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How MTD for Income Tax will affect small businesses

Updated: Dec 4, 2023

*** UPDATE: MTD for Income tax has been postponed again, to start Apr 2026 and be phased-in as follows ***

Starting April 2026, Making Tax Digital (MTD) for Income Tax will significantly impact self-employed businesses and landlords with income above £50,000 (those with incomes above £30,000 must be compliant from April 2027).

The new rules essentially mandate digital record-keeping so that all businesses can send quarterly updates to HMRC.

If you're a sole-trader, partnership or landlord keeping paper-only or spreadsheet records, then - to put it simply - you'll need to switch to digital (online cloud) bookkeeping.

HMRC Making Tax Digital

For our top recommended bookkeeping apps, see our advice page: Bookkeeping Software & How-To

Making Tax Digital (MTD) for Income Tax - The Details

The following is what we know so far per HMRC's Guidance.

  • MTD for VAT-registered businesses was first introduced in April 2019 (if you're VAT registered, you'll already be using compliant software, but you may be required to make additional electronic reports to HMRC)

  • Turnover test - MTD applies to businesses with a turnover above £30,000, including income from all businesses and property. So, a person with £15,000 of trading income and £15,000 of rental income will be required to report under MTD as their total turnover exceeds £30,000. Businesses with a turnover exceeding £50,000 will be asked to join MTD from April 2026 after which the threshold of £30,000 will apply from April 2027.

  • The £30,000 threshold applies to individuals. So, if you rent property jointly (splitting the income 50/50), you may not need to comply with MTD until your joint rental income exceeds £60,000.

  • Deferrals / exemptions - there are very few. Most sole-traders and landlords must be compliant from April 2026, Partnerships from April 2027. Partnerships with a corporate partner and LLP's will have a deferred sign-up date, and entities such as Trusts, Estates of deceased persons, Trustees of pension schemes and non-resident companies look likely to be exempt.

  • Penalties - penalties will not apply for the first year, after which the system will be points-based.

  • What info will be submitted to HMRC? - Total sales and totals of expenses by category. Year-end accounting and tax adjustments will be made via a final submission for the year known as the end-of-period statement (EOPS).

  • When will submissions be required? - The quarterly filing deadlines will be: 5 August, 5 November, 5 February, and 5 May (i.e. 5 May deadline for the final quarter ending 31 March - 5 April each year)

  • How will the tax position be finalised? - The EOPS will have to be submitted by 31 January following the end of the tax year, somewhat similar to the current requirement to submit a Self-Assessment Tax Return.

⚠️ Prepare now

Act now to make the transition to MTD as easy as possible:


Would you like help to pay less tax? Feel free to get in touch or check out our related posts 👇

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