If you’ve recently received a letter from HM Revenue & Customs (HMRC) about Making Tax Digital (MTD) for Income Tax, you’re not alone. Many self-employed individuals and landlords in the UK are being contacted as the government rolls out this digital tax initiative.
While it may feel confusing—especially if your income is below the £50,000 threshold—the letter is not random. Here’s a complete guide to understanding what it means for you and what steps you should take.
What exactly is Making Tax Digital for Income Tax?
Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) is part of HMRC’s plan to modernise tax reporting in the UK. The idea is simple: instead of relying solely on paper records or manual entries submitted annually, taxpayers are asked to maintain digital records and submit regular (quarterly) updates to HMRC.
MTD is designed to:
- Reduce mistakes in tax reporting
- Provide clearer insights into your financial situation
- Streamline submissions to HMRC
It does not replace the Self Assessment process. You will still need to file a tax return, but MTD changes how the information is collected and reported.
Why did HMRC send me a letter about MTD?
HMRC doesn’t send these letters randomly. They review your Self Assessment records and assess whether your income meets the threshold for MTD. Even if your income is currently below £50,000, HMRC may still anticipate that you could exceed the limit in the near future.
In addition, some letters are sent to newly registered taxpayers, landlords, or people with fluctuating incomes. Receiving a letter simply means HMRC is notifying you about upcoming requirements—it’s not necessarily a sign that you’ve already reached the compliance threshold.
Do I have to comply if my income is below £50,000?
Yes—there are some considerations. HMRC sets MTD thresholds based on your qualifying gross income, which is the total income from self-employment or property rental before expenses.
If your income is above the threshold in the tax year HMRC uses to determine eligibility, you will need to join MTD even if your income later falls below £50,000.
And, if your gross income stays below the threshold for three consecutive years, you can contact HMRC to return to the standard Self Assessment system. This flexibility is designed to reduce unnecessary burdens on small earners.
Keep in mind that the MTD thresholds are gradually decreasing:
- £30,000 from April 2027
- £20,000 from April 2028
Unless your income falls below these levels, you may eventually be required to follow MTD rules.
What does “Signing Up Early” mean, and should I do it?
HMRC gives you the option to sign up early for Making Tax Digital for Income Tax. This means you can start using the system before it becomes mandatory.
Signing up early can help you:
- Get used to the system – You can practice submitting digital updates with real data.
- Spot problems early – If something goes wrong, you have time to fix it before it’s required.
- Get guidance from HMRC – You can ask for help and understand how digital updates work.
Even if you join early, you still need to file your annual Self Assessment tax return by the usual deadline. Early sign-up is optional, but it can help reduce stress when MTD becomes mandatory.
For detailed guidance and to determine if you’re eligible to sign up early, you can visit HMRC’s official page on signing up for MTD for ITSA.
Will using MTD complicate my accounting?
Not necessarily. Digital record-keeping might seem scary at first, but it can actually make accounting easier. Once your records are digital, tracking income and expenses becomes simpler. You can also see up-to-date summaries that help with budgeting, managing cash flow, and planning your finances.
In short, MTD isn’t about more work; it’s about making tax reporting easier and more accurate.
What are the requirements for digital record-keeping?
MTD means you need to keep digital records of all income and expenses from self-employment or property rental. This includes invoices, receipts, bank statements, and other tax documents.
Key points:
- Keep records in a digital format that can be updated easily
- Be able to send updates to HMRC online
- Keep backups to avoid losing data
Following these steps helps make sure your quarterly updates and annual Self Assessment are correct and compliant.
What are the consequences of not complying?
If you don’t join MTD or submit updates on time, HMRC can charge penalties or fines. Keeping your records up to date helps you avoid these costs and makes it easier to adjust to the digital system.
How should I respond to the HMRC letter?
If you get a letter from HMRC, here’s what to do:
- Read the letter carefully – Note the deadlines and instructions.
- Check your income – See if you meet the MTD threshold.
- Consider signing up early – It can make the switch easier.
- Keep digital records – Organise your income and expenses online.
- Contact HMRC if needed – Ask for help if your income is below the threshold or there’s a mistake.
Doing these steps will help you stay compliant and ready for MTD.
Can MTD help me plan my finances better?
Absolutely. As MTD involves regular digital updates, you gain a clearer view of your financial position throughout the year. This can help you:
- Identify trends in income and expenses
- Plan for tax payments in advance
- Avoid last-minute stress during Self Assessment season
Even if you’re used to traditional bookkeeping, MTD can improve cash flow management and give you more control over your business finances.
How can an accountant help me with MTD?
An accountant can make MTD much easier. They can help you:
- Organise your digital records correctly
- Check if you meet MTD thresholds
- Guide you through early sign-up if needed
- Ensure filings are accurate – both quarterly updates and your annual tax return
- Provide tax planning advice to manage money and plan ahead
With an accountant’s help, you can stay on top of taxes without stress.
Conclusion
Getting a letter from HMRC about Making Tax Digital can feel worrying, but it’s just HMRC’s way of helping you prepare. By keeping your records in order and taking it step by step, MTD can make taxes easier and less stressful. With a little preparation, you’ll breeze through tax season with confidence.
If you’re unsure about anything or need help, contact us today and we will guide you to make the whole process easier.
