Compliance and Reporting Obligations
The UK tax system is becoming increasingly data-driven, with HMRC applying penalties and interest more consistently for late or inaccurate submissions.
Under Making Tax Digital (MTD), compliance will depend not only on annual filings but on the timely submission of quarterly updates and final declarations.
Early preparation will be essential to ensure reporting obligations are met and to reduce the risk of avoidable penalties.
What is Making Tax Digital (MTD)?
Making Tax Digital (MTD) is a UK Government initiative designed to modernise the tax system by requiring individuals to keep digital records and submit tax information to HMRC using approved software.
From April 2026, MTD will apply to landlords and self-employed individuals with gross annual income exceeding £50,000.
Under the new rules, these individuals will be required to:
- Keep digital accounting records
- Use HMRC-approved digital software
- Submit mandatory quarterly submissions to HMRC
- Submit a final annual declaration
It’s important to note, the MTD thresholds are due to change again in future years, reducing to £30,000 from April 2027 and to £20,000 from April 2028. This means many individuals who are not affected in 2026 may still need to prepare in the coming years.
With these changes approaching rapidly, early preparation is essential. Taking the relevant steps now and seeking professional advice where appropriate will help ensure a smooth transition.
Hayley Benn, Tax Director at MHA
What is Qualifying Gross Income?
Your qualifying income – your Gross Income – is the total income you get in a tax year from self-employment and property before any expenses are taken into account.
Where an individual has both self-employment and property income, the amounts are combined when assessing whether the threshold is exceeded.
Income that does NOT count towards the MTD threshold includes:
- employment (PAYE)
- dividends (including those from your own company)
- a State Pension
- private pensions
- income from a partnership
Special rules may apply for properties held jointly where only the net figures (amounts after expenses) are received. HMRC guidance in this area continues to evolve.
Quarterly Submissions Requirements
Instead of submitting one annual tax return, individuals within MTD will submit quarterly updates summarising income and expenses.
Note: These submissions are not tax returns and do not confirm tax payable.
As an example, quarterly reports would be required as follows:
The Final Declaration replaces the current Self-Assessment return and confirms final taxable profits and reliefs.
Those with both self-employment income and property income will be required to combine the sources to determine if they exceed the £50,000 threshold or not.
For example, an individual with both sources of income in the tax year 2024/25:
As total qualifying income exceeds £50,000, this individual would be required to comply with MTD from April 2026.
At this time, only these sources (self-employment and property income) would be reportable under MTD.
Will Tax Be Paid Quarterly?
Under this proposal, there is no expectation of tax payments being demanded on a quarterly basis, rather than the current situation of half yearly (payments on account and balancing payments).
However, this change to reporting, once fully operational, does open up the possibility of the submissions being linked to the payments due, and it would not be surprising if this were to be the case in the future. After all, this then reduces the gap between profits being earnt and the tax being paid.
Practical Challenges of MTD
MTD represents a significant operational change for many taxpayers, with common challenges including:
- Transitioning from paper or spreadsheet records to digital software
- If compliant digital software is not already used, this could be an additional expenditure
- Understanding what must be reported on each quarter
- Keeping records up to date throughout the year, each quarter, rather than only at year end
Benefits to Landlords and the Self-Employed
Despite the challenges, MTD allows for real-time information, giving you a more accurate view on what is going on with your business/property portfolio, on a timely basis.
For landlords
- MTD aids better Financial Management, assisting with sight of those tenants that are not regular payers and highlighting properties that are costing more to look after.
For the Self-Employed
- MTD helps to spot trends in business activity and, for example, being able to see if you have any monies due to you in real time.
Actions to Take Before April 2026
To prepare for the introduction of MTD from April 2026, affected individuals should consider taking the following steps:
- Assess your qualifying income based on 2024/25 and 2025/26 figures
- Confirm whether you will exceed the £50,000 threshold
- Review your current record-keeping systems
- Consider MTD-compatible software options
- Plan for quarterly reporting processes
HMRC has started contacting taxpayers it believes will be affected, based on prior year data. However, registration remains the responsibility of the taxpayer, and not everyone will be contacted in advance.
The registration process itself is not always straightforward, particularly where there are multiple income sources or historic complexities.
Anyone who is unsure whether MTD will apply to them, or who would like support preparing for the transition, should seek professional advice well ahead of April 2026.
The concept of MTD was first floated in 2015. After a decade of debate, change and postponement, the implementation date is just around the corner.
Anyone who is unsure whether MTD will apply to them, or who would like support preparing for the transition, should seek professional advice well ahead of April 2026.
Hayley Benn
Healthcare & Tax Director at MHA