Making Tax Digital for Income Tax: what Arab UK company directors need to know

Making Tax Digital for Income Tax Self Assessment (MTD ITSA) is HMRC's programme requiring self-employed individuals and landlords to submit income and expense summaries to HMRC every quarter, rather than in a single annual self-assessment return. It replaces part of the traditional Self Assessment process with digital, near-real-time reporting. The first mandatory phase began in April 2026.

Who is affected in 2026: self-employed sole traders and UK landlords with total qualifying income above £50,000 per year. From April 2027 the threshold drops to £30,000, and from April 2028 to £20,000. Qualifying income means gross self-employment and property income only: salary, dividends, pensions and savings interest are outside it. Importantly, MTD ITSA applies to personal income, self-employment income, rental income from UK property, not to corporation tax on a limited company. Your UK limited company's corporation tax obligations are a separate matter and are not touched by these changes.

Where Arab directors become relevant, and a point that is easy to get wrong: qualifying income is your gross self-employment income plus your gross property income. A director's salary, dividends, pensions and savings interest do NOT count towards it, however large they are. So drawing £60,000 from your company does not put you in scope. What can is holding UK investment property as an individual rather than through the company, or trading in the UK as a sole trader alongside it: those two are added together gross, before expenses, and tested against the threshold. Living abroad does not exempt you from UK income tax obligations on UK-sourced income. Exemptions do exist, including for the digitally excluded, and they have to be applied for.

What quarterly reporting means in practice: under MTD ITSA, you submit a summary of income and expenses to HMRC every quarter using MTD-compatible software. This is not a tax payment, it's an information submission. The final tax calculation and payment still happen at the end of the year. Think of it as HMRC replacing your single annual return with four short interim updates plus a year-end finalisation. The burden per submission is low; the change is the frequency and the software requirement.

The software requirement is the practical point to note. MTD ITSA mandates the use of HMRC-recognised software, you cannot submit quarterly updates via a PDF or a letter. Xero, QuickBooks, Sage, and most other major UK accounting platforms are MTD-compatible. If you are in scope, you need to be using compatible software before your first quarterly deadline. If you're unsure whether your personal UK income position triggers MTD ITSA obligations, this is worth checking with Fileminder before the April 2026 start date.