Making Tax Digital (MTD) is a UK government initiative designed to modernise the tax system by requiring individuals and businesses to:
MTD for Income Tax Self-Assessment (ITSA) will apply to individuals with “qualifying income” above certain thresholds. This includes for UK tax residents:
For non-UK residents, this includes:
Carried interest taxed as self-employment income from April 2026 will also be included in “qualifying income”.
HMRC has begun reaching out to customers via letters and e-mails to advise on Making Tax Digital and the roll-out from 6 April 2026.
One particular area of complexity is those who complete the residence pages (SA109) of a tax return (for example to claim the FIG regime or non-resident/split year non-resident or treaty non-resident). HMRC confirmed in March 2025 that individuals will not be required to use MTD until April 2027 if they have information to submit on the residence pages. The temporary delay for this group of taxpayers will allow HMRC time to incorporate into MTD the recent new foreign income and gains regime in place from 6 April 2025. We are still awaiting the details on the criteria for these deferrals and exemptions.
When will MTD for income tax apply?
The updated timetable introduces a staggered rollout based on income levels. Key dates are:
| Updated rollout timeline | |
| Start date for operating MTD | * Qualifying income= total income in a UK tax year from self-employment + income from both UK and foreign property |
| 6 April 2026 | Qualifying income of £50,000* or more |
| 6 April 2027 | Qualifying income of £30,000* or more |
| Expected 6 April 2028 | Qualifying income of £20,000* or more (subject to legislation) |
*Note these threshold limits are for gross income before expenses or taxes.
However, there are some exemptions for certain groups of taxpayers. Some are automatically exempted from the requirement to report taxable income using MTD, including people without a National Insurance number, non-resident companies, people whose qualifying income comes only from being foster carers, and trustees and personal representatives. In addition, HMRC also mentioned wider exemptions in the Spring Statement 2025 including for non-UK resident foreign entertainers and sportspeople who have no other income sources that count as qualifying income for MTD, but we await precise details on this.
There are also exemptions that can be applied for with HMRC, for example people who are digitally excluded. Please see HMRC for full detail of current MTD exemptions and also deferred groups.
We await more details on the one year delay for those who require to file a tax return with residence pages.
Self assessment tax return
HMRC have also recently confirmed that taxpayers within the MTD system will need to file their entire tax return through MTD compatible software, rather than be allowed to make a mix of filing directly to HMRC using MTD software and via other (non-MTD) commercial software. This means that a taxpayer who is required to operate MTD because of self employment income or property rental income but who also has non-qualifying taxable income (e.g. employment income) will have to use that MTD compatible software to file their entire end of year tax return, covering all their income and not merely the MTD qualifying income.
Late penalty regime
Penalties under the MTD regime will be under HMRC’s new point based system. For late submissions, the penalty regime applies to both the year end submission and late quarterly updates. A taxpayer will receive a point every time a submission deadline is missed. Once four points have been reached, there is an immediate £200 penalty and then further late submissions
also receive a £200 penalty. The position is only reset if the taxpayer makes all submissions on time for 12 months and catches up and ensures the submissions that were due in the previous 24 months have been submitted and received by HMRC.
Please note that the deadline for income tax payments is not impacted by MTD, so taxpayers will continue to make self assessment payments by 31 January (or 31 January and 31 July each year for those under the payments on account system). However, a new late payment penalty regime will apply for those in MTD.
| New late payment penalty regime | ||
| Days late | New penalty (from 2025) | |
| 15 days | 3% of the unpaid tax | |
| 30 days | An additional 3% (so a total of 6% of the unpaid tax) | |
| Beyond 31 days | A further daily penalty from Day 31, based on the unpaid tax, at a rate equal to 10% per annum of the unpaid tax | |
Clarified eligibility criteria
The £30,000–£50,000 thresholds refer only to self-employment and property income combined. Income from:
…does not count toward the MTD threshold, but also does not exempt you if your qualifying income exceeds it.
Example:
A UK-resident employee earning £90,000 pa from employment and £32,000 pa in UK gross rental income must join MTD for income tax self assessment from 6 April 2027.
At Vialto Partners, we understand the challenges this transition presents—especially for individuals with cross-border income, global mobility, and non-domiciled tax positions. Our services include:
Whether you’re a mobile employee, landlord, or business owner, we provide end-to-end support to ensure MTD compliance — with minimal disruption.
For a deeper discussion on the above, please reach out to your Vialto Partners point of contact, or alternatively:
Martin Muhleder
Partner
Andy Fahey
Partner
Ben van den Dungen
Senior Manager
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