With new tax rules for businesses, here’s everything you need to know about Making Tax Digital for Income Tax.
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Making Tax Digital
Managing your Income Tax digitally
What is Making Tax Digital for Income Tax?
Making Tax Digital (MTD) is changing the way businesses manage taxes. It means Income Tax will be recorded and paid digitally.
Since 2022, all VAT-registered businesses have had to comply with MTD. Here’s what it means for Income Tax:
It replaces annual Self-Assessment tax returns with a fully digital approach.
Businesses will need to keep digital records and use MTD-compatible software to manage taxes.
From 6th April 2026, those with a qualifying income over £50,000 will need to comply.
Who needs to comply, and by when
You can choose to follow HMRC’s MTD for Income Tax rules before you’re required to do so. But these are the dates and income thresholds you really need to know:
6th April 2026
Most self-employed people and landlords with an income over £50,000 must comply with MTD.
6th April 2027
Most self-employed people and landlords with an income over £30,000 must comply with MTD.
6th April 2028
Most self-employed people and landlords with an income over £20,000 must comply with MTD.
What you need to know
The way you report, record and submit tax information is changing. Here's how:
Digital record keeping
You're required to use MTD-compatible software to record your income and expenses. You'll need to use this software to create digital records of your self-employment or property income and expenses.
FreeAgent's MTD-compatible accounting software could automate your digital record keeping. And, it’s free for all NatWest and Mettle business customers.
Submissions to HMRC
You need to provide quarterly updates of your business or property income and expenses.
Deadlines for submission are the 7th of the month following the previous quarter. For example, your first reporting quarter is 6th April - 5th July and you must submit by 7th August.
Your final declaration
Your final declaration will confirm that the information you’ve provided is complete and accurate.
It replaces your Self-Assessment to show you’ve finalised your income tax position. Once you’ve moved to MTD for Income Tax, you won’t be able to use HMRC’s online Self-Assessment filing service.
Then, your tax bill must be paid by the 31st January the following year.
FreeAgent - your free MTD software
FreeAgent could help you stay compliant with your MTD obligations. It’s free for all NatWest or Mettle business banking customers, and here’s how it could help:
It connects to HMRC, so you’ll get tax date reminders to stay on top of deadlines. Plus, you could submit tax returns or payroll information directly to HMRC, straight from the software.
Link your bank account to monitor bank transactions, bills and expenses. So, you could track your business finances in real time.
Automate admin tasks like chasing payments or categorising your expenses. And, there are dedicated tools to simplify processes for landlords too.
Information Message
FreeAgent is free with a NatWest or Mettle business account. You must make at least one transaction a month from your Mettle account to qualify. Optional add-ons may be chargeable.
Using non-compliant tools
You need to use compatible software to stay compliant with MTD rules - not everything is recognised by HMRC. Make sure you know which tools are compatible before you get started.
Mixing personal and business finances
Blending personal and business accounts causes errors. You could get one of our business banking accounts and link it to your MTD software to help.
Misunderstanding income thresholds
‘Qualifying income’ is your total gross income from all self-employment and property. FreeAgent have a handy guide which explains qualifying income.
Not keeping digital records
You need to record your income and expenses directly in MTD-recognised software (like FreeAgent). Paper receipts or manual spreadsheets aren’t enough.
Missing HMRC deadlines
You need to submit quarterly updates and a final declaration, and HMRC can apply penalties for late submissions. Make sure you set date reminders, or FreeAgent could do this for you.
Forgetting your final declaration
Quarterly updates don’t replace the usual year-end process. You must submit a final declaration and you can treat this as your new tax return.
