Phase 2 of Making Tax Digital 

What Is Phase 2 of Making Tax Digital?

Making Tax Digital (MTD) is a UK government initiative designed to modernise the tax system through the use of digital tools and processes. The aim is to reduce errors, improve accuracy, and give taxpayers a clearer, real-time view of their tax obligations.

Phase 2 of MTD refers specifically to the rollout of MTD for Income Tax Self Assessment (ITSA). This phase moves beyond VAT and will require certain individuals—namely landlords and sole traders—to keep digital records and submit tax data to HMRC using approved software.

Who Does It Affect?

MTD for ITSA will initially apply to:

• Sole traders and landlords with annual business or property income over £50,000, from April 2026.
• Those earning over £30,000 will be required to comply from April 2027.

At this stage, partnerships and limited companies are not included in the mandate. Future phases will address these groups, but no confirmed timelines have been released.

Key Deadlines for MTD Phase 2

• April 2026 – MTD becomes mandatory for individuals with business or property income over £50,000.
• April 2027 – The threshold lowers to include individuals earning over £30,000.
• Future rollout – Dates for other groups, including partnerships and companies, are still to be confirmed by HMRC.

What Will You Need to Do?

To comply with MTD for ITSA, affected individuals will need to:

• Keep digital records of income and expenses throughout the year.
• Submit quarterly updates to HMRC via MTD-compliant software.
• File a final end-of-period statement, confirming income and allowances.
• Use approved digital accounting software that integrates with HMRC systems.

How to Prepare for MTD Phase 2

Preparation is key to ensuring a smooth transition. You can start by:

• Tracking digital records now, even before it becomes mandatory, to get used to the process.
• Selecting MTD-compatible accounting software, such as Xero, QuickBooks or FreeAgent.
• Working with your accountant to plan how and when to shift to digital reporting, ensuring you’re fully compliant before your obligation date.

Thandi Nicholls Ltd
Creative Industries Centre
Glaisher Drive
Wolverhampton
West Midlands
WV10 9TG