updates will be the same for everyone who has to follow the MTD for Income Tax rules. From the start of the tax year on 6th April, these deadlines are:

• 7th August
• 7th November
• 7th February
• 7th May

Finalise your business income

At the end of the tax year, you’ll need to finalise your business income by completing a final declaration that replaces the current Self Assessment tax return.

This process lets you confirm that the updates you’ve sent are correct, add any details about personal income or reliefs or make any other necessary adjustments. As with the current Self Assessment process, you’ll have to submit the final declaration and pay the tax you owe by 31st January of the following tax year.

What is happening with HMRC’s Making Tax Digital for Income Tax beta testing?

HMRC has started ‘private beta’ testing its systems ahead of the rules coming into force in 2026 and has sent out some communications to individuals who file Self Assessment tax returns to encourage volunteers.

FreeAgent is involved in the beta programme. We are working initially with a number of our accountancy partners, with a view to expanding this next tax year. If you are a FreeAgent accountancy Practice Partner and would like to get involved in testing for the 2025/26 tax year, please speak to your account manager.

Once we are ready to open up the beta programme to individuals who file their own tax returns, we will let our customers know.

To find out more about MTD for Income Tax and the wider MTD initiative, check out FreeAgent’s Making Tax Digital hub.