Very soon any sole traders with income of £50,000 from self employment (or a combination of self employment and rental income) will receive letters from HMRC about making tax digital. This change is called MTD.
How will MTD for income tax effect me?
From 2026 anyone with self employment income or rental income (or a combination of the two) which amounts to over £50,000 a year (this is WELL below the VAT threshold) needs to start submitting quarterly returns to HMRC.
These returns are not fully adjusted like your personal tax return which will still need to be filed, it is a check on whether or not you are preparing quarterly bookkeeping using MTD compatible software.
From 2027 this threshold drops to £30,000 and there is an expectation that it will eventually be £20,000.
This is a huge change for self employed people and landlords who are only really used to having to report figures once a year on their personal tax returns. It is important to understand that the tax is not calculated or paid over each quarter. This reporting requirement is to ensure accurate digital records are being kept.
For more information about the change, please use this link to the government website to find out more :
If you are not already using software to keep your books up to date during the year, you should start planning for this ASAP. Until now, as long as the tax return was correct, there has been no rules in place about record keeping. With MTD the emphasis is on accurate digital record keeping – otherwise known as bookkeeping.
Who can help me with MTD for income tax?
Many bookkeepers will be able to help you with this – we at BW Bookkeeping are happy to help with these quarterly submissions for our existing bookkeeping clients. We are not personal tax specialists and we always send our clients to an accountant at the tax year end – but the quarterly returns are based entirely on the regular bookkeeping work and so this is our focus already.
We do monthly bookkeeping for our clients so there will be no great shift in the way we work, the quarterly submissions will simply mean that more questions need to be answered during the year rather than leaving some of them to build up.
Who is exempt from MTD for income tax?
These changes are not focused on limited companies – many of these have already been picked up with the MTD introduced for VAT returns. Trusts, trustees for pension schemes and certain complex partnerships will also be exempt from the changes for now.
If you would like to talk to a bookkeeper about what this change means for you, give us a ring on 07825 152951.
To see what HMRC have to say about this upcoming change we have provided a link to the government site.
