Overview of MTD for Income Tax
- MTD ITSA replaces annual Self Assessment with quarterly digital reporting.
- Applies to sole traders and landlords with qualifying gross income.
- Phased rollout:
- April 2026: income over £50,000
- April 2027: income over £30,000
- April 2028: income over £20,000
- Qualifying income includes self-employment and property income only.
- Employment, pensions, dividends, savings interest are excluded.
Qualifying year for income thresholds
- the previous tax year’s income determines MTD eligibility.
- to decide if you exceed the £50,000 threshold for MTD from April 2026, look at your gross income in the 2024–25 tax year
- then reassess each year: e.g. the 2025–26 income determines if you cross the £30,000 threshold for April 2027, and so on
Reporting Requirements (All Groups)
- Maintain digital records of income and expenses.
- Submit quarterly updates:
- Q1: 6 Apr–5 Jul → due 7 Aug
- Q2: 6 Jul–5 Oct → due 7 Nov
- Q3: 6 Oct–5 Jan → due 7 Feb
- Q4: 6 Jan–5 Apr → due 7 May
- Submit End-of-Period Statement (EOPS) after year-end.
- Submit Final Declaration by 31 Jan following the tax year.
- Use HMRC-recognised software (no HMRC online form available).
- Penalties:
- Points-based system for late submissions
- £200 fine after 2 missed quarterly updates
- Points expire after compliant behaviour.
Sole Traders
- Must comply if gross trading income exceeds threshold.
- Multiple sole trades are combined for threshold test.
- Quarterly updates required for each business.
- EOPS and Final Declaration consolidate all business income.
- Software must support multiple sources and digital links.
- No change to payment deadlines (31 Jan / 31 Jul).
Landlords
- Must comply if gross rental income exceeds threshold.
- Joint owners assessed individually on their share of income.
- All UK properties reported as one “property business”.
- Quarterly updates include total rent and expenses.
- Overseas property income reported separately.
- Must maintain digital records even if using letting agents.
- Can use landlord-specific apps or bridging software.
Mixed Income
- Combined self-employment and rental income over threshold → MTD applies.
- Separate quarterly updates for each source.
- Separate EOPS for each source.
- One Final Declaration combines all income.
Construction – CIS tax deduction at source
- Workers subject CIS tax deduction at source will still be required to comply with MTD if their Gross income meets the conditions however they will not receive income tax repayments (if due) until the end of the tax year.
Joint Property
- Joint owners with £26k each → below threshold until April 2028.
- Each owner must submit their own updates once mandated.
- Can use shared spreadsheet and bridging software.
Partnerships and Exemptions
- General partnerships not yet included.
- Partnership income excluded from threshold test.
- Exemptions available for:
- Digital exclusion (age, disability, remote location)
- Religious objections
- Specific deferred groups (e.g. ministers of religion)
- Exemptions require formal application and evidence.
Appendix A: Examples of MTD for Income Tax in Practice
Example 1: Sole Trader and Landlord with Mixed Income
Scenario:
Martin is self-employed and also has rental income. In the tax year 2024/25, Martin’s gross income was £32,500 from his sole trade and £21,500 from rental properties. His total qualifying income is £54,000 (both self-employment and property income count towards the MTD threshold; other sources like bank interest are excluded). This exceeds the £50,000 threshold, so Martin will be required to join MTD for Income Tax from April 2026.
What does this mean for him?
For the 2026/27 tax year, Martin must keep digital records for both his business and rental activity. He will submit quarterly updates for each: four for his business and four for his property income. For example, in the first quarter of 2026/27 (Apr–Jun 2026), if his business brings in £8,200 and the rentals bring in £5,800, he would report those figures (with their respective expenses) in two separate updates by early August 2026.
After 5 April 2027, he’ll prepare an End-of-Period Statement for each source (making year-end adjustments like claiming capital allowances on new equipment or accounting for rent arrears). By 31 January 2028, he’ll file the Final Declaration combining all income sources.
Essentially, Martin now interacts with HMRC eight times a year (eight quarterly updates) plus the final steps, instead of once annually. While this is more work, his software consolidates multi-source reporting and provides running tax estimates, helping him set aside funds for his tax bill.
This example shows how someone with mixed income streams must handle MTD: each source is reported separately, but both are mandated because their combined gross income exceeds the threshold.
Example 2: Joint Property Landlords Below Threshold
Scenario:
Helen and David jointly own a rental property generating £50,000 per year in gross rent (before expenses like agent fees and repairs). They split everything 50/50, so each has £25,000 in gross rental income. Neither has other self-employed or rental income.
Threshold test:
For 2024/25 (the reference year for the 2026 start), each has £25,000, which is below £50,000, so they are not required to join MTD in April 2026. The next threshold phase is £30,000 in 2027 – still below that, so they remain outside scope. However, in April 2028, the threshold drops to £20,000. At that point, each of their £25,000 rental incomes exceeds £20k, meaning they will join MTD for the 2028/29 tax year.
Once in MTD:
Starting April 2028, Helen and David will each keep digital records for the property (HMRC treats them as separate taxpayers). Each quarter, they report their share of income and expenses. Suppose in Q1 2028/29 the property brings in £12,000 rent and has £2,800 expenses. Each would report £6,000 income and £1,400 expenses in their own quarterly update.
They might coordinate so one person updates the records and shares figures, but both must submit to HMRC. At year-end, each submits an EOPS and a Final Declaration. This example highlights that joint owners are treated individually: initially outside MTD because individually under the threshold, later brought in when individually over £20k.
Helen and David decide to use a shared spreadsheet and bridging software for submissions, each uploading their share. They find this manageable but must ensure both file on time to avoid penalties.