From April 2026, HMRC will introduce Making Tax Digital (MTD) for Income Tax Self Assessment (ITSA), affecting individuals with self-employment or property income. This represents a major change in the maintenance and reporting of tax records, requiring individuals to use digital software for tax submissions. While the implementation has been long anticipated, HMRC has only recently begun to announce its finalised guidelines.
Self-assessment tax return will be replaced by five new reporting obligations, as individuals will be required to send quarterly updates in addition to a final year declaration.
Who Will Be Impacted?
- Self-employed or a landlord individuals with an annual income exceeding £50,000, you will need to comply from April 2026.
- Self-employed or a landlord individuals with an annual income exceeding £30,000, you will need to comply from April 2027.
Purpose of Transition to Making Tax Digital for Income Tax Self Assessment
- Digital Record-Keeping: Individuals will be required to maintain digital records of all business and rental income and expenses. Manual records will no longer be accepted. This will ensure that all transactions are logged electronically.
- Quarterly Updates: Instead of a singular annual tax return, individuals will be required to submit quarterly updates to HMRC using MTD-compatible software. These updates will provide a summary of income and expenses, allowing for more frequent and real-time tax reporting.
- End-of-Period Statement (EOPS) & Final Declaration: At the end of the tax year, an End-of-Period Statement (EOPS) must be sent. This will be the final declaration, which replaces the traditional Self Assessment tax return. At this point pre submission adjustments will be able to be factored in.
- Increased Transparency and Compliance: The move towards digital taxation is designed to reduce errors and improve compliance. By ensuring transactions are recorded in real-time and automatically processed, HMRC aims to minimise tax underpayments and overpayments.
Plan of Action
- Assess Readiness: Evaluate whether your income exceeds the initial £30,000 threshold.
- Plan for Quarterly Submissions: Prepare for periodic tax reporting and more frequent requests from ourselves for information.
- Consider Early Adoption (Beta Testing): Transitioning to digital record-keeping ahead of the deadline will help ensure a smooth adjustment.
HMRC’s move towards digital taxation aims to enhance efficiency and accuracy in tax reporting. However, the transition period will require adaptation, particularly for HNW individuals with complex tax affairs and NRL clients managing UK property income. This is the most significant change to the way HMRC taxes self-assessment individuals since the introduction of online filing in the early 2000s. As such, the shift to MTD represents a fundamental transformation in the way tax is reported and managed.
Further changes to self-assessment
With effect from the fiscal year 2025/26 a director of a close company (broadly meaning under the control of its directors or five or fewer participators) must include the following information in their tax return:
- Company Identification: the name and registered number of the close company;
- Dividend Income: the total value of dividends received from the close company during the tax year, segregated from other UK dividends;
- Shareholding Percentage: the shareholding percentage in the company throughout the year. If this percentage varied, individuals should declare the highest shareholding held during the year.