The first tranche of those falling into Making Tax Digital filing requirements are now within the first quarter that will have to be reported. It means from 6 April 2026 quarterly reporting is required, and to do so software will be needed as well as having to keep records up to date. There’s no two ways about it this represents a pain to taxpayers. We take another look at the requirements and also a potential upside that could keep more money in your pocket for longer.
Who has to report under Making Tax Digital (MTD)?
Any taxpayer who had more than £50,000 turnover from rental income and/or self employment in 2024/25 will have to start reporting under Making Tax Digital from 6 April 2026. Those with more than £30,000 turnover in 2025/26 will have to report from 6 April 2027, and those with more than £20,000 turnover will report under MTD from 6 April 2028.
What is required to report under Making Tax Digital?
Taxpayers, or their accountants, will need to have compatible software in order to submit quarterly. There has always been a requirement for taxpayers to retain their financial records such as statements and receipts, but copies of these do not form part of the submission itself as even Excel can be used for the records and submitted using bridging software.
When do MTD submissions have to be made?
There are four quarterly submissions along with a final end of year declaration. The deadlines are as follows:
| Submission | Deadline |
| Quarter ended 5 July or 30 June | 7 August |
| Quarter ended 5 October or 30 September | 7 November |
| Quarter ended 5 January or 31 December | 7 February |
| Quarter ended 5 April or 31 March | 7 May |
| End of year declaration | 31 January following the 5 April |
So what is the possible upside?
It is highly likely that those reporting under Making Tax Digital will already be making payments on account to HMRC. Payments on account assume that your income will remain consistent with the previous year, and it means that you pay 50% of your expected liability in the January within the tax year, and another 50% in the July following the end of the tax year.
So as an example, James has a tax liability of £20,000 for the tax year 2025/26 and he intends to file his return in January 2027. This means he will pay a £10,000 payment on account of the tax year 2026/27 in January 2027, and a further £10,000 in July 2027. This is because without any action at all, HMRC will expect your income to stay consistent meaning so will the liability. If that was the case and James’ liability was £20,000 in 2026/27 as well, he would have paid it all by July 2027.
If you know your income will be falling going forwards you are able to make an election to lower your payments on account of next year on your tax return. This has always been met with some trepidation by taxpayers as if they are reduced too much HMRC will charge interest and possibly even penalties for an invalid claim. However now, taxpayers reporting under Making Tax Digital will have a much better idea of their income position by the deadline to file the previous years’ return.
If we take the example of James above, if he does nothing his payments on account for 2026/27 will be £10,000 each, giving a total liability of £20,000. He suspects his profits will fall in 2026/27, but he has never been very good at keeping his records up-to-date so he doesn’t usually know his position until after the end of the tax year. Therefore, he has always previously left his payments on account at the usual calculated amount of 50% of last years’ liability each to avoid any possible interest or penalties. However, he has now had to start reporting under Making Tax Digital from 6 April 2026 and so by the deadline to file the 2025/26 return in January 2027 he would have already filed 2 quarters for 2026/27 and likely know the results of the third even if he hasn’t filed it. This puts him in much better position to estimate his total profits for 2026/27 as he is only having to estimate one quarter of the year at the point he needs to make a decision on the payments on account. Based on the 3 quarters calculated, and estimating the fourth quarter, James believes his liability will fall to £15,000 for 2026/27. This means he is able to reduce each of his payments on account in January and July 2027 to £7,500, from their standard calculated amount of £10,000.
Rather than leave payments on account at whatever they fall as, taxpayers and their accountants will be in a much more educated position to opt to lower these where applicable. This means rather than pay too much in payments on account and wait for it to be refunded whenever you file your tax return, you will be in a much better position to estimate the liability and where profits have fallen, reduce the payments on account before they are even paid. This keeps more money in your pocket for longer, and in the times of a cost of living crisis, this can provide a much needed lifeline to cashflow.
If you have either already tripped the requirement to file under Making Tax Digital, or expect to shortly and would like to discuss anything covered in this blog post, reach out for your free of charge introductory chat by clicking the button below.