Making Tax Digital for Income Tax went live in April 2026. If your gross income from self-employment or property exceeds £50,000, HMRC now expects you to keep digital records and submit quarterly updates using approved software.
A point that catches many retailers off guard: the threshold is based on gross income, not net profit. Plenty of garden centre and specialty shop owners who think they’re below the limit are actually well above it once you count total revenue before expenses.
What MTD requires in practice: all income streams must be recorded digitally in HMRC-approved software like Xero or QuickBooks. Paper ledgers and standalone spreadsheets are no longer acceptable. You must submit income and expense summaries to HMRC every quarter, with the first deadline for the current cohort falling on 7 August 2026. And at year-end, your final declaration must be filed through MTD-compatible software — not the old Self Assessment route.
The penalty regime has changed too. HMRC now uses a points-based system for late submissions, similar to what’s already in place for VAT. Accumulate enough points and you’ll face financial penalties. There’s also a potential £3,000 penalty for failing to maintain adequate digital records.
The good news: if you’re in the first cohort (mandatory from April 2026), HMRC has confirmed a soft landing — no penalty points for late quarterly updates in the first year. But that grace period won’t extend to the next cohort joining in April 2027.
At ITS4, our accounting process consulting gets your Xero or QuickBooks setup MTD-ready. We configure digital links between your POS system and accounting software, set up quarterly workflows, and build the processes that keep you compliant quarter after quarter. Fixed-fee packages with full transparency.