MTD for Income Tax: What accountants and clients need to do

There’s surely few accountants and bookkeepers who have not have heard of MTD for Income Tax. With the first introduction date of April 2026 rapidly approaching, much work needs to be done for practice readiness.

This article can help. Read on to learn how you can get to grips with MTD for Income Tax across what you do, regardless of the size of your practice or the nature of your clients.

Here’s what we discuss:

Making Tax Digital for Income Tax: An overview

The government has said MTD for Income Tax will be mandated in at least three phases.

It will affect sole traders and landlords (or individuals who are both) that have gross income above £50,000 from April 2026, above £30,000 from April 2027, and above £20,000 from April 2028.

As happened with MTD for VAT, clients will turn to accountants for advice and guidance.

More than this, the government is again likely relying at least partially on accountants to educate their clients about the requirements and ongoing process adaptations.

It’s vital to realise how Making Tax Digital for Income Tax provides opportunities:

• Clients can modernise their accounting processes, to get the benefits of massively reduced admin and a closer, more active relationship with their accountant. Considering AI productivity assistants are now within accounting software, the improvements could be revolutionary—and not as technically onerous compared to the old days.
• Accountants have an opportunity to grow their services via increased client touchpoints through quarterly updates and the digital tax return—not to mention initial guidance on signing up, adjusting admin processes, and helping with software choices. Better and accurate visibility into client data can inspire a vast range of services.

If your practice has income tax clients that fall under the scope of MTD for Income Tax, you need to start putting plans into practice today, if you haven’t already. The scale of clients impacted, which is significantly higher than for VAT a few years ago, means the quantity of work cannot be underestimated.

What is the MTD for Income Tax digital start date for my client’s business?

Most businesses within scope will be required to follow MTD for Income Tax rules in their first full accounting period starting on or after 6 April 2026, if their self-employment yearly gross income is above £50,000 (as of 2024/25), 6 April 2027 if it’s above £30,000 (as of 2025/26), and 6 April 2028 if it’s more than £20,000 (as of 2026/27).

HMRC will inform clients in writing if they need to use MTD for Income Tax.

For accounting periods prior to their MTD start date, those within scope will continue to use the Self Assessment system for the business.

In other words, even after signing up for MTD for Income Tax, your clients will still need to submit a Self Assessment return for the 2025/26 tax year by 31 January 2027, or 30 December 2026 if they want HMRC to collect taxes due from wages and pensions via PAYE (although if they’ve already signed up for the MTD for Income Tax pilot, this will not be required).

Self Assessment will still be required for individuals outside of the scope of MTD for Income Tax, such as those below the threshold, some company directors, or those whose gross pension income is above the personal allowance.

Which clients will be affected by MTD for Income Tax—and how?

To fall under the MTD for Income Tax scope, all of the £50,000/£30,000/£20,000+ income will have to come from either sole trade businesses, or property rents, or a combination of both. No other income matters for this calculation.

For example, should one of your clients have just £49,000 from property rental to declare for income tax, and £2,000 from savings interest income, that won’t require them to sign up for MTD for Income Tax. All of this is before allowable expenses, of course.

But if they had £45,000 from sole trade income and £10,000 from property rental income, then their gross income will be £55,000—pushing them above the threshold for the April 2026 rollout. HMRC bases their decision for this based on the gross income for the 2024/25 tax year, as shown on the Self Assessment tax return.

Care needs to be taken, however, because for some clients, 2024/25 may have had an unusually long basis period because of basis period reform (BPR) measures. Therefore, their earnings might be artificially high. If you believe this is the case for your client, and that their income is typically below the threshold, contact HMRC to discuss the issue.

Those new to a sole trader or property rental will use the Self Assessment system, and never go straight to using MTD for Income Tax, even if it’s clear their income will rise above £50,000 (or £30,000/£20,000 as of 2027/2028).

Effectively, this means these clients will always complete two years of Self Assessment prior to moving to MTD for Income Tax, unless they opt to voluntarily do sign-up. This can be done even if their earnings are below the threshold. If this option is chosen, the client will complete a single year’s Self Assessment before moving to MTD for Income Tax at the start of the subsequent tax year.

What are MTD for Income Tax accounting quarterly updates and the digital tax return?

For those signed up to MTD for Income Tax, there will no longer be a need to send a Self Assessment tax return with regard to income for the tax years occurring after their start date.

Instead, updates will be made to HMRC using functional compatible software, as follows, along with a tax return by 31 January.

Here are the MTD for Income Tax requirements in brief:

Digital records for MTD for Income Tax

A digital record is a line item of income or expense, which is to say, each transaction. The minimum data that needs to be recorded is as follows:

• Amount.
• Date.
• The tax category, as defined by HMRC, such as turnover, cost of goods bought for resale, or wages, salaries and other staff costs. Car, van and travel expenses are also categorised.

Obviously, MTD-compatible accounting software will make it easy to record these details via automation.

None of this is outside the scope of data already recorded for Self Assessment, of course. The difference is simply that it must be recorded ASAP, and certainly prior to any quarterly update submission.

Quarterly updates for MTD for Income Tax

• These are generated in MTD-compatible software by you or the client. You or their bookkeeper can submit them on behalf of the client.
• Totals must be provided for each income and expense category for the previous quarter. HMRC does not require individual income or expenditure records at this point, or for the tax return.
• The latest each update can be sent is 7 August (for the 1st update covering period ending 5 July), 7 November (for the 2nd update covering period ending 5 October), 7 February (for the 3rd update covering period ending 5 January) and 7 May (for the 4th update covering period ending 5 April). This is true even if the client uses the fiscal year (1 April – 31 March) for their basis period.
• An update doesn’t include any obligation or statement that the data is complete and accurate, and no tax is paid at that point.
• Corrections for previous quarters can be sent, too.
• HMRC returns a calculation of the estimated tax liability based on the information sent. This should be discussed with clients, with potential inaccuracies notified (pending later adjustments).

Digital tax return for MTD for Income Tax

• Very similar to Self Assessment, the tax return is to be completed and submitted via MTD-compatible software at the end of the tax period or any point after this date and up to the following 31 January.
• A separate Business Source Adjustable Summary (BSAS) can be requested from HMRC, via the MTD-compatible software, for each business and property income. This is the foundation used by accountants to make adjustments for each income source, such as capital allowances, private use adjustments, corrections, and disallowable expenses. Accountants should not simply use the fourth quarterly update as the numbers for the tax return. BSAS totals are not a substitute for completing the digital tax return and accountants must make adjustments as required.
• Remember that the MTD rules mean any adjustments/corrections must be undertaken in MTD-compatible software and legally-compliant digital links must be used between software and systems if data is transferred (e.g. from a spreadsheet to accounting software—it is not legally possible to cut/copy and paste data).
• The submission is a declaration that the information is complete and correct. The client must review and sign. As with Self Assessment, you are unable to do this for them.
• Once submitted, HMRC returns a tax calculation.

The digital tax return effectively replaces the SA100 tax return. Additionally:

• 31 January continues to be the deadline for filing.
• Any income tax liability must also be paid by 31 January (payments on account will continue).
• HMRC will not provide any submission interface to allow filing without the need for software. In other words, MTD-compatible software must be used all the way through. If more than one piece of software or system is used, it must be digitally linked in a legally-compliant way.
• If any information that needs to be included in the final declaration isn’t supported via software submission, then the client will also need to complete a Self Assessment tax return.
• However, if data cannot be submitted digitally for whatever reason, then a SA100 may still be required.

Supplementary forms for income tax like SA102, SA105 and so forth, are no longer required because of the use of quarterly updates to provide the data or the fact the software is connected to HMRC, so can automatically pull in detais like employment income.

What information will clients submit for MTD for Income Tax?

The following are non-exhaustive lists and subject to change and confirmation by HMRC.

For a self-employment business, the data required is likely to include:

• Business income (e.g. turnover)
• Business expenses (total and disallowable by type of expense, such as travel costs)
• Tax allowances for vehicles and equipment (e.g. capital allowances)
• Adjustments (e.g. basis adjustment)
• Balancing charges
• Goods and services for client’s own use.

For a property business, the data required is likely to include the following:

• UK and foreign property business income
• UK and foreign property business expenses (e.g. premises running costs)
• Allowances for property (e.g. annual investment allowance)
• Adjustments on property letting (e.g. loss brought forward)
• Balancing charges.

For the tax return, the individual is likely to be required to include the following among other things:

• Total UK dividend income for a tax year
• Taxed UK savings interest
• Untaxed UK savings interest
• Other income sources
• Any claims or elections.

Can clients opt out of MTD for Income Tax?

As with MTD for VAT, it won’t be possible for most clients to opt out of MTD for Income Tax if they fall within its scope.

However, if they joined voluntarily in the public beta, they can opt out.

And that’s also the case if they’re in specific categories that are automatically exempt, including:

• Trustees
• Personal representatives
• Foster carers
• Those without a National Insurance number in the January before the start of the tax year.
• Non-resident companies.

Those who fall under the digital exclusion rules as defined by MTD for VAT will automatically be exempted from MTD for Income Tax (although there will be no harm in checking this!).

This includes people whose disabilities mean they can’t use software, for example, for people whose remote location means internet access is impossible.

Additionally, your clients will be exempt from Making Tax Digital if their qualifying income falls below the threshold for three consecutive tax years (bearing in mind this threshold will fall each year after 2026, until reaching £20,000 for 2028/29.

What software do clients require for MTD for Income Tax?

Clients will require MTD-compatible software of some kind. Understandably, they may look for free solutions. Sage Accounting Individual Free is a great example, and can help clients with simple tax affairs manage their finances with software that makes bookkeeping, transaction tracking, and both MTD for Income Tax and Self Assessment easy.

However, as an accounting professional, you will require them to have more sophisticated software if you intend to collaborate with them for quarterly updates and the tax return. There are a variety of Sage Accounting plans to meet both yours and your client needs, and will grow in features as they grow, too. Examples include VAT accounting and payroll.

A Sage for Accountants plan offers the chance to upsell Sage Accounting directly to clients, and comes with a host of free software for accountants, such as Final Accounts and Tax, Client Management, plus free AutoEntry, GoProposal and Futrli credits each month.

Most of the big-name cloud accounting software has already been updated for MTD for Income Tax, although this might not necessarily be true for desktop accounting software. You or your clients may need to consult the software vendor to ensure updates and patches are installed in time.

Older software packages that are no longer supported may not be updated, so might require the client migrate their accounting to a different package.

It will be possible to use spreadsheets for MTD for Income Tax accounting through the use of either bridging software, or special spreadsheets/worksheets that facilitate digital linking with cloud services.

Remember that the digital linking rules say that copying and pasting of MTD accounting records is not allowed, and all transfer of MTD for Income Tax data must be both digital and automated.

Because of this and other issues, using a spreadsheet is unlikely to be the most user-friendly solution.

Additionally, MTD-compatible software must be able to:

• Create and store digital records
• Send quarterly updates
• Submit the final declaration
• Receive information from HMRC.

What is digital linking for MTD for Income Tax?

You may recall the digital linking rules from the implementation of MTD for VAT.

In summary, it aims to legally enforce a fully digital path for relevant tax data once it has entered the system.

For example, once an expense record is entered into accounting software, that value cannot then be copied into a spreadsheet for further processing, before being pasted back. The expense record must be transferred digitally by the software, via the cloud, for example.

There’s less of a focus on digital linking in MTD for Income Tax because there are likely to be fewer interconnected applications or systems compared to VAT. But it still applies if spreadsheets are in use, as a key example, and could impact retail clients who use electronic point of sale (EPOS) systems with accounting software, or who use online auction software.

In such a case, the two (or more) systems must be digitally linked in a legally compliant way, typically by sharing data in the cloud (e.g. the EPOS system will be available as an add-in extension for the accounting software, via the accounting software’s App Store).

Furthermore, if you work with clients then you’ll need to ensure data transfer happens digitally (although emailing and transferring files via a USB memory stick are acceptable).

Do clients signed up for MTD for VAT need to sign up for MTD for Income Tax?

The two Making Tax Digital schemes for VAT and Income Tax operate independently, with their own sign up criteria.

It isn’t the case that MTD for Income Tax applies only to those already using MTD for VAT—although many businesses already using MTD for VAT will find themselves having to sign up for MTD for Income Tax too.

What are the MTD for Income Tax easements for clients?

Following feedback, HMRC has provided a handful of easements to assist certain kinds of businesses:

Joint property ownership

A joint owner of a property only needs to submit their own share of income and expenses (e.g. one record for each), and not the full figures for the property.

They will need to provide records for total rent, other income from the property, premiums for the grant of a lease, and reverse premiums and inducements. For expenses, records should include property repairs and maintenance, residential finance costs, professional fees, and more (for more details, see sections 2.1 and 2.2 of HMRC’s MTD for Income Tax Update Notice).

Each joint owner will need to separately and independently follow the MTD for Income Tax rules, however, such as using MTD-compatible software. Furthermore, legally-compliant digital linking is required between applications and systems. Landlords who use spreadsheets to track depreciation of assets cannot copy and paste data into their accounting software, for example. In situations like this, use of professional MTD-compatible property management software is advisable.

3-line accounts

Already possible for Self Assessment, this easement can also be used for MTD for Income Tax.

Clients with an annual turnover below the VAT registration threshold (currently £90,000) may opt to submit total income and expenses rather than breaking these figures down by tax category.

However, given the requirement to keep digital records of income and expenditure in any event, and the use of MTD-compatible software that will automatically produce detailed quarterly updates and a tax return based on those records, it’s unclear how useful this easement will be.

Retail sales

Clients may choose to record the daily gross takings for all retail sales as a single digital record. This must include all payments from cash paying customers, plus credit sales, gift card redemptions, sales competed via third-party booking platforms, and so on. For more details, see section 3 of HMRC’s MTD for Income Tax Digital Record Keeping Notice.

What does MTD for Income Tax means for accountants?

It’s hard to overstate the changes MTD for Income Tax will bring for you.

Here are two things to be aware of:

1. Your clients will have to use software

Your clients will be required to use compatible software to record their business and property income and expenditure and send five updates/reports every year to HMRC.

There’s likely to be automation for each of these steps, minimising the administrative impact. But your clients still need to be aware of the requirements expected of them.

This will require a substantial change in attitude from your clients in how they approach their accounting.

It’s certainly the case that the “shoebox” client who dumps receipts on their accountant’s desk in January each year will have to change their ways.

It’s your role to communicate this need for change, and to encourage it to happen.

In return, you’ re given significant privilege to guide your clients towards the best solution for their needs—and to bring positive changes to their clients’ businesses.

This presents additional opportunities.

Not partnering with a software vendor to sell solutions to your clients, for example, is to discard a potentially large income source.

Needless to say, an MTD for Income Tax-compatible cloud accounting solution that ties into your own systems is best for both you and your client.

You can offer training in the software, perhaps as part of the sales package, or as a separate service offering.

At the very least, every UK accountant will need to be proficient in the free software package the government will probably offer, because accountants will be facing client enquiries about this on a very regular basis.

2. You have the opportunity to offer additional advisory services

Although MTD for Income Tax should mean clients are more aware of their accounting, it doesn’t mean your fundamental role will change.

You’ll still be required to help your clients be compliant, and to support them with fundamentals such as making deductions and calculating a final income tax bill.

While it’s possible some small business owners may have an epiphany moment when they get to grips with accounting software and realise the power it delivers, the fundamental fact that many people hate dealing with figures and the ensuing admin burden isn’t going to change.

You have nothing to fear from technology and, in fact, lots to gain.

But this is only scratching the surface of the potential that MTD for Income Tax will deliver.

You’ll go from having a single point of contact each year to potentially having at least five situations where your clients may need help with their accounting when they make those quarterly reports and the final declaration.

These situations can be used to forge stronger relationships where you’re not viewed as just a number cruncher but more of a business partner.

Using cloud software that ties in with your clients’ accounting gives you the ability to monitor for problems or opportunities, and to provide advice based on this.

Final thoughts on MTD for Income Tax

If your practice dealt with the implementation of MTD for VAT ahead of it being mandated in April 2019, you’ll be well aware that starting early with preparations will put you and your clients in good stead.

If it didn’t, the best advice is to start now.

Look at your processes, start talking to your clients, and take the steps now to not only meet the requirements for MTD for Income Tax but to use it as an opportunity to help your practice and your clients really flourish.

Editor’s note: This article was first published in October 2020 and has been updated for relevance.