Making Tax Digital: Answers to FAQs on MTD for Income Tax

As an accountant or bookkeeper, you need to ensure your practice is responding to the requirements and challenges brought about by Making Tax Digital (MTD) for Income Tax, both now and in the coming years. 

The Making Tax Digital programme (including VAT, Income Tax, and Corporation Tax) is a once-in-a-generation change for small business accounting, mandating more frequent reporting to HMRC and, of course, the requirement to use software for accounting. 

This article aims to answer essential questions about the upcoming waves of MTD, with a particular focus on the shift within MTD for Income Tax. 

Information here about MTD for Income Tax is based on the latest Income Tax (Digital Requirements) Regulations, as outlined in March 2024. 

What’s written below draws on webinars undertaken with representatives from HMRC and hosted by the experts at Sage, most of whom are accountants. 

The questions asked are those put to the expert panel by practising financial professionals, bookkeepers, and accountants. 

We cover the following: 

MTD for Income Tax: Clients 

Understanding which clients MTD for Income Tax affects, and how, will be key to building out a practice-readiness and response plan for small business clients and landlords. 

Which of my clients will be affected by MTD for Income Tax? 

From April 2026, MTD for Income Tax will apply to sole traders or those with property income with qualifying gross income greater than £50,000 per year. From April 2027, it will be extended to those with qualifying income greater than £30,000 per year.  

This is regardless of other income, like salaries from PAYE jobs, pension income, and dividends and is only concerned with the total of self-employment/sole trader or property income. For example, a client earning £45,000 through PAYE employment and £15,000 as a sole trader or landlord will be out of scope of MTD and will continue to submit a Self Assessment Tax Return every year. However, a client earning £45,000 as a sole trader, and £15,000 as a landlord, will be within scope from April 2026. 

The qualifying period started from April 2025 being the 24/25 tax year, two years before the first threshold mandate. Therefore, if you have a client who has income of more than £50,000 through their self employment, from self employment or as a landlord, as long as those earnings remain consistent, their accounting would be mandated to switch to MTD from 6 April 2026. Similarly for the next threshold of £30,000, the qualifying period would be the 25/26 tax year. 

As with MTD for VAT, it’s likely MTD for Income Tax will be introduced across the space of several years, with the Government announcing a plan in the 2024 Autumn Statement to reduce the threshold to £20,000 eventually, but we do not yet have details of any further waves beyond the first two. This would be a major change, offering further opportunity to accountants and bookkeepers, and is worth preparing for by understanding MTD from now. 

Qualifying income includes the combined income from: 

• Being landlords (UK and overseas). 

Which of my clients do not need to use MTD for Income Tax? 

Essentially if your client’s income from self-employment or property is below the threshold then they’re out of scope. And even if they are above the threshold, they only need to keep digital records and submit quarterly updates in relation to their self-employment and property income—and not for other sources of income.  

Partnership income and trusts and estates are ‘out of scope’ of MTD. 

These clients will continue to complete and file a Self Assessment tax return if required. 

This will be the case until/if the government mandates their use of MTD for Income Tax. 

Will a VAT registered unincorporated business have to do two sets of quarterly updates, one for VAT and one for MTD for Income Tax? 

Yes. These are two different statutory obligations that both need to be fulfilled separately.  

However, if the VAT periods and Income Tax periods are aligned, it may be possible to submit the VAT return and Income Tax quarterly updates at the same time based on the same date.  

If you already use accounting software to maintain your VAT records and meet your MTD for VAT obligations it is worth asking your software provider if their software will also let you prepare and submit MTD for Income Tax submissions. 

How can I align my VAT and Income Tax quarterly update periods? 

As standard your MTD quarterly update periods will run from 6 April to 5 July, in line with the tax year. However, taxpayers will be able to opt to switch to ‘calendar quarters’ which will run from 1 April to 30 June, and so forth. This is designed for those taxpayers with a 31 March year end. If this is done and taxpayers are also reporting to an aligned VAT stagger, then their quarters will be aligned.  

Will VAT and MTD for Income Tax deadlines be aligned? 

Initially the reporting deadline for each MTD quarterly update was the 5^th of the following month e.g. the submission deadline for quarter 1 (6 April to 5 July) would have been 5 August. However, after much reflection and feedback from stakeholders HMRC amended this to the 7^th of the following month. This means that businesses can work to the same submission deadlines for VAT and Income Tax if their quarters are aligned.  

Do MTD for Income Tax thresholds apply to the landlord or each property? 

The thresholds apply to the total of a taxpayer’s property income and turnover from self-employment. 

The threshold would therefore relate to the landlord as opposed to individual properties. 

How many submissions will my clients/ I need to make for MTD for Income Tax?  

The number of submissions will depend on the number of businesses the client has. 

For each sole trade business (self-employment), you will need to file four quarterly updates. 

In addition, if your client has qualified through income from property, an additional four quarterly updates will need to be filed for the total of all UK property income, and same again for the total of all foreign property income. 

The number of properties has no impact on the number of submissions. They will need to submit: 

• Four quarterly updates covering the income and expenses of all UK properties, combined, and another set of four for non-UK properties, depending on location of the properties. 
• A Tax Return confirming the quarterly updates were accurate. 

However, jointly owned properties may come with allowances around quarterly submissions. 

In addition to the quarterly updates, you will also need to submit any tax and accounting adjustments and/or reliefs in order to finalise your business income. This doesn’t need to be done quarterly and can be done as a one-off task after the end of the tax year. 

Then you need to disclose details of any other income, gains or reliefs—essentially anything you would include on the Self-Assessment tax return today outside of self-employment and property income such as interest or dividend income.  

Again, this can be done as a one-off task after the end of the tax year. Finally, you’ll produce a Tax Return on their behalf which is akin to submitting your tax return and confirming that the information that’s been submitted to date is complete and accurate to the best of your knowledge and can be used to crystallise your client’s tax position.  

If a client has a self-employment business that is below the £50,000 or £30,000 threshold but they have property income that would push them over it, will they need to comply with MTD for Income Tax? 

Yes. The threshold relates to the combined total income (before expenses) from a taxpayer’s self-employment and property businesses. Therefore, if the combined income is over the threshold the taxpayer will be mandated to comply—even if their income from each source is below the threshold.  

If my MTD for Income Tax client has a single property but income is more than £50,000 or £30,000, will I now need software to do their tax submission? 

Unless the client is exempt from digital reporting, then yes. The client will need to comply with MTD meaning they will need to keep digital records and make quarterly submissions in relation to that property before finalising their tax return and making a final declaration.  

Are partnerships affected by MTD for Income Tax? When will partnerships need to comply with the rules for by MTD for Income Tax? 

No, not yet. Partnerships are not currently within scope of MTD meaning partnership income (from any type of partnership) will not count toward qualifying income. And if mandated, taxpayers who happen to have any partnership income won’t need it to be reported to HMRC quarterly.  

HMRC do intend on eventually bringing partnerships into scope but haven’t yet defined a timeline for this.  

Will MTD for Income Tax apply to Construction Industry Scheme (CIS)-registered subcontractors? 

Yes, if their gross income from self-employment and/or property is over the threshold then they will need to comply with MTD for Income Tax. There are no exemptions for individuals whose income is partially or wholly within the scope of CIS.  

Will CIS rebates be generated quarterly as opposed to after the tax year with MTD for Income Tax? 

HMRC hasn’t indicated any changes to CIS payment or repayment due to the introduction of MTD for Income Tax. However, a sub-contractor’s in-year tax estimate will reflect CIS deductions reported by contactors meaning sub-contractors should have a better idea of the tax owed or due throughout the year. 

Visit the Accountant and Bookkeeper Making Tax Digital Hub for resources and information about how your practice can survive and thrive 

MTD for Income Tax: Sign up 

The successful sign up of clients for MTD for Income Tax will be the first step to improved client service, so it’s vital that you get it right. 

When do my clients need to sign up to MTD for Income Tax? 

Your clients (or you on their behalf) will need to sign up to MTD in advance of the beginning of the tax year in which they’re mandated i.e. sign up will need to happen before 6^th April 2026 or 2027 depending on which year you’re required to comply from, regardless of their accounting period. 

How do I sign up to MTD? 

There is guidance provided by HMRC for both Business sign up and Agent sign up at  Gov.uk. 

How will I know if I need to sign up? 

HMRC will notify the taxpayer of their obligation to sign up to MTD. However, you should bear in mind that qualifying income is assessed two tax years before the tax year in question e.g. HMRC will review qualifying income for the 2024/25 tax year to determine who is mandated in April 2026 but the 2024/25 tax return deadline is the 31 January 2026.  

This means, depending on when the tax return was filed, taxpayers may not be notified of their obligation until 1-2 months prior to mandation. This highlights the importance of practice preparation and having a clear understanding of which clients might be mandated in which tax year. 

Will I need a new agent services account for MTD for Income Tax, or will I use the same one as MTD for VAT? 

You can continue to use the same agent services account that you set up for MTD for VAT. 

However, you will need to copy your client’s existing authorisation for Self Assessment from your HMRC Online Services for Agents Account to your existing Agent Services Account. 

Will I need to renew my 64-8 authorisations under MTD for Income Tax? 

If a client is not authorised on your agent services account, you can either: 

• Copy your client’s existing authorisation to your Agent Services Account, or 

• Ask the client to sign their own business up, then authorise you for Making Tax Digital for Income Tax Self Assessment. 

Will clients already signed up to MTD for VAT need to also sign up for Income Tax? 

The two programmes are completely separate and have different criteria so if they meet the specified criteria for MTD for Income Tax, your clients (or you on their behalf) will need to sign up for MTD for Income Tax regardless of their existing MTD for VAT status. 

Is there an MTD for Income Tax pilot programme? 

Yes. HMRC are currently running a ‘Private Beta’ for tax year 2024/25 and this will expand to a more wide-scale comprehensive ‘Public Pilot’ from April 2025. It’s the perfect opportunity to test out the system and your own processes ahead of mandation in April 2026. 

HMRC have a dedicated page talking you through how to do this. To participate you’ll need to ensure your software provider is participating. The great news is Sage is currently participating in the Private Beta and will have the solutions in place to support you and your clients through public Pilot from April 2025. 

You also need to make sure your clients are eligible to join the pilot.  

MTD for Income Tax: Record keeping, reporting, and submissions 

The approach of MTD for Income Tax revolves around digital record keeping and more regular submission to HMRC, including quarterly updates and a final declaration. 

How will information about personal income be submitted with MTD for Income Tax? 

Any non-business income will be submitted after the end of the tax year either via your third-party functional compatible software or via an HMRC submission tool. This additional non-business income needs to be disclosed via one of these methods prior to making your Final Declaration as this is akin to submitting your tax return under MTD. 

Do the quarterly updates for MTD for Income Tax need to include any personal income or just business income? 

The quarterly updates only need to include a summary of income and expenses in relation to self-employment and property businesses. Non-business income does not have to be submitted quarterly. 

Will there be any changes to how tax is paid with MTD for Income Tax? 

No, MTD for Income Tax only refers to digital record-keeping and reporting requirements. 

It does not affect existing tax rules, including how and when tax must be paid. However, one key aspect of MTD is that taxpayers and agents will have much earlier visibility of the tax estimate based on the information submitted to date so there’s scope to make payments on account against this in year if this is something that might help mitigate cashflow issues. 

What happens if I need to amend a submission with MTD for Income Tax? 

How to make a correction will depend on what the correction is for and when its spotted. If it’s a correction to the quarterly updates, this can just be reflected in the next quarterly update or potentially by making a yearend adjustment when finalising your business income. If the correction is spotted after the final declaration has been made, then taxpayers will need to follow the existing process for making amendments after filing.   

Will spreadsheets still be OK to use as a digital record-keeping solution with MTD for Income Tax? 

Yes—spreadsheets will be as acceptable for MTD for Income Tax as they are for MTD for VAT assuming they are MTD-enabled or used with bridging software. However, spreadsheets won’t offer all the same features and functionality that accounting and bookkeeping software do and as such won’t necessarily allow taxpayers and agents to capitalise on digital record keeping. 

Do the two thresholds refer to income or profit with MTD for Income Tax? 

The threshold refers to gross income rather than profit i.e. if your gross income before expenses from self-employment and/or property exceeds £30k you will be mandated to comply with MTD for Income Tax. 

If my client has multiple businesses which each are below the £50,000 or £30,000 but collectively have income over the threshold, will they be within scope of MTD for Income Tax? 

The threshold relates to the sum of all income from self-employment and/or property regardless of how that income is split between businesses.  

MTD for Income Tax and Self Assessment

MTD for Income Tax doesn’t mean the end of Self Assessment—at least not in the initial April 2026 rollout. 

Self Assessment will still be a requirement for many who aren’t within the scope of MTD for Income Tax. 

If the qualifying income is below the £50,000 or £30,000 MTD for Income Tax thresholds, will they continue with the current process for Self Assessment? 

Yes, if qualifying income is below £50,000 in April 2026, or below £30,000 in April 2027, then they are exempt from the current digital requirements under MTD for Income Tax and will continue to complete and file a Self Assessment tax return if required. 

How does MTD for Income Tax change the current process for Self Assessment? 

Similar to MTD for VAT, MTD for Income Tax Self Assessment requires businesses and landlords to keep their records digitally and to submit quarterly updates of business income and expenses to HMRC using MTD-compatible software. 

Business owners and landlords will no longer file an annual Self Assessment tax return as they do today. 

Instead, they will submit all the information they would have previously submitted in their Self-Assessment tax return via their MTD compatible software before submitting a Tax Return to confirm.  

Payment on Account rules will not be affected. 

With MTD for Income Tax, will the current Self Assessment process change for clients that do not have property or self-employment income but complete Self Assessment for other reasons? 

No. MTD for Income Tax only applies to individuals with income from self-employment or property businesses that are subject to Income Tax. 

If your client is required to complete a Self Assessment tax return for another reason they will continue to do so in line with the current process. 

MTD for Income Tax: General questions and answers 

Here are some questions about MTD for Income Tax that fall outside of the main categories discussed above. 

Will I still be able to offset losses between businesses with MTD for Income Tax? 

Yes, MTD for Income Tax does not affect existing tax rules—just how the information is reported. Under MTD you can still claim loss relief as you would under Self Assessment. 

Will it be essential to use software to comply with the rules of MTD for Income Tax? 

Yes—if your client is mandated to comply with MTD for Income Tax then they will have to use functional compatible software in order to meet their digital record keeping and submission obligations. 

Will Sage software be compliant with MTD for Income Tax? 

Sage will have solutions for our customers to meet their MTD for Income Tax obligations, however it is up to the customer to be compliant. Software alone will not guarantee compliance as the accountant, agent, or business owner will need to ensure that all income and expenses are entered and that the data is accurate. 

Sage is working closely with HMRC, accountants, bookkeepers, and small business owners to understand and build a great user experience to support the next wave of Making Tax Digital that covers Income Tax. 

Will we have to pay for MTD for Income Tax-compatible software? 

Customers will need to have valid software subscriptions such as Sage Accounting to benefit from MTD for Income Tax enhancements. 

Final thoughts 

Making Tax Digital is going to be one of the biggest and best business opportunities for accountants and bookkeepers in the coming decade.  

Learning about its requirements are just the start. 

Practice preparation programmes should already be underway to not only provide what clients need but also to make the most of all the opportunities presented. 

More touchpoints with clients, the chance to adopt a more advisory role, and even the opportunity to help clients not just upgrade their software but learn how it’s used—growth in your practice really is down to your ability to exploit opportunity. 

But one thing is key—you should start now and put Making Tax Digital at the heart of everything you do. 

Editor’s note: This article was first published in July 2021 and has been updated for relevance.