Today, April 6, 2026, marks a monumental shift in the administration of income tax in the UK, as HMRC commences the statutory rollout of Making Tax Digital (MTD) for Income Tax. This change represents the start of a major overhaul of the self-assessment regime in a generation.
The Legislation
The legislation comprises the Income Tax (Digital Obligations) Regulations 2026 and the relevant provisions within the Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005) in conjunction with Schedule A1 of the Taxes Management Act 1970 (TMA 1970).
Summary of the changes
The roll out replaces the legacy model of filing an annual tax return with a requirement to submit quarterly electronic updates and maintain digital records using HMRC-recognised software (Reg 3, 14, and 17). As a result, taxpayers falling within the scope, primarily the self-employed and those with property income, must now report income and expenses digitally throughout the year at quarterly intervals (Reg 7) instead of reporting all the income on a single self assessment tax return within 10 months after the tax year is over.
These changes enforce digital record-keeping and establish a regulated flow of information between taxpayers and HMRC throughout the tax year. By requiring regular digital submissions, HMRC can provide taxpayers with a near real-time assessment of their tax liabilities and entitlements, in accordance with their policy objectives. This continuous reporting model, at least in theory, aims to reduce common errors associated with manual summarisation and late reporting, fostering greater accuracy in tax calculations and facilitating early identification of discrepancies or compliance issues. The requirement for “digital links” between software platforms prohibits manual copying or rekeying of transactional data, thereby strengthening data integrity and auditability.
In summary, the statutory framework embedded within the 2026 Regulations and the TMA 1970 establishes the legal obligation for quarterly digital updates, identity verification, and end-to-end digital record-keeping.
For self-employed individuals and property owners, understanding these regulations is no longer optional. This post outlines the new compliance requirements, timelines, and digital obligations.
Relevant person(s)
The “relevant person” i.e. those subject to the new digital tax obligations, includes self-employed individuals and those in receipt of qualifying income from self-employment and/or property.
Specifically:
- Individuals carrying on a trade, profession, or vocation, the profits of which are chargeable to income tax under Part 2 of ITTOIA 2005;
- Persons with income from a property business, where such profits are chargeable under Part 3 of ITTOIA 2005; and
- Any other activity generating profits or income chargeable under Part 2 or 3 of ITTOIA 2005.
For self-employed sole traders, this means that any trading profits, regardless of the nature of the business (be it a profession or vocation), will be captured under these provisions if they fall within the income thresholds outlined in Reg 27. Similarly, private landlords or those deriving income from a UK or overseas property business, as defined in s.263 and s.265 ITTOIA 2005, are brought within the scope if their gross qualifying income (i.e., before expenses and deductions, per Reg 25 and 26) exceeds the phased thresholds.
This digital compliance obligation is not restricted solely to UK-based activities: for UK residents, income from trading activities or property businesses conducted overseas also constitutes “qualifying income” for these purposes (s.6 and s.265 ITTOIA 2005). Non-residents, on the other hand, are required to comply where they have income from UK property but may fall outside the regime if not in possession of a valid UK NI Number on the relevant date (Reg 35).
In effect, these legislative provisions ensure that the majority of self-employed individuals and private landlords with significant income must transition to digital record-keeping, quarterly reporting, and final digital declarations as mandated by HMRC.
Exemptions and exclusions
While the rollout is extensive, not every taxpayer is required to comply with MTD: there are several exemptions and exclusions detailed in the legislation.
Digital exclusion exemption (Reg 18, 19 and 20)
A person is considered “digitally excluded” under Reg 20 if it is not “reasonably practicable” for them to use electronic communications or keep digital records for any reason, including age, disability, or location.
- Factors such as a lack of digital skills due to age, physical or mental disabilities, or residing in a remote area with no reliable internet access.
- Religious beliefs: taxpayers who are practising members of a religious society whose beliefs are incompatible with the use of electronic devices or communications.
However, an exemption on these grounds is not automatic; taxpayers must apply to HMRC. If satisfied, HMRC must issue an exclusion notice under Reg 19, which remains in effect until the circumstances change and a further notice is issued under Reg 18.
Income-Based Exemptions
Regulation 21 provides exemptions based on a taxpayer’s “qualifying income”. For the initial 2026-27 tax year, the digital obligation only applies if combined gross income from self-employment and property exceeds £50,000. This threshold reduces in subsequent years to £30,000 from 6 April 2027 and to £20,000 from 6 April 2028.
Automatic and specified description exemptions
Certain groups are automatically exempt or deferred due to their specific roles or types of income, as detailed in Reg 28 through Reg 44:
- Trustees and estates: individuals acting as trustees (including charitable or non-registered pension trustees) or personal representatives of a deceased person’s estate are automatically exempt (Reg 40).
- NI Number (NINO): individuals who do not have a UK NI number on the last day of the tax year (05 April prior to the start date) are exempt for the following year (Reg 35).
- Partnerships: general partnerships are currently deferred from the MTD regime with no fixed start date, though individual partners must still comply if their separate qualifying income exceeds the thresholds.
- Specialist roles: Lloyd’s underwriters (Reg 34) and employed ministers of religion (Reg 33) are currently exempt from digital reporting for their specific roles.
- Allowances and reliefs: taxpayers claiming the blind person’s allowance or married couple’s allowance (Reg 38) are exempt until at least April 2027.
- Specified reliefs: those claiming qualifying care relief (e.g., foster carers) or averaging relief for farmers and creative artists are deferred until April 2027.
Temporary and Transitional Deferrals
To address technical constraints, certain taxpayers are deferred until 6 April 2027. This includes non-residents, those with split-year treatment, and users of the foreign income and gains (FIG) regime (Reg 43). This regulation allows individuals meeting these criteria to remain outside the MTD scope, with further deferrals possible through HMRC notification under Reg 39.
Additionally, individuals under a deputyship or with Power of Attorney arrangements are generally treated as automatically exempt from the digital mandate (Reg 32).
The implementation roadmap
The phased rollout is set out in Reg 27 means that the threshold is lowered to £20,000 by tax year 2028-29. From this date, most individuals with modest levels of self-employment or property income will be required to move to the digital compliance model, unless they are otherwise exempted or excluded. This staggered approach is designed to give smaller and lower-earning businesses more time to adapt to the new system, recognising that they may need additional support to transition from existing practices. HMRC have confirmed that only those whose gross qualifying income exceeds the set threshold in the preceding tax year will be required to comply in each successive phase, thus providing clarity and predictability. Taxpayers whose income fluctuates may therefore move in and out of mandatory digital obligations depending on their gross receipts in each reference year, as outlined in Reg 27(3)-(5).
For taxpayers who newly cross the relevant income threshold or commence a new relevant activity, their digital start date will generally be the start of the tax year following the year in which the threshold is exceeded (Reg 5). This design ensures that all affected taxpayers are given notice ahead of their digital obligation and are able to plan for the necessary changes to their accounting systems.
Qualifying income and relevant activity
The calculation of “qualifying income” lies at the heart of the MTD regime and is governed by Reg 25 and Reg 26. Under these provisions, qualifying income is defined as the total gross income received from all “relevant activities” before any deductions or allowable business expenses. This includes, but is not limited to, all receipts arising from self-employment (trades, professions, or vocations taxed under Part 2 of ITTOIA 2005) and property businesses (income taxed under Part 3 of ITTOIA 2005), as well as overseas property income for UK residents (s.263 and 265 ITTOIA 2005).
Reg 25 specifically states that the amount of qualifying income is the sum included in the relevant tax return “before any deductions are made,” meaning that taxpayers must not net off expenses or reliefs when performing this calculation. If for any reason the return does not contain pre-deduction figures, Reg 26 provides that the figure after the deduction of expenses must be used, although HMRC’s stated preference and the clear legislative intent is to use the gross figure wherever possible.
Crucially, the legislation requires taxpayers to aggregate gross income from all relevant activities. For example, an individual running multiple trades and letting properties, whether in the UK or overseas (if UK resident), is required to combine the gross receipts from each activity to determine whether the sum exceeds the applicable income threshold for that tax year. Income received in a trustee capacity, or by visiting performers who are non-UK residents (s.13 ITTOIA 2005), and receipts qualifying as care income (s.805 ITTOIA 2005) are expressly excluded from this calculation.
This aggregation is deliberate: even where income from individual sources does not individually breach the threshold, it is the combined qualifying income which determines the statutory obligation to comply with MTD. Only when the total gross receipts from all relevant activities in a tax year meet or exceed the stipulated threshold does the obligation to keep digital records and submit quarterly updates arise. This approach ensures comprehensive capture of all taxable income under the statutory framework set out in Reg 25 and Reg 26, and eliminates the possibility of avoidance through the artificial separation of activities.
Territorial scope
The territorial scope of these obligations is determined by both residency status and the source of the taxpayer’s income, with critical reference to the Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005).
For UK tax residents, the MTD reporting not only includes income arising from UK sources but also from overseas activities, in accordance with s.6 (general scope of charge to tax for trading income) and s.265 (scope for property income) ITTOIA 2005. This means that a UK-resident individual must aggregate both UK and foreign qualifying income, such as profits from an overseas trade, profession, vocation (Part 2 ITTOIA 2005), or overseas property business (as defined within Section 263 and 265 ITTOIA 2005), to determine whether their gross receipts breach the relevant threshold in Reg 25 and Reg 26.
In contrast, for non-UK residents, the principal test is whether the individual has qualifying income from UK-based sources. Under Reg 35, a non-resident is required to meet MTD obligations if they generate property income from a UK property business (taxable under Part 3, ITTOIA 2005), or in practice, if they have UK-source trading income (Part 2, ITTOIA 2005). However, non-residents who do not possess a valid UK NI Number as of the last day of the previous tax year (5 April) are specifically excluded from the requirements for digital record-keeping and quarterly updates (Reg 35(1).
It should also be noted that certain categories of internationally mobile individuals—such as non-resident visiting entertainers and sportspeople whose UK-source income is subject to special tax rules (see s.13, ITTOIA 2005)—are explicitly excluded from “qualifying income” for MTD, and so do not fall within the reporting obligations.
In essence, the MTD regime requires UK-resident taxpayers to include all income arising from global relevant activities, whilst non-residents are only in scope for UK-source relevant income, subject to the NINO requirement. This approach ensures comprehensive reporting for residents while limiting administrative burdens for non-residents, in line with the territorial principles of UK income tax legislation.
Identity verification
Reg 46 requires all ‘relevant persons’ to pass a mandatory digital identity check before they are able to access MTD services, submit quarterly updates, or make final declarations. This verification process is a statutory safeguard against fraud and unauthorised access to taxpayer data.
The technical execution of this identity verification is two fold. First, HMRC may mandate biometric verification, which typically involves the use of a smartphone application capable of capturing a live image of the taxpayer’s face. This biometric data is then matched against the secure chip or photograph stored within an official identity document such as a valid UK passport or photocard driving licence, using encrypted digital channels. Biometric processing not only verifies the individual’s physical identity but also detects spoofing attempts to ensure the highest level of security.
As an alternative, for those unable or preferring not to use biometric verification, Reg 46 permits ‘knowledge-based authentication.’ In this case, the taxpayer (or their agent) is required to answer security questions relating to information already held by HMRC. These questions will draw from personal and financial records, such as P60s, recent payslips, tax payments, or credit reference data. The criteria and data sets used are designed to be sufficiently rigorous to minimise the risk of false positives or impersonation.
Crucially, these identity controls operate not only at the initial point of registration for MTD services but may be required at intervals if there is a change in circumstance, or if suspicious activity is detected. Furthermore, agents acting on behalf of taxpayers must also undergo a parallel verification process to confirm their authority to act and to prevent unauthorised access to sensitive taxpayer information.
In essence, Reg 46 embeds multi-layered identity verification and security checks as an indispensable feature of the Making Tax Digital regime, thereby safeguarding taxpayer data and reinforcing trust in the UK’s new digital tax infrastructure.
The start date
The concept of the “digital start date” is a critical technical feature of the MTD framework, as defined in Reg 4 and Reg 5 of Regulations. For the first set of taxpayers, i.e. those whose qualifying income exceeds the relevant threshold in the 2024–25 tax year, the digital start date is set at 6 April 2026 (Reg 4(1)). From this date, these individuals must keep and maintain digital records for every business transaction and begin submitting quarterly updates in accordance with the MTD regime.
For taxpayers who surpass the qualifying income threshold in a subsequent tax year or commence a new relevant activity, Reg 5 provides that their digital start date becomes the 6 April immediately following the tax year in which the threshold was first exceeded or the new activity commenced. This rolling commencement ensures that all newly in-scope individuals will have clear notice of their obligation and a full tax year to prepare before the requirements activate.
The standard MTD reporting periods default to the tax year, meaning quarterly updates ordinarily cover periods ending on 5 July, 5 October, 5 January, and 5 April (Reg 4(3)). However, Reg 10 provides flexibility through the “calendar quarter election.” Taxpayers may elect to align their quarterly reporting with standard calendar quarters, covering the periods ending on 31 March, 30 June, 30 September, and 31 December respectively. To do so, the taxpayer must notify HMRC in the manner prescribed by Reg 10(2).
Where a business makes such an election, Reg 4(4) modifies the digital start date to 1 April of the relevant year, ensuring the new digital record-keeping period aligns perfectly with the commencement of the elected calendar quarter system. This can aid businesses whose internal accounting systems or management processes already operate on a calendar month or quarter basis, enabling seamless integration of MTD compliance with existing practices.
The compliance framework
The annual self-assessment tax return system is formally repealed for in-scope taxpayers by these regulations. In its stead:
Quarterly updates must be submitted with a summary of business income and expenses to HMRC using recognised software.
After the tax year ends End of period statements (EOPS) must be finalised calculating the taxable profit or loss for each relevant activity. This step involves making accounting adjustments and claiming necessary reliefs.
Final declarations: in-scope persons must submit a final declaration that brings together all your income sources, including those outside MTD (like savings or investment income), to calculate your final tax liability for the year.
Record-keeping
No longer use spreadsheets or paper ledgers will work unless they are digitally linked to HMRC-recognised software. Under Reg 3, Reg 8, & Reg 15, all taxpayers within the scope of MTD must use compatible software to maintain digital records and submit their updates. The legislation strictly forbids manual re-entry of data between different pieces of software. Instead, unbroken “digital links” must be established throughout the entire accounting process to ensure data integrity from the original transaction to the HMRC submission.
Corrections
The regulations provide mechanisms for correcting errors. If an error is discovered in a previously submitted quarterly update, it can be corrected in the next update. However, deliberate inaccuracies or significant omissions can trigger HMRC intervention. HMRC retain powers to investigate discrepancies, request additional information, and enforce compliance across the digital framework.
To ensure taxpayers adhere to the new rules, HMRC use a points-based penalty system. Points are accrued for missing quarterly update deadlines, and once a certain threshold is reached, a financial penalty is applied. Separate penalties exist for failing to pay tax bill on time. This system is designed to be lenient on occasional, accidental delays but heavily penalizes persistent non-compliance.
