MTD for Income Tax just got the all-clear in HMRC’s Transformation Roadmap

How a new Revenue roadmap charting Making Tax Digital’s future contains both a green and red light for users of the UK tax system.  

It’s now been the focus of not one but two entries on Kingsbridge’s Blog.  

And back-to-back entries no less! 

But it’s very likely not Finance Bill 2025-26 that warrants most people’s attention. It’s HMRC’s new Transformation Roadmap because it’s income tax that most of us fork out – and the map re-plots a novel way for some individuals to pay it. And from quite soon.   

A Revenue roadmap with both green and red MTD lights 

Published alongside the bill on July 21st 2025, the HMRC Transformation Roadmap might even warrant some preparations on your part, as it states that Making Tax Digital for Income Tax (MTDIT) will be introduced from April 2026, writes Andy Vessey, Head of Tax at Kingsbridge. 

Conversely, it also states something else MTD-related won’t be introduced, which I’ll come to.  

But first, and to paraphrase New York Times best-selling author Simon Sinke, ‘Let’s Start With Why’. 

Why is Making Tax Digital for Income Tax (MTDIT) being introduced?  

Making Tax Digital (MTD) is part of the government’s aim to ‘create a tax system fit for the challenges and opportunities of the 21st century’.  This lofty aim was outlined in HMRC’s 10-year strategy document, published in July 2020, titled “Building a trusted, modern tax administration system”.   

MTD is also part of the government’s aim to reduce the ‘tax gap’. 

The tax gap is the difference between the amount of tax that should, in theory, be paid to HMRC and the amount that is actually paid. 

MTD is out to get error – the tax gap’s second biggest contributor  

There’s another dimension to MTD.  

Making Tax Digital aims to promote better and more timely record-keeping, thereby reducing errors and mistakes.  

In a related development, on June 19th 2025, HMRC said taxpayer “error” accounted for the second largest proportion (15%) of the overall tax gap in 2023 to 2024. 

‘Get your tax right.’ HMRC just told you to do so almost 20 times… 

Today, in 2025-26, HMRC believes that the digitalising of business records and tax reporting under MTDIT will eradicate much of the current paper-based accounting being used, while making it easier for taxpayers to get their tax right.   

Any doubters that HMRC is extremely committed to the latter – ensuring taxpayers get their tax payments “right” – need only scan last week’s HMRC Transformation Roadmap. The document is only seven chapters long, but it mentions the need for taxpayers to pay it the “right” amount of tax almost 20 times. 

Standing back from all the detail, the clear picture is that MTD is HMRC’s showpiece to modernise the tax system while improving the accuracy of the information provided to it by its customers – you and me! 

MTD versus Self-Assessment Tax Return (SATR) 

Currently, self-employed individuals complete an annual tax return that has to be filed with HMRC by January 31st following the tax year it relates to.  

From April 2026, though, sole traders and landlords with turnover exceeding £50,000 a year will be required to keep digital records.  

Also, under Making Tax Digital for Income Tax, from those digital records such sole traders and landlords will be required to submit a summary of their business income and expenses every quarter.  

It is important to recognise that these quarterly updates will not be mini-tax returns.  

Key dates for quarterly MTDIT tax filing 

The quarters that landlords and sole traders need to pay attention to will be based on the dates of the tax year as follows:

MTDIT alternative: Are you a sole trader or landlord who prepares accounts to a month-end date? 

Alternatively, landlords and sole traders can make a ‘calendar quarters election’, which is likely to be easier for those who prepare their accounts to a month-end date, rather than aligning it with the tax year: 

Following the submission of the fourth and final quarterly update, a ‘digital tax return’ must be filed.  

The return is similar to the existing SATR (Self-Assessment Tax Return). But all the business income and expenditure figures will be pre-populated from the quarterly updates already filed.  

MTDIT return: What about capital expenditure and non-business income? 

The entries will need to be adjusted for accounting and tax purposes, such as expenditure involving private usage and capital expenditure.  

Non-business incomes (such as investment income, salary/salaries) will still need to be reported.  

Yet with MTD aiming to generate greater pre-population of HMRC-held data, it should mean the sole trader or landlord just needs to check HMRC’s figures.  

Only one end-of-year submission has to be filed for each tax year, with the ‘due date’ being the normal self-assessment deadline of January 31st following the relevant tax year.   

With MTDIT, what about payments to HMRC and penalties from HMRC? 

Tax payment dates will remain the same as under self-assessment. 

By contrast, there will be new late-filing and late payment penalties under MTDIT. 

In the case of late filing, HMRC penalties will move to a new points-based system, whereas in the case of late payment, HMRC will introduce a system of graded penalties. 

MTD roadmap for sole traders and landlords 

Remember, from April 2026, it’s ‘£50k+ landlords and sole traders’ who will be covered by Making Tax Digital for Income Tax. 

However, as HMRC’s Transformation Roadmap reiterated last week, MTDIT will be extended to other sole traders and landlords in future years as follows:  

• From April 2027 – turnover over £30,000. 

• From April 2028 – turnover over £20,000. 

Also, on July 21st 2025 HMRC said potentially additional unincorporated business-owners – and landlords – face settling their taxes digitally. 

The Revenue’s Transformation Roadmap states: “As announced at Spring Statement [2025], this government will go further by extending the roll out to those with income over £20,000 from April 2028, and will explore how the benefits of digitalisation can be extended to the 4 million businesses and landlords who have income below the £20,000 threshold.” 

Preparing for Making Tax Digital for Income Tax  

HMRC will not register taxpayers for MTD automatically.  

Instead, where a person’s income exceeds the threshold, the individual will need to sign up for MTD in a similar way that taxpayers currently register for self-assessment.  

HMRC has been writing to people during the spring and summer (of 2025) where tax officials believe that the amount of qualifying income on their 2024 SATR indicates they need to comply with MTD, assuming that income remains constant or greater in 2024/25.  

More definitive communications will follow after January 31st 2026, once 2025 SATRs have been filed.  

MTDIT prep: don’t be complacent… 

Savvy sole traders will prepare now for the transition towards digital record-keeping and are recommended to talk with their accountants about the best way to start MTDIT preparation.    

Software will have to be used for every step of Making Tax Digital for Income Tax. 

But partly why we at Kingsbridge advocate you getting the MTD ball rolling now, HMRC will not provide the software.  

Three MTDIT software options to explore 

Therefore, affected taxpayers and businesses need to consider their options, namely:   

1. Full software package 

2. API-enabled spreadsheet 

3. Spreadsheet plus bridging software 

Not sure which is the best MTDIT software option?  

Well, HMRC does publish and maintain a list of compatible software, which can be found at “Find software that works with Making Tax Digital for Income Tax”.  

How much will MTD for Income Tax cost? 

There’s another reason it’s smart not to leave your MTDIT prep until the 11th hour.  

HMRC estimates that the average transitional cost will be £320. 

And it estimates that the annual average cost per business will be £110.  

Does MTDIT affect freelancers and contractors? 

Freelancers and contractors are businesses, of course, but unless they have a sole trader structure and/or property income, such taxpayers should not be affected by MTD for Income Tax.   

While that doesn’t mean freelancers and contractors might not already be covered by MTD, due to being VAT-registered and therefore covered by MTD VAT, Making Tax Digital for Income Tax won’t affect wider swathes of the freelancer community, largely because HMRC has not rolled out its digital tax scheme to limited companies.  

Does Making Tax Digital apply to Personal Service Companies? 

An MTD rollout to Personal Service Companies (PSCs) was expected to happen at some point in the future. 

But HMRC used its Transformation Roadmap to advise on something else significant – that MTD for Corporation Tax (MTDCT) is being abandoned. 

In HMRC’s own words, the tax department does “not intend to introduce MTD for CT”. 

The Revenue’s Transformation Roadmap has held MTD CT at a red light 

Instead of Making Tax Digital for Corporation Tax, HMRC says it is “developing an approach to the future administration of CT that is suited to the varying needs of the diverse CT population”. 

Not everyone is happy with the abandonment of MTD for Corporation Tax, and some say it raises more questions than answers.  

As one chartered certified accountant put it: “This [decision to abandon MTD CT] does call into question the stated aim of MTD, to ‘modernise the UK tax system and improve the accuracy of information provided by taxpayers to HMRC’.” 

In fairness to the Revenue, it has always stated that modernisation cannot and should not happen overnight (p13, “The tax administration framework: Supporting a 21st century tax system”). 

However, to succeed with Making Tax Digital, the tax office will need to take us advisers along on its journey rather than using its “roadmap” to unilaterally announce a significant U-turn, even if (like MTD as a concept) it is a manoeuvre from HMRC that we have all become very familiar with adjusting to. 

Getting support 

Navigating tax legislation and ensuring compliance can be challenging. Kingsbridge offers tailored support, including expert guidance on IR35 status assessments, compliance strategies, and risk mitigation. Our team is dedicated to helping businesses understand and adapt to the evolving tax landscape.  

Kingsbridge also offers a range of flexible business insurance like Contractor Insurance that includes Professional Indemnity, Public Liability, and Employers’ Liability, as well as add-ons like Legal Expenses which can cover professional fees resulting from defending HMRC enquiries like VAT, NICs and PAYE. 

To find out more, contact us today.