April 2026 will see the UK income tax system revolutionised with the introduction of a new quarterly filing system called Making Tax Digital for Income Tax. Way back in 2015 the idea of quarterly tax returns was discussed on UK business Forums. Some ten years later the idea may actually become reality.
We take a look at the new rules and what this means along with an old friend of UK Business Forums, veteran accountant Elaine Clark who has just launched a new web site dedicated to this new regime called 1MakingTaxDigital.co.uk.
What are the new rules?
The new rules mean that tax returns, based upon digital records, must be filed with HMRC each quarter along with a final annual submission. Following each submission HMRC will provide an estimate of the likely income tax to be paid by the tax payer.
How will I know if I need to follow the new rules?
HMRC are starting to write out to people who they think, based upon current figures, will need to comply with the new rules. They will confirm this again next year just before the new rules start.
Who do the new rules apply to?
From April 2026 the new Making Tax Digital for Income Tax rules will apply to landlords and self employed workers and business owners who have a gross income of over £50,000. In April 2027 the gross income limit is reduced to £30,000 and then to £20,000 from April 2028. The important thing to note is that it is gross income (turnover) before the deduction of any costs and not profit. It’s also important to note that the gross income is the combination of all income from property, both UK and overseas, as well as self employment although it does exclude other types of income such as wages, salaries, dividends and savings interest.
This means that if say a Content Creator has a turnover of £32,000 as well as a buy to let rental income of £1,600 per month they would fall into the first tranche of the new rules with a total gross income of £51,200.
Does this mean I have to pay tax quarterly?
At the moment there are no changes to when income tax is due although this may change in the future
What is the best way to ensure compliance with the new rules?
Realistically the only way to comply with the new rules will be to have an accounting system of some sort which is regularly updated – at least quarterly if not more often. Although this may sound onerous embracing technology makes keeping on top of your accounting much easier. For those with straight forward accounting needs and limited transactions using a business bank account with inbuilt bookkeeping, such as those provided by Starling, Monzo, Tide and Mettle will be more than adequate for accounting. For those with more complicated accounting needs an accounting system such as FreeAgent, Sage, QuickBooks or Xero might be a better solution although having a dedicated business bank account is still good practice.
As well as an accounting system, to get the figures over to HMRC you will need quarterly software, often referred to as Bridging Software, as well as a solution that can file the final submission with HMRC. This will be necessary as HMRC are withdrawing their free software for those who will be using the new Making Tax Digital for Income Tax rules. Most likely both bridging software as well as the final submission functionality will be built into accounting systems such as FreeAgent, Sage, QuickBooks or Xero.
If you do use a spreadsheet for your accounting then this is fine as they can be linked via Bridging Software to HMRC although you will need to purchase software for your final submission.
Are there any advantages of this new regime?
The main advantage of the new system for the tax payer is that they will be given an estimate of their potential tax liability which should put them more in control of their business finances and mean no surprises many months after the end of the tax year when the tax return deadline occurs. In fact undertaking the regular bookkeeping that the new Making Tax Digital system demands means doing better business as finances, such as who owes what, who you owe money to as well as how much money is in the bank, are more visible.
Are there any issues to be aware of under the new rules?
There’s a few things to be aware of with the new rules:
There is no mandatory requirement to have an accountant for the new regime. However with the set up, quarterly filing and additional deadlines for reporting it may be sensible to appoint one, if funds allow and your time can be spent in the business rather than dealing with the accounting of it.
Where can we find more information on Making Tax Digital for Income Tax?
More information about the new Making Tax Digital for Income Tax rules can be found on the HMRC web site at https://www.gov.uk/guidance/use-making-tax-digital-for-income-tax and on the new 1MakingTaxDigital.co.uk web site.
We take a look at the new rules and what this means along with an old friend of UK Business Forums, veteran accountant Elaine Clark who has just launched a new web site dedicated to this new regime called 1MakingTaxDigital.co.uk.
What are the new rules?
The new rules mean that tax returns, based upon digital records, must be filed with HMRC each quarter along with a final annual submission. Following each submission HMRC will provide an estimate of the likely income tax to be paid by the tax payer.
How will I know if I need to follow the new rules?
HMRC are starting to write out to people who they think, based upon current figures, will need to comply with the new rules. They will confirm this again next year just before the new rules start.
Who do the new rules apply to?
From April 2026 the new Making Tax Digital for Income Tax rules will apply to landlords and self employed workers and business owners who have a gross income of over £50,000. In April 2027 the gross income limit is reduced to £30,000 and then to £20,000 from April 2028. The important thing to note is that it is gross income (turnover) before the deduction of any costs and not profit. It’s also important to note that the gross income is the combination of all income from property, both UK and overseas, as well as self employment although it does exclude other types of income such as wages, salaries, dividends and savings interest.
This means that if say a Content Creator has a turnover of £32,000 as well as a buy to let rental income of £1,600 per month they would fall into the first tranche of the new rules with a total gross income of £51,200.
Does this mean I have to pay tax quarterly?
At the moment there are no changes to when income tax is due although this may change in the future
What is the best way to ensure compliance with the new rules?
Realistically the only way to comply with the new rules will be to have an accounting system of some sort which is regularly updated – at least quarterly if not more often. Although this may sound onerous embracing technology makes keeping on top of your accounting much easier. For those with straight forward accounting needs and limited transactions using a business bank account with inbuilt bookkeeping, such as those provided by Starling, Monzo, Tide and Mettle will be more than adequate for accounting. For those with more complicated accounting needs an accounting system such as FreeAgent, Sage, QuickBooks or Xero might be a better solution although having a dedicated business bank account is still good practice.
As well as an accounting system, to get the figures over to HMRC you will need quarterly software, often referred to as Bridging Software, as well as a solution that can file the final submission with HMRC. This will be necessary as HMRC are withdrawing their free software for those who will be using the new Making Tax Digital for Income Tax rules. Most likely both bridging software as well as the final submission functionality will be built into accounting systems such as FreeAgent, Sage, QuickBooks or Xero.
If you do use a spreadsheet for your accounting then this is fine as they can be linked via Bridging Software to HMRC although you will need to purchase software for your final submission.
Are there any advantages of this new regime?
The main advantage of the new system for the tax payer is that they will be given an estimate of their potential tax liability which should put them more in control of their business finances and mean no surprises many months after the end of the tax year when the tax return deadline occurs. In fact undertaking the regular bookkeeping that the new Making Tax Digital system demands means doing better business as finances, such as who owes what, who you owe money to as well as how much money is in the bank, are more visible.
Are there any issues to be aware of under the new rules?
There’s a few things to be aware of with the new rules:
- HMRC will not automatically enrol people in Making Tax Digital for Income Tax. The individual or their accountant will need to do this initial set up at the appropriate time
- Software costs have yet to be revealed by many suppliers who are promising that they will declare their charges by Autumn. With use of the software being free in the meantime, this could see some sign up to a solution before knowing the full cost of ownership
- As Limited Companies are exempt from the new rules, at least for now, some are advising that a way to avoid the new regime is to incorporate the business or property portfolio. Whilst this is an option, doing so brings its own challenges in terms of additional reporting, extra accountancy costs and possibly a higher tax liability. Seeking professional advice before venturing down this route is essential
- Landlords will need ready access to their mortgage accounts to ensure that they are correctly accounting for just the interest element of any loan repayments made
- Subcontractors working under the Construction Industry Scheme (CIS) will need to make sure that they gross up their income receipts to take account of the tax deducted at source
- Those with multiple income streams could have to do more than one return each quarter. For example a self employed plumber with a buy to let will need to do quarterly returns for their plumbing business as well as quarterly returns for their property business – that’s 8 quarterly returns over the year plus one final annual submission. They may also need separate software licences for each business
- VAT registered businesses will already be doing quarterly returns although these could be to different quarter end dates. The recommendation here would be to apply to align the VAT quarters to the Making Tax Digital for Income Tax quarter ends before the new regime starts
- Caution should be taken when looking at the HMRC tax estimate as it may not include all taxable income such as wages, salaries, dividends and savings; so the estimate may be inaccurate
There is no mandatory requirement to have an accountant for the new regime. However with the set up, quarterly filing and additional deadlines for reporting it may be sensible to appoint one, if funds allow and your time can be spent in the business rather than dealing with the accounting of it.
Where can we find more information on Making Tax Digital for Income Tax?
More information about the new Making Tax Digital for Income Tax rules can be found on the HMRC web site at https://www.gov.uk/guidance/use-making-tax-digital-for-income-tax and on the new 1MakingTaxDigital.co.uk web site.
