MTD for Income Tax: key facts for non-residents

About 5.5m expat Brits live overseas and many of them are non-resident for UK tax purposes as a consequence of spending so few days in the UK.

Under the Statutory Residence Test, you’re normally non-resident for UK tax if in the tax year you spent:

• fewer than 16 days in the UK (or 46 days if you’ve not been a UK resident for the three previous tax years) or
• worked abroad full-time (averaging at least 35 hours a week) and spent fewer than 91 days in the UK and worked no more than 30 of them.

Need to know! Government website GOV.UK provides more detailed official guidance on the Statutory Residence Test.

Paying tax on UK income

Even if you’re a non-resident, UK tax can still be payable on income you receive from the UK. This can include rental income, pension payments, wages, share dividend payments and savings interest.

Currently, you need to report UK taxable income to HMRC by completing an annual Self Assessment tax return. You may have already done this many times over the years (as you will know, you cannot use HMRC’s online services if you live outside of the UK). However, things are set to change drastically – starting in April 2026 – with the introduction of Making Tax Digital for Income Tax.

What is Making Tax Digital for Income Tax?

Making Tax Digital (MTD) for Income Tax is part of a wider government project to digitise the UK tax system. The VAT system was already “made digital” in 2019 for VAT-registered businesses (non-registered businesses followed in 2020).

After many delays, Income Tax is the next stop on the MTD journey and it will bring major changes to the way non-residents and millions of other taxpayers keep records of their taxable income and tax expenses and report figures to HMRC.

When is MTD for Income Tax being introduced?

MTD for Income Tax is being introduced in phases. The first will start on 6 April 2026 and it will impact those earning gross annual trading or rental income of more than £50,000 a year. Obviously, gross means income before any tax expenses are deducted.

From 6 April 2027, it will be the turn of sole traders and landlords and non-resident landlords with a gross annual trading or rental income of more than £30,000. One year later, from 6 April 2028, sole traders, landlords and non-resident landlords with a gross annual trading/rental income over £20,000 will be affected by MTD rules. It isn’t clear yet when MTD will affect sole traders and landlords with gross income up to £20,000, but it seems logical that they too will be required to comply in the coming years.

Many non-residents earn income from renting out property or land in the UK. Some earn income from UK-based sole trader businesses, which may bring them into the scope of MTD for Income Tax.

What will change under MTD for Income Tax?

When the gross taxable income you earn means you’re captured by MTD for Income Tax rules, instead of filing an annual Self Assessment tax return you must:

• maintain accurate, regularly updated digital records of your income and expenses (using MTD-compatible software is ideal for this)
• send quarterly updates of your income and expenses digitally (ie online) to HMRC (which will be easy enough if you have the right MTD software)
• finalise your income and expenses after the fourth quarter, claim your tax expenses/allowances and confirm that your figures are complete and accurate.

HMRC will then tell you how much tax you owe. Failure to comply with the new MTD for Income Tax recording and reporting rules is likely to lead to penalties.

Need to know! Under the new MTD rules, each time you miss a quarterly or end of period statement update, or if you fail to make your final end of year declaration, you’ll be given one penalty point. Once you hit a certain points threshold, you’ll get a £200 penalty.

Start to get for MTD ASAP

If you currently use an accountant or bookkeeper, they’ll likely make sure that you have the necessary software (check with them).

If you normally do your own Self Assessment tax returns, you’ll need to make sure that you have MTD-compliant software that can report summary figures to HMRC digitally as required. You can carry on using digital spreadsheets if that’s how you currently record your figures, but you’ll need to get “bridging software” that can pull out your key summary figures and report them digitally to HMRC as and when required.

MTD for Income Tax is not optional. You cannot choose to stick with reporting via a Self Assessment tax return. MTD for Income Tax is coming, the first phase is in April 2026. Don’t leave it too late.

Coconut is your ready-made MTD solution. It’s part of the GoSimpleTax software family and HMRC-Recognised for MTD for Income Tax! Coconut will make MTD compliance quick and painless, giving you peace of mind and freeing you up to get on with enjoying your life beyond the UK. Start your FREE 30-day trial today. No card details required.

Blog content is for information purposes and over time may become outdated, although we do strive to keep it current. It's written to help you understand your Tax's and is not to be relied upon as professional accounting, tax and legal advice due to differences in everyone's circumstances. For additional help please contact our support team or HMRC.