HMRC’s flagship tax regime Making Tax Digital for Income Tax (MTD for IT) is now approaching at breakneck speed. The new tax regime will include all businesses and individuals with accounting years starting on 1st or 6th April 2026, at least for those who had a combined turnover from self-employment and property in excess of £50,000 in the 2024/2025 tax year. But first a short recap of MTD:
MTD for IT timeline
HMRC’s new tax regime is a major UK government tax initiative designed to modernise the tax system by moving from a single annual Self-Assessment tax return to a more frequent, digital-first quarterly reporting process.
Who is affected and when?
Whilst MTD for VAT is already fully implemented with automatic sign-ups for most, the rollout for Income Tax is being phased in from 6th April 2026. The requirement to use MTD for IT is based on your “qualifying income” (total gross income from self-employment and/or property before expenses), with the start dates being:
- April 6th 2026: for individuals with qualifying income over £50,000.
- April 6th 2027: for individuals with qualifying income over £30,000.
- April 6th 2028: for individuals with qualifying income over £20,000.
Automatic exemptions exist for those with qualifying income of £20,000 or less, as well as for certain individuals (e.g., those without a NI number or those deemed “digitally excluded”). For a full list of exemptions from registration for MTD, my Blog, “Which taxpayers are exempt from MTD for income tax” posted on October 2nd 2025 will provide you with a comprehensive list.
Key Requirements
If you fall into one of the above categories, you will no longer just file a traditional annual Self-Assessment tax return following the end of the tax year, in addition you must:
- Keep digital records of all business income and expenses.
- Use MTD-compatible software (HMRC will not provide free software).
- Send quarterly updates to HMRC through your software to provide a summary of your income and expenditure.
Has everyone signed up?
Until recently, the majority of small businesses and individuals required to join the scheme from 6th April 2026, have adopted the classic head-in-sand approach. Out of approximately 864,000 individuals in the first mandatory wave, only about 81,000 of this first cohort had signed up by mid-March 2026, less than 10% of those taxpayers mandated to do so.
However, this has now started to change rapidly with in excess of 100,000 individuals signing-up in the last ten days, and the numbers are growing daily. HMRC have said that this slow start mirrors the early adoption pattern seen during the MTD for VAT rollout, and they fully expected a surge in sign-ups in the days leading up to the deadline on 6th April.
What will HMRC do if you haven’t signed op by April 6th?
If you are in the first group (earning over £50,000) and don’t sign up by 6 April 2026, you will technically be in breach of the new tax laws, but you won’t face an immediate “fine on day one.” That being said, HMRC is using a soft-landing approach for the first year to help people transition. Here is what to expect if you miss the date:
1. The “Soft Landing” on Penalties
HMRC has confirmed they will not issue late-filing penalties for the 2026/27 tax year. This means if you miss your first few quarterly submissions because you haven’t signed up yet, you won’t be charged the usual points-based fines during this initial “settling-in” period.
2. Notification from HMRC
If you haven’t registered, HMRC will contact you by letter or email. Since registration for MTD for IT is not automatic (unlike VAT), they will prompt you to choose compatible software and link your account.
3. Ineligibility for Quarterly Filing
Without signing up, you cannot submit the mandatory quarterly updates. Whilst you won’t be fined immediately, the “backlog” of data you’ll eventually need to digitise will grow. By the time the soft-landing period ends on 5th April 2027) you will be expected to have all your digital records up to date.
4. Loss of “Real-Time” Tax Estimates
One of the main features of signing up is seeing your projected tax bill updated every three months. If you don’t sign up, you lose this visibility and risk a surprise bill at the end of the year, similar to the old system.
A state of denial
At MJ&Co we have prepared for the new tax regime, but many of our smaller clients are unfortunately in a state of denial, despite our best efforts and a barrage of emails from HMRC. When I look at accounting forums, I realise that the majority of accountants are having similar problems in getting through to this group of individuals.
When you talk to these business owners and drill down to what the real problem is, aside from not liking change of course, there are two main issues:
- Computer illiteracy: Many of these individuals (invariably middle-aged and older), have at best limited computer/digital skills and, perhaps not unreasonably, are unwilling to learn
- Increased cost: Whilst there are a few very basic software packages out there that are free, the overwhelming majority come at a cost, which many individuals on low profits are reluctant to pay. They could of course, ask their accountant to do it for them, but we’re back to additional costs.
Accountant’s view
At MJ&Co we are hugely sympathetic to our smaller and generally, older clients. For this group we have reduced our fees for the quarterly submission to just above cost price, but we cannot do the extra work for free.
So, these individuals have a problem which, if they continue to stick their heads in the sand, will eventually (circa 6th April 2027) result in a nasty and very expensive surprise from HMRC.
