MTD is closing in on us. It will be introduced in phases from April 2026. Your client’s with gross income (before expenses and tax are deducted) from self-employment and property of more than £50,000, (from April 2027 it will be £30,000) will need to use MTD for Income Tax. The timeline for £20,000 has not yet been set.
MTD for Income Tax will require tax-payers, or you as tax agent to keep digital records and send quarterly updates of their income and expenses to HMRC, using MTD for Income Tax compatible software. Using the right software, the quarterly updates will be easier – that is, if you receive all the relevant information on time.
HMRC say:-
“At the end of the year, when sole traders and landlords file their tax return most of the information for income from self-employment or property will be ready to submit. Information from quarterly updates will be combined with a tax-payers information on personal income HMRC holds elsewhere. Most users will then need to make adjustments to their business income, and check that their income from all sources is recorded, before confirming that the information they’re submitting is correct and complete.”
Before you start working with the new system, HMRC tell us they are introducing a new penalty regime to support MTD for Income Tax from April 2026. A points-based system will be introduced for late filing. Where a tax-payer misses a quarterly or annual submission obligation, they will receive a penalty point. Once the tax-payer reaches the points threshold, they will receive a financial penalty. New late payment penalties are more proportionate, and charged at different rates based on when the outstanding amount is paid.
HMRC will use your client’s most recent tax return to identify if they will have to use MTD for Income Tax. For example, those who have to use MTD for Income Tax from 6 April 2026 will be identified based on their 2024 to 2025 tax return (which has to be submitted by 31 January 2026). HMRC will send a letter to each taxpayer identified as needing to use MTD for Income Tax before April 2026, but you and your clients should not wait until then to start your preparations.
You should start preparing now as there are a number of steps to complete to make sure you and your clients are ready and confident with the new process ahead of April 2026.
Consider what your clients’ qualifying income might be for the tax year 2024 to 25 and 2025 to 26.
Find out if and when your clients need to use MTD for Income Tax based on their qualifying income.
Get compatible software and speak to your clients about their needs for compatible software.
Create an agent services account if you don’t already have one.
Sign up your clients for MTD for Income Tax.
Sign in to your agent services account to copy across clients if you haven’t done this already.
Start using MTD for Income Tax.
From April 2025 I recommend that you choose a willing client and trial the new system with help and guidance from HMRC. This will help you to help your clients plan for 2026.
If you sign up for testing of the MTD for Income Tax service now, you’ll build your understanding of and confidence in using the new systems and processes early. Throughout the whole testing period, you and your clients will have access to HMRC’s dedicated MTD Customer Support Team. They will help you and your clients who are in MTD for Income Tax testing with any questions about MTD for Income Tax, and provide support with some of your clients’ other tax affairs.
You can sign clients up in four steps.
Read the eligibility criteria and consider which clients you can sign up now. When signing up, you’ll be asked some questions to confirm whether your client is eligible.
Speak to your clients before you sign them up for testing to check they’re happy to take part. You should also check if they have or can get record keeping software that is suitable and compatible with MTD for Income Tax.
Ensure that you have MTD for Income Tax compatible software ready to submit returns on behalf of your clients. Before signing up, check the available software options on GOV.UK and contact your chosen provider. They will provide you with guidance about their MTD for Income Tax testing onboarding process.
Sign up your clients.
You should agree your increased fees before you start.
You have the tax return deadline to get through. Hope all goes well.
You will hear more from us in due course.
Kind regards,
Howard Gross BFP FCA FCCA CTA
Director
