Making Tax Digital for Income Tax

Making Tax Digital (MTD) for Income Tax: What US/UK Taxpayers Need to Know

Disclaimer: The information provided in this article on Making Tax Digital (MTD) for Income Tax is intended as general guidance only. The rules and requirements for Making Tax Digital (MTD) can be complex and may be subject to change. Individual circumstances, such as the nature of your income, your tax residency status or other unique factors can affect your obligations and the way the rules apply to you. For further guidance or to discuss your specific circumstances, please contact our tax team.

Making Tax Digital (MTD) for Income Tax is a major change to the UK tax system, requiring some individuals to keep digital records and submit quarterly updates to HMRC if their qualifying income exceeds a certain threshold. This article is relevant to those who are:

• Sole traders (self-employed individuals)

• Landlords (including those with UK or foreign rental property)

Please note, partnerships are not yet within the scope of MTD for Income Tax, but this is expected in the future.

Qualifying income is the aggregate (total) gross income (i.e. before expenses) from all of:

• Self-employment (including multiple trades)
• Property (UK and/or foreign property)

Please note, income from UK Real Estate Investment Trusts (REITs) or Property Authorised Investment Funds (PAIFs) is not included.

The requirement to comply with MTD for Income Tax is being phased in over the next few UK tax years, meaning that you might not fall within the scope of MTD for the 2026/27 UK tax year, but you may do so in future and therefore need to submit quarterly updates then:

• From 6 April 2026: If your qualifying income for 2024/25 is over £50,000
• From 6 April 2027: If your qualifying income for 2025/26 is over £30,000
• From 6 April 2028: If your qualifying income for 2026/27 is over £20,000

If your qualifying income is below £20,000 then MTD is not currently relevant to you, however in the Spring Statement 2025 the Government announced its intention to “continue to explore how we can best bring the benefits of digitalisation to a greater proportion of the 4 million sole traders and landlords who have income below the £20,000 threshold”. Therefore, this could change in the future.

Examples:

1. If you have £27,000 from self-employment and £25,000 from rental income in 2024/25, your qualifying income is £52,000, so you must comply from April 2026.

2. If you have £25,000 from self-employment and £10,000 from rental income in 2024/25, your qualifying income is £35,000, so you do not have to comply from April 2026, but you might need to do quarterly updates from April 2027 if your qualifying income in 2025/26 is again over £30,000.

Key MTD Dates:

7^th August 2026 – Deadline to send your first quarterly update covering the period from 6^th April 2026 to 5^th July 2026

7^th November 2026 – Deadline to send your second quarterly update covering the period from 6^th April 2026 to 5^th October 2026

7^th February 2027 – Deadline to send your third quarterly update covering the period from 6^th April 2026 to 5^th January 2027

7^th May 2027 – Deadline to send your fourth quarterly update covering the period from 6^th April 2026 to 5^th April 2027

Please note that each quarterly update reports the year-to date totals, so that by May the entire self-employment and property income for the tax year just ended is being reported.

Special Rules for Jointly Owned Property

• Only your share of the gross property income counts towards your qualifying income. For example, if your only qualifying income during 2024/25 is £60,000 from a property jointly owned with your spouse, then your individual qualifying income is £30,000 (assuming equal ownership) and therefore you do not fall within the scope of MTD for the 2026/27 UK tax year.
• If you only receive notice of your share of income after expenses have been deducted, that net figure is used.
• For MTD reporting, each joint owner is responsible for their own compliance.

Special Notes:

• If you have ceased a source of self-employment or property income since your last tax return, that income still counts towards your qualifying income if you have another continuing source. If all such sources have ceased, you do not need to comply with MTD for Income Tax, but you must notify HMRC.
• If your sole trading income is below the VAT registration threshold, you will be able to use “three-line accounts” for that income source. What that effectively means is that you can record each item of income and expense without allocating it to a specific category of income/expense type. Only the total income and total expenses will need to be reported each quarter, with no detailed categorisation needed. You will still, however, need to report a breakdown when filing your Self-Assessment. Only exception to this rule is residential finance costs (e.g. mortgage interest) for landlords, which must still be categorised separately.
• If you claimed the remittance basis of taxation and filed the SA109 supplementary pages (Residence, remittance basis etc) on your 2024/25 UK tax return, you are not required to comply with MTD for Income Tax for the 2026/27 UK tax year if you reasonably expect to file under the FIG regime. This deferral was introduced to allow for the transition to the new FIG regime and changes in the taxation of non-UK domiciled
• Please note that the MTD submissions are separate to taxpayers’ Self-Assessment.
• If you are a UK non-resident, only UK property income and self-employment income declared on your UK tax return count towards the “qualifying income”.