MTD Regulations 2026: What the Final Income Tax Rules Actually Change

What the Income Tax (Digital Obligations) Regulations 2026 Actually Change

Published: 31 March 2026

Making Tax Digital for Income Tax launches on 6 April 2026, and the final legislation underpinning it — the Income Tax (Digital Obligations) Regulations 2026 — was published on 24 March 2026, following Royal Assent to the Finance Act 2026 on 18 March. These regulations revoke and replace the previous draft, and they contain several important changes to exemptions, deferrals and compliance requirements that every affected sole trader, landlord and accountant needs to understand.

This article breaks down the most significant changes in the final regulations, explains what they mean in practice, and identifies areas where the legislation and HMRC’s published guidance do not quite align.

Who falls within scope: a quick reminder

Before examining the regulation changes, here is a summary of the phased rollout. MTD for Income Tax applies to individuals with qualifying income (gross self-employment and/or property income combined) above these thresholds:

If you are unsure whether you are affected, use our free threshold checker. For a full overview of how MTD works, see What is Making Tax Digital?

Key changes in the final regulations

Many of the changes from the earlier draft are cosmetic or administrative. However, several substantive changes deserve attention.

1. The NINO exemption date has shifted

Regulation 35 confirms that taxpayers without a National Insurance number are automatically exempt from MTD. However, the reference date for applying this test has changed.

Previously, you were exempt for 2026/27 if you did not hold a NINO on 31 January 2026. The final regulations now state that the test date is the last day of the prior tax year — meaning you are exempt for 2026/27 only if you did not have a NINO on 5 April 2026.

In practice, this shortens the window. Anyone receiving a NINO between 1 February and 5 April 2026 who would previously have been exempt for the full 2026/27 year is now within scope. If you have clients who recently arrived in the UK and are awaiting a NINO, check the date it was issued carefully against these new timescales.

2. Power of Attorney exemption now has a capability test

Regulation 32 provides an exemption from MTD for individuals who have granted an enduring or lasting Power of Attorney (PoA). The scope has also been expanded to cover Scottish and Northern Irish equivalents and Court of Protection deputyships.

However, the final regulations introduce a significant qualification: the exemption does not apply if the donor “is still capable of providing financial information to HMRC”. This means that merely holding a PoA is not an automatic exemption. If the taxpayer retains the ability to use MTD-compatible software or provide the relevant financial data, they remain within scope regardless of the PoA.

This creates a somewhat awkward overlap with the digital exclusion exemption. If a person cannot provide financial information to HMRC digitally, they could arguably apply for digital exclusion anyway. The practical distinction — and how HMRC will assess “capability” — is not yet clear from the legislation alone.

3. SA109 deferral: legislation and guidance do not fully align

The Spring Statement announced that taxpayers who file an SA109 (the residence and remittance basis supplementary pages) would be temporarily deferred from MTD in 2026/27. This was welcome news for non-UK residents and those with complex residence positions.

However, the final regulations (Regulation 43) do not refer to the SA109 form at all. Instead, they set out specific conditions that must be met, including:

• Not being UK-resident for the tax year
• Having a split year under the statutory residence test
• Claiming a personal allowance under a double taxation treaty
• Claiming under the new foreign income and gains (FIG) regime
• Using the temporary repatriation facility

This list does not cover every reason someone may have filed an SA109 in prior years. For example, a taxpayer who included the SA109 in 2024/25 solely due to deemed domicile status would not appear to meet any of the Regulation 43 conditions for deferral.

Meanwhile, HMRC’s published guidance states the deferral is available if you included the SA109 in your 2024/25 return and “think it’s likely” you will include it again in 2026/27. But Regulation 39(a) appears to make the deferral automatic for anyone who met a Regulation 43 condition in 2024/25 — without requiring any forward-looking “likelihood” test.

The Association of Tax Technicians (ATT) has flagged these discrepancies with HMRC. Until the guidance is updated to match the legislation, affected taxpayers and their advisers should work from the Regulation 43 conditions directly rather than relying solely on HMRC’s simplified guidance.

4. Calendar quarter election and the digital start date

For taxpayers opting for calendar quarters from the outset, the regulations confirm that the MTD digital start date will be 1 April of the previous tax year. This addresses a gap that existed in the earlier draft.

Without this provision, a taxpayer with a 31 March year end entering MTD on 6 April 2026 would have had a five-day period (1–5 April 2026) falling outside any quarterly update. While this would not have affected the final tax liability, it would have left those five days’ worth of income and expenses outside the digital record-keeping requirements.

If you use a 31 March year end and plan to opt for calendar quarters, you can do so from day one. Your first quarterly update period will then run from 1 April to 30 June 2026, due by 7 August 2026.

5. Software required for filing the MTD tax return

The regulations now explicitly require MTD-compatible software to be used for filing the MTD tax return (the final declaration that replaces the traditional Self Assessment return). Previous draft regulations were less specific about the return filing method.

This means the entire MTD process — from keeping digital records, through quarterly updates, to the year-end return — must be completed through compatible software. You cannot submit quarterly updates digitally and then file the return through the existing HMRC online Self Assessment portal.

6. Electronic amendments

The final regulations introduce a requirement for amendments to quarterly updates to be made electronically. If you need to correct a previously submitted quarterly update, this must be done through your MTD software rather than by contacting HMRC directly or using the Self Assessment system.

The penalty regime: what the Finance Act 2026 changed

The Finance Act 2026 made changes to the late filing and late payment penalty regimes that apply under MTD. The points-based penalty system works as follows:

• Each late quarterly update earns one penalty point
• At four points (within a 24-month period), a £200 financial penalty is triggered
• Every subsequent late submission after reaching the threshold triggers another £200 penalty
• Points expire after 24 months of compliance

Crucially, HMRC has confirmed a soft landing for 2026/27: no penalty points will be issued for late quarterly updates during the first year. This gives Phase 1 taxpayers breathing room to adjust to the new system. However, this soft landing does not extend to the final declaration — a late return for 2026/27 (due 31 January 2028) will still attract a penalty point.

Late payment penalties follow a percentage-based model. Interest accrues from the due date, and penalties start at 2% of tax unpaid after 15 days, rising to 4% after 30 days. If you want to understand how to keep on top of penalty points and reset them, see our guide on managing your MTD penalty points.

What the regulations did not resolve

Despite bringing welcome clarity on several points, the regulations leave some issues unresolved:

• Directions on digital records and quarterly updates — The actual HMRC directions specifying exactly what must be recorded digitally and how quarterly updates must be formatted were published separately on 27 March, but appear incomplete and unsigned. There are no accompanying safeguards of the type found in existing electronic communications regulations.
• API platform conditions — No direction has been published specifying the conditions that API platforms (used by software providers to connect to HMRC) must meet under the regulations.
• Identity verification — The regulations reference conditions relating to identity verification for MTD registration, but no direction specifying these conditions has appeared.
• Guidance vs legislation gaps — As discussed above, the SA109 deferral guidance does not match the legislation. There may be similar disconnects in other areas that only become apparent as practitioners apply the rules.

The House of Commons Library’s research briefing on MTD provides a useful overview of the policy’s troubled development history, including the multiple deferrals and scope changes since the original 2015 announcement.

What you need to do now

With MTD launching on 6 April 2026, the time for preparation is essentially over. If you have not already taken action, here is the minimum you need to do immediately:

1. Check whether you qualify for an exemption or deferral. Review the full list of MTD exemptions and deferrals. If you think you qualify, contact HMRC or your accountant now.
2. Sign up for MTD. If you have not yet registered, follow our step-by-step registration guide. HMRC has urged agents to sign up clients now rather than waiting.
3. Choose your software. You need MTD-compatible software in place before your first quarterly update. See our software comparison or check HMRC’s official list.
4. Decide on your accounting basis. You will need to confirm whether you are reporting on a cash basis or accruals basis. The cash basis is the default for most sole traders from 2024/25, following basis period reform.
5. Understand your deadlines. Your first quarterly update covers 6 April to 5 July 2026 (or 1 April to 30 June if you opt for calendar quarters) and is due by 7 August 2026. See our full MTD deadline calendar.

Frequently asked questions

Do the 2026 regulations replace all previous MTD legislation?

The Income Tax (Digital Obligations) Regulations 2026 revoke and replace the previous set of draft MTD regulations. They sit alongside the primary legislation in Schedule A1 of the Taxes Management Act 1970, as amended by the Finance Act 2026.

Is the soft landing on penalties written into the regulations?

The soft landing for 2026/27 quarterly updates is an HMRC administrative decision rather than a provision in the regulations themselves. It means HMRC will not issue penalty points for late quarterly updates during the first year, but the underlying penalty framework in the legislation still applies.

My income dropped below £50,000 this year. Do I still need to join MTD?

The qualifying income test is based on your 2024/25 Self Assessment return. If your qualifying income was above £50,000 in that year, you are within Phase 1 from April 2026 even if your current-year income has since fallen. You may be able to opt out of MTD if your income drops below the threshold in subsequent years.

Are partnerships included in these regulations?

No. Partnerships remain deferred from MTD for Income Tax with no start date announced. The regulations apply to individuals only. See our article on partnerships and MTD for the current position.

What happens if HMRC’s guidance conflicts with the regulations?

The legislation takes precedence over guidance. Where the regulations and HMRC guidance diverge (as with the SA109 deferral), practitioners should follow the legislation and seek clarification from HMRC or professional bodies like the ATT and ICAEW.

Sources

• The Income Tax (Digital Obligations) Regulations 2026 — legislation.gov.uk
• Association of Tax Technicians: Making Tax Digital for Income Tax
• ICAEW: Prepare for 2026 — MTD income tax is here
• House of Commons Library: Making Tax Digital — Developments since 2020
• GOV.UK: Reduction of the mandation threshold from £30,000 to £20,000
• ICAEW: MTD for income tax — sign up your clients now