Written by If your self-employment or property income was over £50,000 in the 2024/25 tax year (the return due by January 31, 2026), you are likely part of the “first wave” of the biggest shift in personal taxation in decades.
From 6 April 2026, the annual tax return as you know it will be replaced by Making Tax Digital (MTD) for Income Tax. Here is what you need to know.
1. Who is affected?
The new rules start in April 2026 for individuals with a qualifying income over £50,000.
- What counts: This threshold applies to your gross income (total turnover before expenses), not your profit.
- Sources: It combines income from self-employment (sole traders) and property (landlords).
- Exclusions: It does not include PAYE salary, dividends, or interest.
Example: If you have a salary of £40,000 (taxed via PAYE) and a rental income of £15,000, you are not affected yet, because your qualifying income is only £15,000. However, if your rental income is £55,000, you are in.
2. What changes in April 2026?
Currently, you file one return a year. Under MTD, you must:
- Keep Digital Records: You can no longer rely solely on paper records or simple spreadsheets. You must use “MTD-compatible software” (like Xero, QuickBooks, Sage, or free bridging software).
- Send Quarterly Updates: You must send a summary of your income and expenses to HMRC every three months.
- Finalise Annually: At the end of the tax year, you send a final declaration to confirm your figures and claim any allowances.
The result: You will move from filing once a year to filing five times a year (4 updates + 1 final declaration).
3. Why the change?
The government wants to reduce errors and make tax administration “real-time.” By forcing digital record-keeping, the idea is that you (and HMRC) will have a clearer picture of your tax liability throughout the year, rather than facing a surprise bill in January.
4. Immediate Action Plan
If your 2024/25 tax return shows qualifying income over £50k, HMRC should send you a letter confirming you are mandated to join MTD.
- Don’t panic about penalties yet: There is expected to be a “soft landing” regarding penalties for late quarterly submissions in the first year as people adjust.
- Get Software Ready: If you currently use a shoebox of receipts, you need to digitize. Start looking for compatible accounting software now.
- Check your Bank Feeds: The easiest way to handle MTD is to link your business bank account to your software so transactions are pulled in automatically.
Summary Timeline
- Now (Jan 2026): File your 2024/25 return. This return determines if you must join MTD.
- April 2026: MTD begins for those with >£50k qualifying income.
- April 2027: The threshold drops to £30,000 qualifying income.