What is Making Tax Digital for Income Tax and who does it apply to?

Full answer

Making Tax Digital (MTD) for Income Tax Self Assessment extends the digital record-keeping and reporting requirements already used for VAT to self-employed people and landlords, phased in based on qualifying income level. **Who is brought into scope, and when** MTD for Income Tax applies to self-employed individuals and landlords with qualifying income (broadly, gross income from self-employment and/or property combined) above specified thresholds, phased in over successive years starting with higher-income individuals first and extending to lower thresholds in later years -- checking the current gov.uk phasing schedule for your specific qualifying income level is essential, since thresholds and start dates have been adjusted since the policy was first announced. **What changes under MTD** Instead of submitting a single annual Self Assessment return, those within scope must keep digital records of income and expenses using MTD-compatible software, submit quarterly updates summarising income and expenses to HMRC throughout the year, and then submit a final end-of-year declaration (finalising the figures, claiming any reliefs or allowances) to confirm their total tax position for the year. **Quarterly updates are not quarterly tax payments** It is a common misunderstanding that quarterly MTD updates mean paying tax four times a year in a new way -- the quarterly updates are primarily about REPORTING income and expenses digitally and more frequently; your actual tax liability is still finalised and paid according to the normal Self Assessment payment deadlines (including the usual payments on account structure), not through the quarterly updates themselves. **Software requirements** Records must be kept digitally using software compatible with MTD (spreadsheets can sometimes be used if linked to compatible bridging software), rather than purely manual or paper-based record-keeping, representing a significant process change for those used to more informal record-keeping. **Worked example** A self-employed landscaper with qualifying income above the relevant MTD threshold for their phase-in year must, from that point, keep digital records of all business income and expenses, submit a digital update to HMRC roughly every quarter summarising the period's figures, and then complete a final end-of-year declaration to confirm and finalise their tax position for that year, replacing their previous single annual return. **Practical tip** Check your specific qualifying income against the current MTD for Income Tax phase-in thresholds and start dates on gov.uk well in advance, and set up MTD-compatible software (or bridging software linked to your existing spreadsheets) before your mandatory start date, since HMRC will expect digital records and quarterly submissions from that point, not a sudden switch made retrospectively.

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