Making Tax Digital
Making Tax Digital: MTD for Income Tax Guide 2026
Making Tax Digital (MTD) is changing how sole traders and landlords keep records and report income to HMRC. Find out who must use MTD, when it applies, the income thresholds, quarterly deadlines and how to prepare.
From 6 April 2026, MTD for Income Tax applies to qualifying sole traders and landlords with gross self-employment and property income of more than £50,000.
What Is Making Tax Digital?
Making Tax Digital (MTD) is HMRC's programme for moving tax record-keeping and reporting onto compatible digital software. Making Tax Digital already applies to VAT, and Making Tax Digital for Income Tax is now being introduced in stages for sole traders and landlords.
Making Tax Digital: the quick answer
From 6 April 2026, sole traders and landlords with qualifying self-employment and property income of more than £50,000 generally need to use Making Tax Digital for Income Tax. The threshold falls to more than £30,000 from 6 April 2027 and more than £20,000 from 6 April 2028. Those within the rules must keep digital records, use compatible software and send quarterly updates to HMRC.
Last reviewed: September 2026. Tax rules can change, so your individual circumstances should always be checked before acting.
Who Needs to Use Making Tax Digital for Income Tax?
Making Tax Digital for Income Tax applies to individuals within Self Assessment who receive income from self-employment, property, or both and whose qualifying income exceeds the relevant threshold.
| Qualifying income | Tax return used to assess income | MTD start date | Status |
|---|---|---|---|
| More than £50,000 | 2024/25 | 6 April 2026 | Now in force |
| More than £30,000 | 2025/26 | 6 April 2027 | Next phase |
| More than £20,000 | 2026/27 | 6 April 2028 | Later phase |
Partnerships are expected to enter Making Tax Digital for Income Tax in the future, but HMRC has not yet set a mandatory start date for partnerships.
What Counts as Qualifying Income for Making Tax Digital?
One of the most important parts of the Making Tax Digital rules is understanding qualifying income. It is generally the total gross income you receive from self-employment and property before deducting business expenses.
If you have more than one qualifying source, the income is combined when determining whether you exceed the MTD threshold.
Sole trader with £55,000 turnover
A self-employed consultant has gross turnover of £55,000 but allowable expenses of £20,000, leaving a £35,000 profit. The relevant figure for the MTD threshold is generally the £55,000 gross income, not the £35,000 profit.
Self-employment plus rental income
A person receives £32,000 gross income from self-employment and £21,000 gross property income. Their combined qualifying income is £53,000, so the income sources must be considered together when assessing whether MTD applies.
How Does Making Tax Digital for Income Tax Work?
For taxpayers within the regime, Making Tax Digital changes the way business and property records are maintained and reported to HMRC. Rather than waiting until the end of the year to organise all your records, information is maintained digitally throughout the tax year.
Keep digital records
Record your self-employment or property income and expenses using MTD-compatible software or an appropriate digital record-keeping system.
Send quarterly updates
Your compatible software uses your digital records to send summary information about income and expenses to HMRC during the year.
Complete your tax return
After the tax year, check the figures, make any necessary adjustments and add other relevant income, gains, allowances and reliefs before submitting your tax return through compatible software.
Making Tax Digital Quarterly Deadlines
Under the standard update periods, MTD for Income Tax quarterly updates are due on 7 August, 7 November, 7 February and 7 May.
| Update | Standard period covered | Submission deadline |
|---|---|---|
| Quarterly update 1 | 6 April to 5 July | 7 August |
| Quarterly update 2 | 6 April to 5 October | 7 November |
| Quarterly update 3 | 6 April to 5 January | 7 February |
| Quarterly update 4 | 6 April to 5 April | 7 May |
Calendar update periods can also be used in appropriate circumstances, which may make record keeping simpler for businesses with accounting periods ending on 31 March. The submission deadlines remain the same.
Making Tax Digital for Landlords
Making Tax Digital is particularly important for landlords because gross property income can count towards the qualifying income threshold. It is not limited to people who describe themselves as running a conventional business.
If you receive property income as an individual landlord, that income may need to be combined with qualifying self-employment income when deciding whether MTD for Income Tax applies.
Rental income of £36,000 plus self-employment income of £18,000
The two qualifying income sources total £54,000. Looking only at the rental income or only at the self-employment income could therefore produce the wrong conclusion about MTD.
Landlords within MTD need suitable digital records of property income and expenses and must use compatible software to meet their reporting obligations.
Making Tax Digital for Sole Traders
Sole traders are one of the main groups affected by MTD for Income Tax. Your start date depends on the qualifying income shown by the relevant previous tax return.
If MTD applies, you will need to maintain digital business records and send quarterly updates through compatible software rather than relying solely on an annual exercise to prepare your accounts and tax return.
- Check your gross self-employment and property income.
- Confirm the date from which MTD applies to you.
- Choose compatible accounting or bridging software.
- Set up your bookkeeping before your mandatory start date.
- Keep digital records of relevant income and expenses.
- Make sure quarterly updates are submitted by the relevant deadlines.
- Complete the year-end tax return through compatible software.
If you need help with the year-end return, see our Self Assessment tax return service.
What Software Do I Need for Making Tax Digital?
You need software that is compatible with Making Tax Digital for Income Tax. The right choice depends on the complexity of your business, whether you have property income, whether you already use spreadsheets and how much bookkeeping you want to automate.
Cloud accounting software
Full bookkeeping platforms can record transactions, connect to bank feeds and support digital tax reporting from the same system.
Spreadsheets + bridging software
Some taxpayers may be able to continue using spreadsheets provided the necessary digital links and compatible software are used correctly.
Accountant-managed software
Your accountant may be able to manage the bookkeeping and MTD submission process using compatible software on your behalf.
Popular accounting software
We have separate guides covering several widely used cloud accounting packages:
Is Making Tax Digital for Income Tax the Same as MTD for VAT?
No. Making Tax Digital for VAT and Making Tax Digital for Income Tax are related parts of HMRC's digital tax programme, but they apply to different taxes and have different reporting requirements.
| Feature | MTD for VAT | MTD for Income Tax |
|---|---|---|
| Who it primarily affects | VAT-registered businesses | Sole traders and landlords within the qualifying income rules |
| Records | Digital VAT records | Digital self-employment/property records |
| Reporting | VAT Returns through compatible software | Quarterly updates plus year-end tax return process |
| Software | MTD for VAT compatible software | MTD for Income Tax compatible software |
If you are both VAT registered and within MTD for Income Tax, you may therefore have digital obligations under both regimes.
Making Tax Digital vs Traditional Self Assessment
MTD does not mean that tax is calculated and paid every quarter. The major change is the move towards continuous digital record keeping and regular reporting during the year.
| Traditional approach | Making Tax Digital for Income Tax |
|---|---|
| Records may be organised mainly at year end | Records maintained digitally throughout the year |
| Annual Self Assessment reporting | Quarterly updates plus year-end tax return |
| Tax software may be optional | Compatible software is central to the process |
| Tax position may only become clear near year end | More up-to-date records can help monitor the developing tax position |
Making Tax Digital Penalties
A points-based late submission penalty regime applies to MTD for Income Tax, alongside rules dealing with late payment.
For quarterly obligations, the normal late submission penalty threshold is four points. Once the threshold is reached, a £200 penalty can apply, with further £200 penalties for additional missed submission obligations while the taxpayer remains at the threshold.
Penalty rules can become complicated, particularly where several obligations or late payments are involved. Keeping bookkeeping current throughout the year is therefore preferable to trying to reconstruct records shortly before a deadline.
Can You Be Exempt From Making Tax Digital?
Some people can apply to HMRC for an exemption from MTD for Income Tax. An exemption may be available where it is not reasonably practicable for a person to use digital tools because of their individual circumstances.
This is different from simply being outside the qualifying income threshold. If your qualifying income does not exceed the relevant threshold, you may not be required to join in that phase in the first place.
How to Prepare for Making Tax Digital
Even if your mandatory start date is April 2027 or April 2028, preparing early can make the transition considerably easier.
- Check your qualifying income. Add together relevant gross self-employment and property income.
- Identify your start date. Don't assume the same date applies to every sole trader or landlord.
- Review your bookkeeping. Move away from incomplete paper-based records where necessary.
- Choose compatible software. Make sure it supports MTD for Income Tax rather than simply general bookkeeping.
- Connect bank feeds where appropriate. Automation can reduce manual data entry, although transactions still need to be reviewed.
- Keep records up to date. Quarterly reporting is much easier when bookkeeping is maintained throughout the year.
- Speak to your accountant. Agree who will maintain the records, review them and submit the required updates.
Making Tax Digital FAQs
What is Making Tax Digital?
Making Tax Digital is HMRC's programme for moving tax record keeping and reporting onto compatible digital software. It already applies to VAT and is now being introduced in stages for Income Tax for qualifying sole traders and landlords.
When did Making Tax Digital for Income Tax start?
The first mandatory phase started on 6 April 2026 for qualifying sole traders and landlords whose relevant qualifying income was more than £50,000. Further phases begin on 6 April 2027 and 6 April 2028.
What is the Making Tax Digital threshold?
The threshold is being introduced in stages: more than £50,000 for the April 2026 phase, more than £30,000 for April 2027 and more than £20,000 for April 2028. The test is based on qualifying gross income from self-employment and property rather than profit after expenses.
Does rental income count towards the MTD threshold?
Yes. Relevant gross property income can count as qualifying income. If you have both property and self-employment income, the qualifying amounts generally need to be considered together.
Does employment income count towards the MTD threshold?
The qualifying income test focuses on gross income from self-employment and property. PAYE salary is not added to those amounts when determining whether you exceed the MTD qualifying income threshold.
Do I have to pay Income Tax every quarter under MTD?
No. Quarterly updates are reporting obligations; they do not mean that your normal Income Tax automatically becomes payable every three months. Existing tax payment rules continue to apply.
Can I still use spreadsheets for Making Tax Digital?
Spreadsheets can potentially form part of an MTD-compliant system where they are used with appropriate compatible or bridging software and the necessary digital record and digital-link requirements are met.
Can my accountant deal with Making Tax Digital for me?
Yes. An authorised accountant or tax agent can assist with the MTD process, including software setup, bookkeeping, checking records and submitting information to HMRC where appropriately authorised.
Do limited companies need Making Tax Digital for Income Tax?
MTD for Income Tax is aimed at qualifying individuals with self-employment and property income. A limited company's profits are subject to Corporation Tax rather than Income Tax under this regime.
What happens if my income is below the MTD threshold?
If your qualifying income is below the threshold for the relevant mandatory phase, you may not yet be required to use MTD for Income Tax. The thresholds are being reduced in stages, so your position should be reviewed each year.
Do I Need an Accountant for Making Tax Digital?
You do not have to appoint an accountant simply because Making Tax Digital applies to you. However, an accountant can be particularly useful where you have several income sources, rental properties, incomplete bookkeeping records or uncertainty over which expenses and tax adjustments should be included.
The Online Accountants are ACCA qualified accountants providing online accounting and tax services throughout the UK. We can help sole traders and landlords understand their MTD obligations, organise digital bookkeeping and deal with their wider Self Assessment requirements.
MTD readiness
We can help determine when the MTD rules apply and what needs to be put in place before your start date.
Digital bookkeeping
We can help you establish a practical record-keeping process using appropriate accounting software.
Tax return support
MTD is only part of your overall tax position. We can also assist with your year-end accounts and Self Assessment tax return.
Need Help With Making Tax Digital?
If you are a sole trader or landlord and are unsure whether Making Tax Digital applies to you, we can help you understand your position and prepare for the new digital reporting requirements.
Contact The Online Accountants Self Assessment Service