Making Tax Digital for Income Tax (MTD for IT) is one of the biggest changes to the Self Assessment system in recent years. From April 2026, many sole traders and landlords will need to keep digital records and submit quarterly updates to HMRC using compatible software.
Although the new rules have been widely discussed, there is still plenty of confusion about who they apply to and what businesses actually need to do.
If you’re self-employed, receive rental income, or both, understanding the facts now will make the transition much easier.
Who Does Making Tax Digital for Income Tax Apply To?
One of the biggest misconceptions is that Making Tax Digital for Income Tax applies to all businesses. It doesn’t.
At present, MTD for Income Tax applies to individuals, not limited companies. The main groups affected are:
- Sole traders
- Landlords
- Individuals with both self-employment and property income
Being the director of a limited company does not automatically bring you into MTD. However, if you personally receive rental income or have self-employed income alongside your company, you could still be affected.
Myth 1: You Must Be VAT Registered
Many people assume that Making Tax Digital for VAT and Making Tax Digital for Income Tax are the same. They aren’t.
You do not need to be VAT registered to fall within the MTD for Income Tax rules. The two systems operate independently.
Myth 2: The Threshold Is Based on Profit
This is another common misunderstanding. HMRC looks at your gross qualifying income, not your profit. That means income is measured before expenses are deducted.
For example, a landlord with rental income above the threshold could fall within MTD, even if mortgage interest, repairs, and other expenses significantly reduce their taxable profit.
Myth 3: It Won’t Affect Me Because I Only Own One Rental Property
The number of properties you own isn’t relevant. What matters is the total amount of qualifying rental income. Someone with one high-value rental property may be affected, while another landlord with several smaller properties could also fall within the rules once their income is combined.
Myth 4: My Accountant Will Deal With Everything at Year-End
Many people currently hand their records to their accountant once a year before completing their Self Assessment tax return. Making Tax Digital changes the process. Digital records need to be maintained throughout the year, with quarterly updates submitted to HMRC using compatible software. Your accountant can still support you, but waiting until January each year will no longer be practical.
Myth 5: Quarterly Updates Mean Quarterly Tax Payments
Fortunately, this isn’t the case. Quarterly updates simply provide HMRC with information about your income and expenses throughout the year. They do not currently change when tax is due. Self Assessment payment dates remain the same, including Payments on Account where applicable.
Myth 6: Quarterly Updates Replace the Tax Return
Quarterly updates are only one part of the process. At the end of the tax year, you’ll still need to complete a final declaration. This allows adjustments for allowances, private use, disallowable expenses, and other tax calculations before your final tax position is confirmed.
Myth 7: Paper Records Will Still Be Enough
If you’re within Making Tax Digital for Income Tax, paper records alone won’t meet HMRC’s requirements. Records must be kept digitally using compatible software or an approved digital system. Spreadsheets may still be used in some situations, although they will usually need bridging software to submit information to HMRC correctly.
Myth 8: I Don’t Need to Think About It Yet
The first phase began in April 2026 and the rollout is being introduced in stages:
- From April 2026 – Individuals with qualifying income over £50,000 which is based on their 2024-25 personal tax return
- From April 2027 – Individuals with qualifying income over £30,000
- From April 2028 – Individuals with qualifying income over £20,000
Even if you’re not affected immediately, you may be brought into the system later. Preparing early makes the transition much smoother.
How to Prepare for Making Tax Digital
If you’re self-employed or receive rental income, now is a good time to review your current bookkeeping.
Ask yourself:
- Is my qualifying income likely to exceed the threshold?
- Am I already keeping digital records?
- Is my accounting software MTD compatible?
- Do my bookkeeping processes need updating?
- Could I be affected personally, even if I also run a limited company?
Answering these questions now will help avoid unnecessary stress when the new rules apply.
Making Tax Digital for Income Tax is much more than a new filing requirement. It changes how sole traders and landlords keep records and report information to HMRC throughout the year.
The most important things to remember are:
- MTD currently applies to sole traders and landlords, not limited companies.
- The income threshold is based on gross qualifying income, not profit.
- Quarterly updates do not currently mean quarterly tax payments.
- Digital record keeping is essential for those within the scheme.
At Greystone Advisory, we can help you understand whether MTD applies to you, review your bookkeeping systems, and ensure you’re fully prepared before the rules take effect. If you’re unsure where you stand, get in touch we’ll be happy to help.
