Making Tax Digital for Income Tax: What Businesses & Landlords Need to Know (2026)

Making Tax Digital

From April 2026, the UK tax system will enter a new digital era — Making Tax Digital for Income Tax (MTD ITSA).
If you’re self-employed or a landlord, these changes will affect how you record your income, report to HMRC, and manage your tax responsibilities.

In this post, we’ll explain what’s changing, who it affects, and how to prepare — plus how our team can help you stay compliant and stress-free.

Table of Contents

  1. What Is Making Tax Digital for Income Tax?

  2. Who Is Affected and When?

  3. What Will You Need To Do?

  4. Exemptions and Deferrals

  5. Common Challenges and How To Prepare

  6. Why Preparing Early Matters

  7. Need Help With Making Tax Digital?

 

What Is Making Tax Digital for Income Tax?

Making Tax Digital (MTD) is HMRC’s initiative to modernise the UK tax system through digital record-keeping and online submissions.

Originally launched for VAT, it’s now expanding to Income Tax Self-Assessment (ITSA).
This means self-employed individuals and landlords will soon have to:

  • Keep digital records of income and expenses

  • Send quarterly updates to HMRC

  • Submit a final declaration instead of a single annual return

👉 Learn more from HMRC’s MTD for Income Tax overview

Who Is Affected and When?

MTD ITSA is being introduced in phases, depending on your total income from self-employment and property.

Start Date Who Must Join Qualifying Income
6 April 2026 Self-employed individuals & landlords Above £50,000
6 April 2027 Self-employed individuals & landlords Between £30,000–£50,000

Those earning below £30,000 will not be required to join yet, though HMRC may expand the rollout later.
🔗 Check your status here: HMRC’s eligibility checker

What Will You Need To Do?

 

1️⃣ Keep Digital Records

You must use HMRC-compatible software to record income and expenses.
Spreadsheets are allowed only if linked to HMRC through bridging software.
📘 See HMRC’s step-by-step guide.

2️⃣ Submit Quarterly Updates

You’ll send summaries of income and expenses to HMRC every three months.
This allows HMRC to estimate your tax position throughout the year.

3️⃣ Final Declaration

At year end, you’ll review all figures, claim any reliefs, and submit your final declaration by 31 January following the tax year.

4️⃣ Stay Compliant

Failure to file quarterly updates or maintain digital records can result in penalties, so preparation is key.

Exemptions and Deferrals

Some taxpayers can apply for an exemption from MTD if they are “digitally excluded.”
Reasons might include:

  • Age or disability

  • Religious beliefs

  • Lack of internet access

Apply directly via HMRC:
🔗 Apply for an exemption from MTD for Income Tax

Common Challenges and How To Prepare

⚠️ Common Challenges

  • Choosing suitable accounting software

  • Adjusting to quarterly submissions

  • Maintaining consistent digital records

  • Understanding new reporting deadlines

✅ Preparation Tips

  1. Start early — use MTD-compatible software now to get familiar.

  2. Digitise receipts and records.

  3. Review bookkeeping processes with your accountant.

  4. Sign up early to test the system before it becomes mandatory.
    🔗 Sign up for MTD ITSA on HMRC’s website

Why Preparing Early Matters

Early adopters report smoother workflows, fewer reporting errors, and better cash-flow visibility.
Getting digital early means you’ll avoid last-minute stress and stay ahead of compliance deadlines.

Need Help With Making Tax Digital?

We’re here to help you get MTD-ready.

Whether you need help checking eligibility, setting up software, or managing your digital records, our experienced accountancy team can handle it all.

📞 Contact us today to book a free consultation and make sure you’re ready before April 2026.

Distributions on cessation of a company

Distributions on cessation of a company

In this article we will discuss the tax treatment of distributions on cessation of a company.  Companies cease for various reasons, some closing for the personal reasons of their directors or shareholders, rather than being forced to close by creditors.  Many companies will have accumulated monies or assets that need to be distributed to shareholders on cessation (after all creditors’ liabilities have been settled). The method of distribution needs careful planning to ensure that the minimum amount of tax is paid.

When a company ceases trading it can either:

  • apply to be ‘struck off’ from the Register of Companies; or
  • be wound-up under liquidation; or
  • become dormant.

Whichever route is taken, dividends may already have been made to the fullest extent possible from accumulated profits but there may still be capital to distribute. ‘Striking off’ is not a formal winding up procedure, and as such any distribution of surplus assets (including the repayment of its share capital represented by those assets) is legally an income distribution.

However, treatment of a distribution can be as capital where the company’s total assets are less than £25,000. Such a distribution is subject to CGT, taxed at either 10% or 20% depending upon the shareholder’s total income but after deducting the shareholder’s annual allowance and offset of any capital losses.

If a company has applied to be ‘struck off’ but within two years of making a distribution the company has still not been dissolved, or has failed to collect all its debts or pay all of its creditors, then the distribution is automatically treated as a dividend.

If the £25,000 limit is exceeded, the whole distribution is treated as a dividend with no reliefs being available, making the extraction of the final shareholders’ funds expensive, depending on the shareholders’ tax situation. In addition, where the distribution is of assets other than cash, the valuation of those assets could assume significance in determining whether the £25,000 threshold is breached.

Any company needing to make a distribution above £25,000 or where the shareholders would prefer the CGT to income tax treatment, will effectively be forced down the formal liquidation route with the additional costs that will be incurred (usually approximately £1,500 – £2,000 for a small company in straightforward circumstances).

Apart from the more beneficial CGT rates, Business Asset Disposal Relief may be available if the relevant conditions apply. BATR reduces the rate of CGT to 10% rather than 20% where the shareholder is taxed at higher rates.

Once a liquidator is appointed, all distributions made during the winding up process are normally treated as capital subject to CGT which could produce a tax planning situation. For example, if the company has a mixture of cash and goods, the liquidator could be asked to release the cash first.

If this could be planned to be at the end of the tax year then the annual exemption for that year can be used. The annual exemption for the next year can be used against any gain when the assets are sold.

Should the shareholder be a basic rate taxpayer, consideration may be given to extracting the excess over £25,000 as a dividend chargeable to income tax before cessation, leaving an amount equal to £25,000 to be extracted as capital.

However, should the company then apply for dissolution, HMRC could argue that the intention was always to apply to strike off the company for tax reasons, and tax the whole amount as income. Intent is likely to be inferred should the company dispose of any remaining assets, leaving only cash before the application.

 

For help with distributions on cessation of a company, please contact us on 02030042780.

Tax Free Trivial Benefits

Trivial Benefits

Legislation surrounding ‘Trivial Benefits’ was introduced to save employers from having to report relatively small amounts given to employees as taxable on a form P11D.

Under the rules there are no tax or NIC consequences for the employee receiving the benefit of the gift:

  • costs less than £50 (HMRC consider this amount to be the VAT inclusive amount)
  • is not a cash or a voucher convertible into cash (a gift voucher is allowed)
  • is not a reward for the employee doing their job. However should that employee undertake duties outside of their employment, e.g. staying after work voluntarily to serve drinks and snacks at a board meeting and receiving a bunch of flowers as a ‘thank you’, then the exemption will apply.
  • not be part of a salary sacrifice arrangement where an employee gives up part of their future pay in exchange for any benefit, however small the amount.

The exemption can apply to as many times a year as required however, if there is a specific exemption for a benefit then that takes precedence over the trivial benefits exemption e.g. the exemption for the cost of a firm’s Christmas party.

As an anti-avoidance measure there is an additional monetary cap provided to directors and their families. The total cost to the company must not exceed £300 per tax year, e.g. six benefits of up to £50 each or any other combination so that the individual cost is less than £50 and the annual cost less than £300.

At first reading the conditions are relatively straightforward but look deeper and there are some situations where an employer may unwittingly fall foul of the rules. For example, HMRC has confirmed that while providing a gift card of £10 would initially fall within the exempt rules, topping up the same card with £10 more than four more times in the tax year will take the total of the benefit over the £50 limit. In this situation, the whole series of gifts will be considered a single benefit that fails to meet the trivial benefit conditions so both the original gift and the top-ups will be taxable.

One way to circumvent the £50 rule is to lend the item to the employee rather than gift. A typical example of this is when an employer provides a work outfit. If the clothing counts as protective or uniform, there are no tax or NIC implications anyway. However, where this is not the case consideration should be made to either provide each clothing item as a separate gift or lending the item to the employee.

The benefit in kind for lending the item will be 20% of the item’s value when first provided to the employee, plus any maintenance costs, e.g. dry cleaning, per year. As long as these amounts total less than £50 the trivial exemption can apply.

 

For help with Trivial Benefits please contact us on 02030042780