Making Tax Digital for Income Tax: Does It Apply to You?

Making Tax Digital for Income Tax will not affect everyone at the same time. Instead, HMRC is introducing the new reporting requirements in phases, based largely on the amount of income you receive from self-employment, property, or a combination of the two. While some taxpayers will be required to comply from the outset, others will not be affected for several years, and some groups remain outside the scope altogether. Here's who needs to pay attention.

Who is Within Scope of MTD for IT? 

Self Employed Individuals 

At Autumn Budget 2024, the government announced that MTD for IT will be made mandatory for self-employed individuals.

The first phase of this is for those with annual gross income of over £50,000.

The second phase will be for those with gross income of over £30,000.

The third phase will be for those with annual gross income of over £20,000.

Individuals receiving income from property 

At the same time, it is mandatory for individual landlords, and individuals receiving income from property.

Again, the first phase is for those with gross income from property over £50,000.

The second phase will be for those with income from property over £30,000.

The third phase will be for those with income from property over £20,000.

Jointly held property 

If you own a share in a property, it is only your share of the income that you need to take into account to establish whether you are affected.

HMRC have introduced an easement for jointly owned property. Joint owners reporting a jointly held property are allowed to:

• Submit only their share of the gross income in their quarterly updates.
• Defer reporting their share of the expenses until the end-of-year final submission (tax return).

Individuals with combined sources 

Individuals with sources of income from both self-employment and property will need to count the combined income to establish if they are affected.

If you are self-employed with a turnover of, say £27,000 and you also receive gross rental income of £24,000, you are required to join MTD for IT in the first phase.

Non-UK residents 

Individuals who are not-UK resident and receiving income from UK property will be required to join MTD for IT if their gross income is within the specified limits.

However, if they completed the supplementary pages SA107 (Residence) within their 2025 tax return, their MTD mandation will have been deferred until 6 April 2027.

Non-UK property

If you receive income from overseas properties, you must include the gross income from these sources when calculating your gross income.

Income under £20,000 

At present, it is not anticipated that individuals with an annual gross income of up to £20,000 will be within the scope of MTD for IT.

Who is Not Within Scope of MTD for IT?

At the present time, the following will not be required to join MTD for IT:

• Partnerships
• Trusts and Estates
• Partners in a partnership, in relation to their profit share only. If you have other income sources that fulfil the criteria you will be required to report those sources.
• Lloyd’s members in relation to their underwriting business
• Non-resident companies
• Personal representatives of someone who has died.

Whilst it is fully anticipated that these persons and entities will be required to join MTD for IT at some point, at present, HMRC do not have a time scale for this.

Exemptions from MTD for IT 

Limited automatic exemptions exist for:

• Individuals without a National Insurance Number
• Foster carers, where this is your only source of income.
• Individuals lacking mental or physical capacity, where someone is legally authorised to deal with their affairs such as under a Power of Attorney.

Those who are digitally excluded for reasons such as age, disability or location will need to apply for exemption, unless already exempt from MTD for VAT.

Deferments from MTD for IT 

The mandation to MTD for IT has been deferred until 6 April 2027 for individuals who:

• Submitted supplementary pages SA107 (Trusts & Estates)
• Submitted supplementary pages SA109 (Residence) with their 2024/25 tax return.

What is Gross Income? 

Self-employed For the self-employed, your gross income is your turnover before taking into account any allowable costs or expenses.

Property income 

Your gross income is the amounts of rent your tenants pay, before taking into account any allowable costs or expenses.

If you receive your rent through an agent, with their fees deducted, you must add back their fees to calculate your gross income.

New income sources

If your source of income starts during the tax year, you will have to calculate what the income would have been for the whole 12 months in order to determine if you are affected.

If you start to receive gross rental income of £2,000 per month in October, you will receive £12,000 during the tax year. For the purposes of determining whether you need to be reporting under MTD for IT, you must calculate the gross income as though you would be receiving it for the whole year, so £24,000.

We are here to help

For those of you who will be mandated in April 2027 or 2928, now is  a good time to consider whether you are happy to undertake the reporting yourself, or whether you wish to include this in the services that we provide to you. If you have any queries or concerns, please do contact us.

You can also download are full, free guide here: MTD for IT