We wanted to update you with the latest position on Making Tax Digital. For those that don’t know this is a long term project by HMRC (the UK Government’s tax collection agency) to digitalize tax records. The thinking is that digital and more regular filings will reduce the perceived tax gap and ensure the Government collects tax revenues in a quicker fashion.
Making Tax Digital has been introduced across the last few years with the biggest impact in the VAT area where all VAT registered businesses must submit their quarterly VAT returns using HMRC mandated software every quarter.
The latest update to this is the introduction of Making Tax Digital for Income Tax. Now firstly we should establish who this new regime applies to. It is relevant to individuals who are self employed, have property rental income , or have both. It does not apply to Limited companies or Partnerships. It is then further reduced in scope as follows:
From 6 April 2026 (2026/27 Tax year) – to those who have annual equivalent turnover (sales or rental income) above £50,000
From 6 April 2027 (2027/28 Tax year)– to those who have annual equivalent turnover (sales or rental income) above £30,000
For the purposes of whether you are enrolled in to Making Tax Digital HMRC will look at the figures in your tax return for 2024/25 to decide if you are in for 2026/27 and your tax return for 2025/26 to decide if you are in for 2027/28.
Once you are in Making Tax Digital, you cannot come out for three years unless your business ceases to trade.
At the moment, anyone who is self employed or who has property rental income is required to file an annual Self Assessment Tax Return by the 31 January following the end of the tax year.
That requirement will still exist for those inside the Making Tax Digital regime but alongside that will be 4 quarterly returns of income and expenditure made up to 5 July, 5 October, 5 January and 5 April. Each of these needs to be filed one month and 2 days after the end of the quarter. A very quick turnaround. The first filing will be made up to 5 July 2026 and due with HMRC before 7 August 2026
The quarterly filings can only be done with software mandated by HMRC.
Any mistakes in a quarter can be amended in the next quarter’s report.
The quarterly returns will then need to be amalgamated by an accountant and added to any other income or expenses you have from sources that are not within the Making Tax Digital system and filed on the annual Self assessment return.
We suggest you keep your records digitally – we have solutions available using Xero and Dext and will be in contact with our clients directly about what they need to do and when.