What is Making Tax Digital for Income Tax?

Right now, most self-employed people and landlords fill in one Self Assessment tax return each year. You gather up your figures, submit them once, and pay your tax. Making Tax Digital changes that rhythm.

Under the new system, if it applies to you, you must do three things:

• Keep digital records of your business income and expenses using compatible software.
• Send updates to HMRC every three months (quarterly updates) — short summaries of your income and expenses.
• Submit a Final Declaration once a year to confirm your figures and finalise your tax. This replaces the traditional Self Assessment return.

In short: instead of one big annual return, you give HMRC a running picture of your finances throughout the year. The aim is fewer errors and fewer nasty surprises at tax time.

Who does it apply to?

MTD for Income Tax applies to sole traders (self-employed people) and landlords. Whether you’re caught by it depends on something called your qualifying income.

Qualifying income is your total gross income (your turnover or rent before expenses) — not your profit.

This is the single most misunderstood part of the rules. Many people look at their profit, see it’s under the threshold, and assume they’re safe. But HMRC looks at your gross income — your total sales or rent before you take anything off.

You combine your income sources. If you have more than one self-employed business, or you’re both self-employed and a landlord, you add the gross figures together. For example, a freelancer with £45,000 of turnover who also earns £6,000 in rent has qualifying income of £51,000 — over the first threshold.

Some income doesn’t count. Wages from a normal job (PAYE), savings interest, and dividends are not part of your qualifying income for MTD. Only self-employment and property income count.

When does it start? The rollout timeline

MTD for Income Tax is being introduced in stages over three tax years. The threshold drops each time, so more people are brought in:

From 6 April 2026 — if your qualifying income is over £50,000 (based on your 2024/25 tax return).

From 6 April 2027 — the threshold drops to £30,000 (based on your 2025/26 tax return).

From 6 April 2028 — it drops again to £20,000 (based on your 2026/27 tax return).

If your qualifying income is below £20,000, you’re not currently required to join — though the government has said it will look at this group in the future. Partnerships, limited companies, and trusts are not part of this rollout yet.

How do you know if it applies to you?

HMRC checks your Self Assessment tax returns to work out your qualifying income. If you’re over the relevant threshold, HMRC will write to you to confirm you need to start using MTD from the beginning of the upcoming tax year.

Don’t rely only on the letter, though. If you know your gross self-employment or property income was over the threshold, the rules apply to you whether or not a letter arrives. If you think you’ve been included by mistake, you can contact HMRC.

What you’ll need to do

1. Keep digital records

From your start date, you must record your income and expenses digitally using MTD-compatible software. The “shoebox of receipts” and standalone spreadsheets are no longer enough on their own. You don’t need to keep paper receipts — a digital photo of a receipt is fine.

2. Send quarterly updates

Four times a year, you send HMRC a summary of your income and expenses through your software. These are not full tax returns and they don’t finalise your tax — they’re a running summary. Each update builds on the last (it’s cumulative across the year).

The standard deadlines are the same every year:

• 7 August — for the period 6 April to 5 July
• 7 November — for the period 6 July to 5 October
• 7 February — for the period 6 October to 5 January
• 7 May — for the period 6 January to 5 April

Your software can also use “calendar quarters” (ending on the last day of June, September, December and March) if that’s easier — the submission deadlines stay the same.

3. Submit a Final Declaration

After the tax year ends, you finalise everything with a Final Declaration. This pulls together all your income (including any job, savings or dividends) and confirms your tax bill for the year. It replaces your old Self Assessment return and is due by 31 January — the same deadline you’re used to.

Remember: quarterly updates are reporting dates, not payment dates. Your tax payments still follow the usual schedule — 31 January and 31 July.

What software do you need?

You’ll need software that’s recognised by HMRC for MTD for Income Tax. There are two main routes:

• Full accounting software — tools like Xero, QuickBooks, FreeAgent or Sage handle everything from recording transactions to submitting your updates. This is the simplest route for most people.
• Bridging software — if you want to keep using spreadsheets, you can, but they must be linked to bridging software that sends the figures to HMRC. A standalone spreadsheet on its own won’t meet the rules.

GOV.UK keeps an official list of compatible software — always check there before you buy anything.

What about penalties?

There’s a points-based penalty system for late quarterly updates: you collect a point for each late submission, and once you hit the threshold (4 points for quarterly updates) you get a £200 penalty. Late tax returns and late payments carry their own penalties too.

Helpful to know: HMRC has confirmed it will not apply penalty points for late quarterly updates during the first year (the 2026/27 tax year), giving people time to adjust. It’s still wise to get into the habit early.

How to get ready

If MTD is coming for you, a little preparation now saves a lot of stress later:

• Check your gross income (not profit) against the thresholds to work out your start date.
• Choose and set up HMRC-recognised software before your start date.
• Consider separating your business and personal banking — it makes digital record-keeping far simpler.
• Get into the habit of recording income and expenses as you go, rather than at year end.
• If you use an accountant, talk to them early about who will handle the quarterly updates.

Quick FAQ

Does MTD apply if I’m employed but also have a side business or rental income?

Your PAYE wages don’t count towards the threshold. But if your self-employment and/or property income (gross) goes over the threshold, you’re in scope for that income.

Is this the same as MTD for VAT?

No. MTD for VAT is a separate system that’s already running for VAT-registered businesses. Being set up for MTD for VAT doesn’t automatically cover you for Income Tax — you may need to sign up separately.

Do I still pay tax on the usual dates?

Yes. The quarterly updates are just reporting. Your tax payment deadlines remain 31 January and 31 July.

Can I join early?

Yes. You can volunteer to sign up before your mandatory date to test the system and get used to it. While volunteering, the late-submission penalties for quarterly updates don’t apply.

What if I genuinely can’t use digital software?

You may be able to apply to HMRC for an exemption — for example, if you can’t use digital tools because of a disability, age, location, or lack of internet. Some exemptions are automatic; others you apply for. It’s not available simply because you’d prefer not to change.

Official sources

This guide is based on official UK government information. Always check GOV.UK for the latest rules, thresholds and software list, as these can change:

• UK — Check if and when you need to use Making Tax Digital for Income Tax
• UK — Use Making Tax Digital for Income Tax: send quarterly updates
• UK — Find software that’s compatible with Making Tax Digital for Income Tax
• UK — Penalties for Making Tax Digital for Income Tax
• HMRC — Making Tax Digital for Income Tax service guide

This article is for general information only and is not a substitute for professional tax or accounting advice. If your situation is complex, consider speaking to an accountant.