Making Tax Digital for Income Tax: what limited company directors need to know
MTD for Income Tax starts in April 2026. If you run a limited company, the headline is reassuring. But there is a catch worth understanding now, because the rules can still apply to you personally.
The short answer
MTD for Income Tax does not affect your limited company. It applies to personal income from self-employment and property, not to your salary, dividends, or Corporation Tax.
The exception: if you also earn rental income or freelance income in your own name, and the combined gross figure clears the threshold, MTD for Income Tax applies to that personal income even though your company is untouched.
Making Tax Digital for Income Tax is a new way of reporting certain personal income to HMRC. Instead of one Self Assessment return a year, affected people keep digital records and send HMRC a summary every quarter using compatible software, then a final declaration after the tax year ends.
This guide covers what is changing, who it actually affects, and the few things worth doing before it lands.
Who it applies to, and when
The trigger is your qualifying income: your total gross income from self-employment and property in a tax year, before any expenses. It is being phased in by threshold over three years.
| From | Qualifying income over |
|---|---|
| 6 April 2026 | £50,000 |
| 6 April 2027 | £30,000 |
| 6 April 2028 | £20,000 |
HMRC looks at the income on your most recent Self Assessment return to decide whether you are in scope. So the figures you report for 2024 to 2025 onward are what determine your start date.
The part that catches directors out
Most directors take a small salary and the rest in dividends. Neither counts towards MTD for Income Tax, so for many founders the answer is simply: this does not apply to you.
The exception is income you earn personally on the side. A few common examples:
- You let out a property, or a room, and the rent pushes your gross property income over the threshold.
- You do some freelance or consulting work in your own name rather than through the company.
- You have a second venture running as a sole trader while the main business is a limited company.
Add your self-employment and property income together. If the combined gross figure clears the threshold for the year, MTD for Income Tax applies to that income, even though your company is untouched.
What you actually have to do if it applies
If you are in scope, three things change.
Digital records
You keep records of your self-employment or property income and expenses in software, not on paper or in a standalone spreadsheet.
Quarterly updates
You send HMRC a summary of that income four times a year through compatible software. This replaces the rhythm of the annual return for that income.
A final declaration
After the tax year, you confirm the figures and finalise your tax position. This replaces the old Self Assessment return for income within MTD scope.
If you already run your bookkeeping in Xero, the move is straightforward. The work is in being set up correctly and keeping the quarterly rhythm, not in the tax itself.
Key dates to keep in view
| Date | What happens |
|---|---|
| 6 April 2026 | Mandation begins for qualifying income over £50,000. |
| 6 April 2027 | Threshold drops to £30,000. |
| 6 April 2028 | Threshold drops to £20,000. |
What to do now
You do not need to panic, but a short check pays off.
- Work out whether you have any personal sole-trade or rental income at all. If you do not, you can stop here.
- If you do, add it up gross and see where it sits against £50,000, then £30,000, then £20,000.
- If you are likely to be caught, get the record-keeping into software early so the first quarterly update is routine, not a scramble.
Tax admin is easiest when it is set up properly and handled on a steady cadence, not left to a January rush. We keep the company side and the personal side joined up, so nothing falls between the two.
We will tell you plainly whether MTD for Income Tax applies to you
If you are a director with a bit of rental or freelance income on the side, a quick check now saves a headache later. Book a 15-minute call and we will help you work out where you stand.
Book a 15-minute call →Frequently asked questions
Does Making Tax Digital for Income Tax affect my limited company? +
No. It applies to personal income from self-employment and property. Your company’s accounts, Corporation Tax, salary and dividends are not affected.
I am a director with only salary and dividends. Am I in scope? +
No. Salary and dividends do not count towards the qualifying income threshold. Unless you also have sole-trade or rental income over the limit, MTD for Income Tax does not apply to you.
What counts towards the qualifying income threshold? +
Your gross income from self-employment and from property, added together, before expenses. It is the combined figure that matters, not each source on its own.
What software do I need? +
Software that is compatible with MTD for Income Tax and connects to HMRC. If you keep records in Xero, you are already most of the way there, and we can make sure the set-up is right.
I still file a normal Self Assessment. Will that continue? +
For income inside MTD scope, quarterly updates and a final declaration replace the old return. We confirm exactly what you need to file based on your situation, so you are not guessing.
About this guide. Written by the AI Accounts team and reviewed by Anna Stafford, Founder of AI Accounts. Our team are ACA and ACCA qualified accountants.
Source: GOV.UK, Making Tax Digital for Income Tax. Verify current thresholds and dates at the time of reading.
