This will only affect those who are self-employed &/or have rental income where the turnover/gross income (before expenses) is over certain thresholds to determine if & when they need to fall into MTD, the key dates and income thresholds are detailed below:

MTD Dates Income Threshold

6th April'26 ≥£50,000

6th April'27     ≥ £30,000

6th April'28 ≥ £20,000

For example, HMRC will use the 2024/25 Tax Return to determine if you should fall into (be mandated) for MTD from April'26. The 2025/26 Tax Return will determine if you should be mandated from April'27 & so on.

There are exemptions to MTD, for example: all Partnership income, income from foster carers, income from Companies and those that don't have a National Insurance number do not qualify for MTD.

MTD only affects those with self-employment and/or rental income, if you have both then your threshold for MTD will depend on the qualifying income from each trade combined. For example, if you have £25,000 from rental property income & £27,000 from self-employment, your total qualifying income is £52,000. Meaning you would need to report from April'26. 

If you have rental property income from a property in joint names, you would only take your percentage.

The process of MTD involves submitting your income and expenses each quarter, this will give you a quarterly update on what your potential tax liability will be throughout the tax year. Please note that this does NOT mean that you have to make quarterly payments, this is not changing from what is currently in place.

If you do not have an agent then you can sign up to MTD via this link: https://www.gov.uk/guidance/sign-up-your-business-for-making-tax-digital-for-income-tax

If you have an agent then they will deal with this for you & notify you of any authorisations that might be needed. 

It is important to note that you will need a Government Gateway account for MTD related services.

The kind of information that will need to be kept digitally are:

• Amounts

• Date expense incurred or income received

• The category this falls into, these will match the relevant boxes on the Tax Return for the trade/income source, however this part can be dealt with via your agent if you use one

There are 2 options with MTD ITSA for the frequency of reporting, the set standard that will automatically be applied is the quarterly basis:

Q1 - 6th April to 5th July, due 7th August

Q2 - 6th July to 5th October, due 7th Nov

Q3 - 6th October to 5th Jan, due 7th Feb

Q4 - 6th Jan to 5th April, due 7th May

You can elect to make your submission via a 'calendar quarter' instead:

Q1 - 1st April to 30th June, due 7th August

Q2 - 1st April to 30th Sep, due 7th Nov

Q3 - 1st April to 31st Dec, due 7th Feb

Q4 - 1st April to 31st March, due 7th May

Meaning the 1st quarterly submission under MTD ITSA will be 7th Aug'26 covering the period ending either 5th July'26 or 30th June'26 depending on what reporting period you choose.

Should you wish to use the calendar quarter instead, an application to choose this needs to be made to HMRC no later than the quarterly deadline for period 1.

You are able to make your quarterly submission 10 days prior to the end of the reporting period provided that you are confident that the information being reported will not change & covers everything required.

For self-employment income you include: sales, takings and fees

For self-employment expenses you include: cost of stock, travel costs, office costs & financial costs

For rental income you include: rent, premiums for the grant of a lease, reverse premiums & inducements

For rental property expenses you include: costs of repairs, maintenance and other related costs to the rental property

It is important to note that if you have multiple rental properties in the UK then this is all treated as 1 business, so you pool all the income into 1 entry.

If you have multiple overseas properties in different countries, you will need to keep the properties separated for each country they are in. If they are all in 1 country then these are pooled in the same way as the multiple UK properties.

For expenses that are either partially disallowed or for mortgage interest, these need to be dealt with differently. You can either account for these in the quarterly updates or you can adjust at the end of the year. For example: if you have a mobile phone bill of £200 & only £125 relates to business use, then you will need to report the full £200 expense and then add in the disallowed £75 portion.

For mortgage interest you can either record the full value of the transaction & adjust for the Capital portion before finalising income at end of year, or create a digital record of just the revenue amount. Depending on whether you are in an interest only or repayment mortgage will determine what would be easiest for you.

You are able to check on what companies are currently providing MTD ITSA compatible software via this link: https://www.gov.uk/guidance/find-software-thats-compatible-with-making-tax-digital-for-income-tax

We cannot stress this enough, please do your own research if you want to get your own compatible software. If you are able to try it for free for a period please take advantage of this. We come across so many individuals that pay over the odds for software that just isn't relevant for their needs. Most people forget that an Excel spreadsheet counts and can be used in conjunction with bridging software.

By using Digital links this means that where records are created in software, i.e an excel spreadsheet - all transfers of data must be made digitally. This includes submitting quarterly updates, making corrections and filing the MTD Tax Return as well as transferring records to a bookkeeper or agent/accountant.

So what counts as a 'digital link'? It includes: emailing, importing data and the use of memory sticks. Further guidance is due to be released from HMRC on permitted practices, but copying and pasting or manually retyping entries is NOT permitted.

You might find this HMRC link useful: https://www.gov.uk/guidance/use-making-tax-digital-for-income-tax/create-digital-records

Due to the differing nature that individuals can have agents acting on their behalf with the introduction of MTD, HMRC have allowed a multi-agent function for taxpayers. So what does this mean?

Taxpayers now have the option to only have someone deal with the quarterly submissions that do not affect their main agent (should they have one). HMRC have called these different types 'supporting' & 'main' agents.

Taxpayers can only have 1 main agent at a time, but can have multiple supporting agents. They can also have just 1 main agent and no supporting agent if their main agent has agreed to deal with their MTD filing requirements. Taxpayers can have supporting agents and no main agent if they are comfortable dealing with this themselves. 

It is important to note that if you have multiple supporting agents for your different trades, the supporting agent access & permissions cannot be restricted to a single business. 

Supporting agents

These individuals have limited access to MTD ITSA services for their clients, they can only see a client's business and property income details & can do fewer tasks than main agents. For example, supporting agents cannot:

• Set up a Direct Debit for the client

• Change a client's repayment bank account details

• Change how a client wants to be contacted by HMRC

• View all sources of clients income for self-assessment

• Finalise a client's overall tax position

• Submit a client's Tax Return

• View a clients Tax Calculation

Main agents

These are what any taxpayer who have had an accountant/agent in the past are used to, main agents can do everything a supporting agent can and almost everything the taxpayer can. The only things main agents cannot do are:

• Set-up a Direct Debit for the client

• Change how a client wants to be contacted by HMRC

• Change a client's repayment bank account details

You will be sent a consent statement to authorise either your main or supporting agent, you will need to have a Government Gateway account in order to accept the authorisation. Existing clients for agents that they wish to fulfil their MTD obligations should be able to pull them through automatically via their agent account.

The following are general expectations of taxpayers:

• It is down to you to notify your agent if you are going to use someone else as your main agent or have someone act as your supporting agent for MTD

• It is your responsibility to create a Government Gateway account, if you are unable to for any reason you need to notify your agent (if you have one), or HMRC immediately

• If you are using an agent then you will need to agree with them on: whos responsibility it is for keeping digital records, method in which the MTD update will be submitted and who is responsible for the submissions

• You need to confirm with your agent what reporting period you have opted for, that includes whether you have not made any applications to HMRC

For Clementax Services clients our stance is the following for all clients:

• You are responsible for keeping digital records

• The set standard reporting quarters will be used, if you have applied to HMRC to change this then you must notify us ASAP

• It is your responsibility to send these over via a digital link for us to categorise and make your quarterly submission

• You must keep the information used to create the digital records for a minimum of 6 years (as is currently expected) & will send over any evidence needed for queries or any HMRC enquiries

Should any clients have exceptions, then these are arranged and agreed in advance - our fees are noted on the fees section of the website, but again, these will be agreed in advance of any undertaking of work or appointment.

So what is changing?

If you have voluntarily signed up to MTD then you won't get the penalty points, but only for late quarterly submissions. Those that are mandated (legally obligated to be within MTD) will be under the new penalty regime for self-assessment, this is in line with MTD for VAT if you are within this. It is moving to a points based system, financial penalties only start when you have reached your 'threshold' - this is dependant on whether you are mandated or not.

Late payment penalties are also changing for those within MTD to align with the VAT rules - meaning this will get expensive very quickly. The Government are looking to expand this system out to everyone, regardless on whether you are in MTD or not from April'27, so if it doesn't affect you now, it will soon.

No changes to failure to keep adequate records, which is a penalty of up to £3,000 for each failure & this will now include failure to keep adequate digital records or breaks in digital links within compatible software. There are also no changes to the penalties for inaccuracies, although this only applies to the MTD Tax Return and not the quarterly updates.

There are no specific failure to notify for MTD penalties, however the normal penalties for not notifying HMRC for self-assessment still apply.

For those coming into MTD for the first time from April'26 only, HMRC are implementing a 'soft-landing' approach. However, if you are due to start MTD from April'27, you will not get this. So for those mandated from April'26 you won't get penalty points for late filing of the quarterly submissions, but you must file your MTD Tax Return on time, otherwise you will get a late filing penalty. For those not in MTD for now, everything continues as normal in relation to filing & the penalty regime.

Summary of the points based system:

• You get 1 point per failure to file on time

• Individual points expire after 2 years, provided you haven't hit your 'threshold'

• £200 penalty when you hit the threshold & you then stay at this level. Every subsequent late filing is another £200 penalty. Your points only expire after you have demonstrated 'good behaviour' to HMRC

• Once you are at your 'threshold' then you do not acquire more points, but these do not automatically expire

So what are the 'thresholds'?

Filing frequency Threshold

Annual 2 points

Quarterly 4 points

If you are in self-assessment and either not in MTD or are doing it voluntarily, then you will have 2 points - please remember that if you have signed up voluntarily then you don't get points for late quarterly submissions for the 1st year due to the soft landing.

If you are in self-assessment and are mandated to MTD then you will have a 4 point threshold

How will this work?

There is a single threshold regardless of the number of filings, i.e. if someone has a mandated sole trade & rental business, their threshold is 4. It is not per trade but cumulative per individual.

You can get a maximum of 5 points per tax year, 4 in total for the quarterly submissions and 1 for the MTD Tax Return

Expiration of points & 'Good behaviour'

Provided that you do not hit your threshold, individual points expire at the end of the 'relevant period', you work this out by:

• Taking the due date and add 1 day

• Move to the end of that month

• Add 2 years

This is also dependant on your filing frequency & starts on the first day of the month following the most recent late filing:

• It's 2 years for annual filing (so those not in MTD)

• 12 months for quarterly (those within MTD)

If you meet your threshold then you have to demonstrate to HMRC that you can be compliant before you can have your points reset. In order for this to happen you must do both of the following:

• File all returns on time for a 'relevant period'; &

• Ensure all returns for the 1st 24 months are completed (i.e. back-fill anything that is missing)

HMRC will notify you when you receive a penalty point and what submission the penalty point was issued for.

Late payments

It's important to note that these only apply to the payment due by 31st January for the year in question (known as the Balancing Payment) & don't apply to the Payments On Account towards the following tax year.

Under the new late payment penalty regime, penalties are issued based on the number of days the payment is overdue by:

15 days or less No penalty charge

16 - 30 days (inclusive) 3% of the tax outstanding on 15th day (this is increasing to 4% from April'27)

31 days or more 3% of tax outstanding on 15th day (increasing to 4% from April'27)

An additional 3% of tax outstanding on 30th day (increasing to 4% from April'27)

An additional 10% per annum charge will apply until payment is made

In addition to penalties, interest will be charged on late payments as is currently operated.

Please also remember that from 6th Apri'27, this applies to everyone whether they are in MTD or not.

Time To Pay Agreement (TTP)

We cannot stress enough that if you are unable to make payment in full by the due date that you contact HMRC ASAP and arrange a TTP. This is even more so with MTD as if you make the application before a penalty is charged & it is agreed, then the penalty will not be payable. Interest will continue to accrue as it does currently. 

However, if you fail to meet the conditions agreed as part of the TTP then HMRC have the power & right to charge you the penalties in full as if the agreement had never been in place.