How Making Tax Digital Quietly Changed Your Mortgage Borrowing Power

How Making Tax Digital Quietly Changed Your Mortgage Borrowing Power

By Kieran Ali, Mortgage and Protection Adviser, CiK Finance

Key Takeaways

• Making Tax Digital for Income Tax Self Assessment (MTD ITSA) launched on 6 April 2026 for self-employed people and landlords with annual income above £50,000.
• Approximately 780,000 people are now required to keep digital tax records and submit quarterly updates to HMRC.
• Most mortgage lenders calculate self-employed borrowing power from declared net profit, not gross turnover.
• If your accountant maximises allowable expenses to minimise your tax bill, your declared profit drops, and your borrowing power drops with it.
• A real-shape case this month: declared profit dropped £15,000 after the first MTD quarterly return; mortgage borrowing dropped by £180,000.
• Three categories of mortgage lender read MTD-affected files very differently. Choosing the wrong one wastes borrowing capacity you actually have.

A client's first MTD submission, two weeks after the deadline

The client sent me his quarterly MTD submission with one line in the email.

"Accountant says we're maxing expenses to minimise tax."

Then a question. "How much can I borrow?"

He had a remortgage coming up in October. Two children. A growing business. The numbers his accountant had filed under MTD made him look, on paper, smaller than he was.

He is not the only one. About 200,000 of the 780,000 self-employed people who joined MTD in April will discover the same thing the next time they apply for a mortgage. Their accountant is doing the right thing for tax. They are minimising the bill HMRC will send. But the same number that lowers the tax bill is the number a mortgage lender uses to decide how much you can borrow.

This article is the explainer that should have come with the MTD launch and did not. What changed. Why it matters. What to do about it before your next mortgage decision.

What changed on 6 April 2026

Making Tax Digital for Income Tax Self Assessment, almost always shortened to MTD ITSA or just MTD, started for the first cohort on 6 April 2026.

If you are self-employed (a sole trader) or a landlord, and your annual income from those sources is above £50,000, you are now required by law to:

1. Keep digital records of your income and expenses, using HMRC-compatible software.
2. Send a quarterly update to HMRC summarising those records, four times a year.
3. Complete a digital final declaration by 31 January following the end of the tax year.

A second cohort joins in April 2027 for everyone with qualifying income above £30,000.

For most of the affected 780,000 people, the practical change is a tighter filing rhythm. Where their tax position used to be a once-a-year event, it is now a four-times-a-year event. The numbers their accountant submits each quarter create a much faster, much more visible record of what their business actually earned, and what they actually expensed against it.

That faster, more visible record is the reason MTD now matters for your mortgage.

How mortgage lenders calculate self-employed income

Before MTD, most self-employed people had one or two SA302s and a covering letter from the accountant. The mortgage lender would average the figures, weight them toward the most recent year, and quote a borrowing capacity from that.

The number lenders looked at was almost never your turnover. It was your declared net profit (for sole traders) or your salary plus dividends, sometimes plus retained profit (for limited company directors).

That is still the case after MTD. The framework has not changed.

What changed is how often that net profit number gets updated, and how visible the trajectory is between updates.

Three things every mortgage lender will assess from your file:

• Trajectory. How has your income moved across the most recent two tax years? Lenders care about the direction of travel as much as the absolute number. A profit figure that has moved from £45,000 to £60,000 to £55,000 reads completely differently to a profit figure that has moved from £55,000 to £60,000 to £55,000.
• Shape. What does the bank statement evidence say about the rhythm of income? Regular monthly transfers from a business account read differently to lump sums every few months.
• Documentation. Your accountant's letter, on headed paper, with a clear explanation of how the income works. After MTD, this letter matters more, not less.

If you take one thing from this section: lenders are reading the net profit figure your accountant filed. They are not reading your turnover, your gross income, or what you "actually earn".

Why MTD changes the maths

A reasonable accountant, doing their job well, will minimise your tax bill within the rules. That is what you pay them for. They will use every legitimate allowable expense to reduce your declared profit, and therefore reduce your tax.

Pre-MTD, the gap between "what you actually earn" and "what your accounts say you earn" mattered once a year, when your SA302 was generated.

Post-MTD, the same gap shows up every quarter. The HMRC record of your declared profit gets refreshed four times a year. The accountant's instinct to "max the expenses" plays out four times more often than it used to. And the most recent quarterly figure is the one a mortgage lender will likely ask for, because it is the most current evidence of where your business actually sits.

Two things follow from that.

First, the gap between your declared profit and your borrowing capacity is more visible than it used to be. A lender can compare your most recent quarterly submission to the prior one and see the trend in real time.

Second, an aggressive expense strategy that was acceptable when filed once a year now looks aggressive four times in a row. That repetition draws attention.

For about 200,000 of the affected cohort, the practical impact is a measurable drop in mortgage borrowing capacity in the next 12 months unless they get ahead of it.

An anonymised case: £180,000 of borrowing left on the table

The case I am about to describe is anonymised but the figures are realistic for the kind of file that came across our desk this April. Specifics changed. Principle holds.

A self-employed marketing consultant. Sole trader. Three years trading. Annual turnover around £85,000.

Pre-MTD filing pattern: the accountant submitted around £30,000 of allowable expenses each year. Declared net profit averaged around £55,000.

Mortgage borrowing on a typical 4.5x multiple: approximately £247,000 against the higher of the two most recent years.

Post-MTD first quarterly return: the accountant pushed the expense figure higher, anticipating a strong second half and wanting to minimise the quarterly HMRC liability. Allowable expenses for the quarter ran at a rate that, if continued for the full year, would land at £45,000.

If that pattern holds for the full tax year, declared net profit drops from £55,000 to £40,000.

Mortgage borrowing on the same multiple: approximately £180,000.

That is a £67,000 reduction in borrowing capacity. On a £300,000 property purchase, the difference between borrowing 60 percent and borrowing 80 percent. The difference between needing a £120,000 deposit and needing a £60,000 one.

The accountant did exactly what the accountant was hired to do. The client did not realise the same number that lowered the tax bill was the number the lender was reading.

Three categories of lender, three ways of reading your file

Not every lender reads MTD-affected self-employed files the same way. There are three broad categories worth knowing about before you apply.

Category one: high-street, average-the-last-two-years

The big high-street lenders take your most recent two years of filed accounts (or SA302s), average them, weight them toward the most recent year, and quote borrowing on that.

If your most recent year, post-MTD, is your weakest year on paper, this category will give you the worst answer. They are not unreasonable. They are just not flexible enough to read past the headline number.

Category two: specialist, one year of accounts plus current-year projection

A smaller group of lenders will accept one year of accounts plus a current-year projection signed off by your accountant. The projection has to be credible and supported by the trajectory in your bank statements.

This category is useful if you have been trading less than three years, or if the most recent year's filed numbers do not reflect where your business is actually heading.

Category three: specialist, retained profit and dividend together (limited company directors)

For limited company directors who pay themselves a small salary plus dividend (and leave profit retained in the business for tax efficiency), there is a third category of lender that will read net profit plus salary plus dividend together, instead of salary plus dividend alone.

This category is the one most clients have never heard of. Used correctly, it can sometimes triple the borrowing capacity available from a high-street assessment.

The right category for your file is not always obvious. It depends on your trading history, your business structure, your accountant's filing pattern, and the direction of travel of your declared profit.

Five questions to ask your accountant before the next quarterly return

If you are in the £50,000-plus self-employed cohort and you are likely to apply for a mortgage in the next 18 months, these are the five questions to put to your accountant before they file your next quarterly MTD return.

1. What is my declared net profit going to look like for this quarter, and how does it compare to the same quarter last year?
2. Are we filing the most aggressive allowable expense position, the most conservative, or somewhere in the middle?
3. If I needed to evidence my income to a mortgage lender in three months, would the figures you are about to file support a higher or lower borrowing capacity than my most recent SA302?
4. For a limited company director: are we showing retained profit clearly enough that a specialist lender could read it, if needed?
5. What is the trajectory we are showing across the four quarters? Is it consistent enough to support a credible current-year projection if a lender asks for one?

Your accountant should be able to answer all five in a single email. If they cannot, that is a flag.

Frequently Asked Questions

Will Making Tax Digital reduce how much I can borrow on a mortgage?

Not directly. The MTD framework itself does not change how lenders calculate self-employed borrowing capacity. What it can do, indirectly, is make a lower declared profit more visible and more current. If your accountant maximises allowable expenses each quarter to minimise your tax bill, the declared profit a mortgage lender reads may be lower than it would have been before MTD. That can reduce your borrowing capacity by tens of thousands of pounds on a typical case.

When did MTD ITSA start, and who is affected first?

MTD ITSA started on 6 April 2026 for self-employed people and landlords with annual income above £50,000 from those sources. A second cohort joins in April 2027 for everyone with income above £30,000. Approximately 780,000 people are in the first cohort.

Do mortgage lenders use my MTD quarterly returns, or just my annual SA302?

Most lenders still rely primarily on filed annual accounts and SA302s. However, some specialist lenders may ask for a current-year position supported by your most recent quarterly MTD figures, especially if your file does not fit the high-street assessment cleanly. The most recent quarterly submission is now part of the available evidence base.

I am a limited company director. Does MTD affect me?

The MTD ITSA rules apply to sole traders and landlords with qualifying income above £50,000. Limited company directors filing through the company (not as a sole trader) are not directly subject to MTD ITSA in the same way. However, if you have any sole-trader income or property income above the threshold alongside your director's role, the MTD rules apply to that part of your income. Always check with your accountant.

Should I tell my accountant I am planning to apply for a mortgage?

Yes. The single most useful thing you can do is give your accountant a heads-up about your mortgage timing before they file the next quarterly return. They cannot misrepresent your tax position, but they can flag the trade-off between minimising tax this quarter and maximising the borrowing evidence on file in three months.

Can a mortgage broker actually do anything about an MTD-affected file?

A specialist mortgage broker can place your file with a lender whose criteria match the way your accounts are filed, rather than fighting against the way they are filed. The same income, presented to the wrong lender, will get declined. Presented to the right one, it gets approved. The judgment about which lender fits your file is the value a specialist broker adds.

What to do next

If you are self-employed, earning above £50,000, and likely to apply for a mortgage or remortgage in the next 18 months:

1. Speak to your accountant before the next quarterly MTD submission. Use the five questions above.
2. Pull your two most recent years of SA302s and your latest quarterly MTD figure together in one place. That is the evidence base a mortgage lender will work from.
3. Speak to a mortgage broker who has placed self-employed cases recently. Not every broker has. The criteria differences between high-street and specialist lenders move month-to-month, and recent placement experience matters more than years in the industry.

Want a 15-minute review of where your file sits after MTD?

We help limited company directors, sole traders, and landlords whose income does not fit the high-street box.

Get in touch Track my mortgage

About the author

Kieran Ali is the founder of CiK Finance, a mortgage and protection brokerage based in the East Midlands. CiK Finance is an Appointed Representative of Primis Mortgage Network, which is authorised and regulated by the Financial Conduct Authority. Kieran specialises in mortgages for self-employed people, limited company directors, and clients with complex income structures.

Your home may be repossessed if you do not keep up repayments on your mortgage. A fee may be charged for mortgage advice. The precise amount will depend on your circumstances. Most Buy-to-Let mortgages are not regulated by the Financial Conduct Authority. The information contained within is for guidance only and does not constitute advice.