MTD for Income Tax

Making Tax Digital (MTD) for Income Tax is a government initiative to modernise the tax system. Instead of filing one big tax return once a year, you must keep digital records and send quarterly updates to HMRC using compatible software.

Who does it affect? (The Thresholds)

MTD applies to sole traders and landlords based on their total gross income (turnover before expenses) from self-employment and property. It does not apply to Limited Companies yet.

Important Note: Your "qualifying income" is the combined total of your self-employed turnover plus any rental income. It does not include your salary (PAYE) or dividends.

The 3 New Rules

If you fall into the mandated group, you can no longer use the HMRC website to type in your figures once a year. You must:

1. Keep Digital Records:

You must use software - Clear Books has you covered for this.

2. Send Quarterly Updates:

You must submit a summary of your income and expenses to HMRC every 3 months.

• Quarter 1: Due 7 August
• Quarter 2: Due 7 November
• Quarter 3: Due 7 February
• Quarter 4: Due 7 May

3. File a Final Declaration:

By 31 January (after the tax year ends), you submit a "Final Declaration." This replaces the old tax return. It confirms your final figures, adds any other income (like savings interest), and calculates your final tax bill. You can use a Clear Books MTD Tax Return account to do this.

Why does this matter right now (January 2026)?

If your income on your 2024/25 tax return (the one due by 31 January 2026) is over £50,000, you are in Phase 1.

This means you must have software set up and ready to use by April 6, 2026.

Immediate Next Steps

1. Check your turnover: Look at the tax return you are filing this month. Is your self-employed/property income over £50k?

2. If yes: You have ~2 months to choose MTD-compatible software.

3. If no (but over £30k): You have until April 2027, but it is wise to start digitising your records now to prepare.