MAKING TAX DIGITAL: YOUR GUIDE TO THE UPCOMING INCOME TAX CHANGES

From 6 April 2026, self-employed individuals and landlords with gross income over £50,000 must comply. Those earning over £30,000 will follow on 6 April 2027. Then, from 6 April 2028, it catches those with earnings over £20,000. If you have more than one source caught by the MTD reporting requirement, i.e. a self-employment and a rental property, the turnover limit is taken from the total of all combined sources added together.

There are two distinct classifications full exemption and deferral. Exemption will mean you will not be caught up in MTD at all. Deferral is simply a delay in when you will required to comply.

There are a few limited reasons whereby a taxpayer can get an exemption to filing their taxes through MTD ITSA. For example, if you read any articles online then you are unlikely to qualify.

If you feel any of the reasons apply you need to apply to HMRC to confirm your excluded from the system and can remain in Self Assessment.

The reasons are listed below:

• Those who are digitally excluded, so not practical to keep digital records

• Age

• Disability

• Location

• Or other applicable reason – will need to check with HMRC

• Practising member of a religious society (or order whose beliefs are incompatible with using electronic communications / keeping electronic records.

• Trustees, including Charitable and non-registered pension schemes

• Personal representatives of someone who has died.

• Non-resident companies.

• Taxpayers who have a power of attorney.

• Non-resident entertainers or sports people who have no other income sources that count as qualifying income for MTD.

• Income from qualifying care providers, including foster care.

• Those where HMRC systems can not provide a digital service.

But a note of warning, HMRC will be tough with their decisions. For example, they will not accept the following as valid reasons for not complying:

• Cost of complying
• Lack of familiarity with accountancy software
• Preferring to use paper records
• You have a small number of digital records to create each year

Now deferrals maybe because HMRC may still need to build out the functionality of their systems and the areas covered are complex, so need more time to develop. Alternatively, it is just that they are giving time to those where accessing the detail to comply is complex and systems will need a significant overhaul to be able to comply.

The currently listed deferrals are as follows:

• Those who do not have a National Insurance number, caught once it is issued. [No exemption request needed.]

• Not caught over the course of this parliament:

• Ministers of Religion

• Lloyds Underwriters

• Recipient of Married Couples Allowance

• Recipient of Blind Persons Allowance.

• Deferred to 2027:

• Tapayers who complete pages SA109 – Non-Resident pages of UK tax return.

• SA109 pages where they are claiming new Foreign Income and Gains (FIG regime).

In addition, if a VAT exemption applies, taxpayers still need to apply for MTD ITSA exemption separately.

You’ll need to maintain digital records of income and expenses using MTD-compatible software. 

HMRC has created a tool to find approved, MTD-compliant software providers, and many accounting platforms are updating to meet the requirements.

You will no longer submit one single return at the end of January following the tax year. Instead, quarterly updates will need to be submitted, as well as a final declaration annually. 

These reports will be digitally uploaded to HMRC, and there is a 5-week window to submit each quarterly report once the period has ended. 

If you’re UK resident, UK and overseas self-employment turnover and/or UK and overseas rental turnover will fall under MTD ITSA. 

If you’re non-resident, this will be turnover for UK based self-employment and rental, i.e., the sources that would normally be reported on a UK tax return. 

There’s a new MTD penalty and points system being introduced for late submissions, leading to fines once a threshold is reached, alongside separate penalties for late payments. 

The system is designed to encourage timely filing by applying stricter consequences for repeated non-compliance. 

The penalties will be different for MTD ITSA compared to those we all know and love for Self Assessment. Once you are caught in the quarterly reporting regime of MTD there will be a points system whereby there is some leniency for missing deadlines, but once you exceed those concessions, the penalties are higher.

Explained below are the rules for late filing of the different returns and late payment of tax. There is one point for each deadline missed, once you exceed them a penalty will be issued Late Submission of a return:

Quarterly submission – 4 points – £200 penalty

Annual submission – 2 points – £200 penalty

The penalty points are reset to zero if you submit everything on time for the following periods:

Quarterly submission – 12 months

Annual submission – 24 months

Continual lack of compliance will see a hefty cost to taxpayers quickly accumulate.

Tax payments will remain the same, 31 January for balancing payments and first payment on account of the following tax year, and 31 July for the second payment on account.

Late payment of the penalties are changing, but only for those in MTD ITSA for now. These are now:

0 to 15 days late: Zero.

15 – 29 days late: 3% of tax due (increasing to 4% from April 2027).

30 days + 3% of tax due (increasing to 4% from April 2027).

10% per year after 30 days.

As is currently the case, interest will accrue from the due date to payment. Interest will accrue on the penalties if not paid within 30 days of issue.

In the budget on 26 November 2025, a small concession was announced for those who will be starting their MTD ITSA journey in April 2026! Those first caught will not be charged the late filing penalties if they file their quarterly reports late. However, this is not extended beyond 5 April 2027 and will only apply to the quarterly reporting obligations. There is no concession for filing the annual tax return late or for late tax payments.

Think about how you currently prepare your self-employment/rental information and consider how you would like assistance in dealing with this new obligation. 

Cooper Parry will help you ensure a smooth transition to this new world of tax. For example, we could deal with the quarterly reporting on your behalf or simply support with the final declaration. Get in touch with the team today to find out how we can help you stay ahead of the upcoming changes. 

We’ve created two flexible service options to make the transition as smooth (and stress‑free) as possible.

Option 1: DIY Hero – You’re hands-on, we’ve got your back

Perfect if you prefer to stay in control of your record keeping and quarterly reporting but want CP behind you for the setup and final checks.

We’ll help you:

• Understand your MTD eligibility and get everything registered
• Source the right MTD software
• Complete your Final Declaration and integrate your quarterly data into your annual tax position

You’ll handle:

• Preparing and submitting your quarterly MTD updates to HMRC

Option 2: Supercharged – Everything sorted, plus strategy and advice

For those who want total clarity and peace of mind. We take care of the whole process from start to finish.

We’ll handle:

• MTD registration, setup and eligible software
• Preparing your quarterly figures
• Completing and submitting all quarterly updates
• Record keeping and analysis
• Integrating the quarterly results into your annual tax position
• Completing, submitting and reviewing your Final Declaration
• Advising you on timing, deadlines and avoiding penalties