The UK's tax system is undergoing its most significant transformation in over three decades, as HM Revenue and Customs (HMRC) begins the national rollout of Making Tax Digital for Income Tax (MTD). This Labour government-backed initiative signals the end of the traditional annual Self Assessment tax return for millions, replacing it with a new, digital-first process of recording and reporting income and expenses.
What is Making Tax Digital for Income Tax?
Described by HMRC as the biggest change since Self Assessment was introduced in the 1990s, MTD for Income Tax fundamentally alters how taxpayers manage their obligations. Instead of a single, often stressful, annual submission, the new system requires taxpayers to maintain digital records and send summaries to HMRC every quarter.
Craig Ogilvie, Making Tax Digital director, stated: "MTD is about spreading your tax admin throughout the year instead of that January scramble to complete your Self Assessment return." He added that free software options are available and feedback from testing indicates the system is straightforward once users are familiar with it.
How the New Quarterly System Will Work
The core of the new regime involves two key actions for taxpayers with income from sole trading or property:
Firstly, you must keep digital records using recognised bookkeeping or accounting software that is compatible with MTD. This could be an app on a smartphone or laptop, allowing you to log receipts and invoices regularly.
Secondly, you will send a quarterly update to HMRC every three months. This is not a full tax return but a simple summary of your income and expenses, generated directly from your software. If you maintain your records consistently, submitting an update can be as simple as pressing a button.
After each update, you will be able to view an estimate of your eventual tax bill, aiding financial planning. However, the deadline for final payment remains 31 January, which will be settled via your GOV.UK online tax account or the HMRC app, as is currently the case.
Implications and Next Steps for Households
This shift represents a move towards continuous tax administration. The standard update periods will align with the tax year, running from 6 April to 5 April. The change aims to reduce errors, provide a clearer real-time view of tax liabilities, and eliminate the last-minute panic associated with the January deadline.
For UK households and self-employed individuals, adapting to this digital process will be essential. Engaging with compatible software and adjusting record-keeping habits to a more frequent, digital model will be the key steps in preparing for what HMRC deems the most substantial modernisation of personal tax in a generation.
