What is Making Tax Digital for Income Tax?

Traditionally, most self-employed people and landlords have dealt with Self Assessment mainly through one tax return each year. Making Tax Digital changes the way records are kept and information is reported during the year.

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

• Keep digital records of your business or property income and expenses using compatible software.
• Send updates to HMRC every three months, known as quarterly updates.
• Submit your annual tax return using compatible software, including any other income, gains, claims and adjustments that need to be reported.

Quarterly updates do not replace your annual tax return. Instead, they give HMRC regular summaries of your self-employment or property income and expenses during the year, with the final tax return still submitted after the tax year ends.

Who does it apply to?

MTD for Income Tax applies to sole traders and landlords who are registered for Self Assessment. Whether you need to use it depends mainly on your qualifying income.

Qualifying income is your total gross income from self-employment and property before expenses, not your profit.

This is an important distinction. For example, if your business has turnover of £55,000 but £25,000 of expenses, your qualifying income is still £55,000, not the £30,000 profit.

You also combine qualifying income from different sources. If you have more than one sole-trader business, or you are both self-employed and a landlord, the relevant gross amounts are added together. For example, a freelancer with £45,000 of turnover and £6,000 of rental income has qualifying income of £51,000.

Income such as PAYE employment income, savings interest and dividends does not count towards the MTD qualifying-income threshold. The threshold is based on qualifying income from your sole-trader businesses and property income.

When does it start? The rollout timeline

MTD for Income Tax is being introduced in stages over three tax years. The threshold reduces each year, bringing more people into the system:

From 6 April 2026
If your qualifying income was over £50,000 based on your 2024/25 tax return.

From 6 April 2027
If your qualifying income was over £30,000 based on your 2025/26 tax return.

From 6 April 2028
If your qualifying income was over £20,000 based on your 2026/27 tax return.

If your qualifying income is £20,000 or less, you are currently automatically exempt from MTD for Income Tax.

Partnerships are not currently required to use MTD for Income Tax and HMRC says a future timetable will be announced separately. Limited companies are outside MTD for Income Tax.

How do you know if it applies to you?

HMRC uses information from your Self Assessment tax returns to determine your qualifying income and when you need to start using MTD.

For people required to use MTD from April 2026 who had not signed themselves up, HMRC began automatically signing them up from September 2026 where its records showed qualifying income above £50,000.

HMRC contacts taxpayers after doing this. You should still check your own position rather than relying solely on receiving a letter or notification from HMRC.

What you’ll need to do

1. Keep digital records

From your MTD start date, you must create and store digital records of your self-employment or property income and expenses using software that works with Making Tax Digital for Income Tax.

You can still use spreadsheets, but if more than one piece of software is involved, the records must be digitally linked to compatible software.

You must also continue to keep the normal supporting records used for Self Assessment, such as invoices and bank statements, or copies of them.

2. Send quarterly updates

Four times a year, you send HMRC summaries of your self-employment and property income and expenses through your software.

These are not tax returns and you do not normally need to make accounting or tax adjustments before submitting them.

Each quarterly update is cumulative. It covers the period from the start of the tax year to the end of the relevant update period.

The standard deadlines are:

• 7 August — covering 6 April to 5 July
• 7 November — covering 6 April to 5 October
• 7 February — covering 6 April to 5 January
• 7 May — covering 6 April to 5 April

If you use calendar update periods, the periods instead run cumulatively from 1 April to 30 June, 30 September, 31 December and 31 March. The submission deadlines remain the same.

3. Submit your tax return

After the tax year ends, you use compatible software to make any necessary adjustments, claim reliefs and allowances, add other income or gains and submit your tax return.

Your tax return is still due by 31 January following the end of the tax year.

Quarterly updates do not replace the tax return.

Quarterly updates also do not mean paying tax four times a year. The normal Self Assessment payment rules continue. Your balancing payment is normally due by 31 January, and if payments on account apply to you, payments may also be due on 31 January and 31 July.

What software do you need?

You’ll need software that works with Making Tax Digital for Income Tax. HMRC maintains an official list of software that has been through its recognition process.

There are two main routes:

• Full accounting software — software that keeps your digital records, prepares quarterly updates and allows you to submit information to HMRC.

• Bridging software — if you prefer to keep your records in spreadsheets, compatible bridging software can connect those records to HMRC. The required digital links between systems must be maintained.

A standalone spreadsheet that is not appropriately linked to compatible software is not enough on its own.

GOV.UK has an official software finder, so it is worth checking that your chosen product meets your requirements before committing to it.

What about penalties?

For tax years after 2026/27, late quarterly updates are covered by a points-based penalty system.

Normally, one point is added for each missed quarterly deadline. Once you reach the four-point threshold, a £200 penalty applies, with further £200 penalties possible for additional missed submission deadlines while you remain at the threshold.

For the 2026/27 tax year, HMRC will not apply penalty points for late quarterly updates.

However, you still need to submit the required quarterly updates before you can submit your tax return. Penalties can still apply to late tax returns and late payments.

How to get ready

If MTD applies to you now or will apply soon, preparing in advance can make the transition much easier:

• Check your gross qualifying income, not your profit, against the relevant thresholds.
• Choose and set up software that works with MTD for Income Tax.
• Make sure your digital record-keeping process is ready.
• Get into the habit of recording income and expenses throughout the year rather than leaving everything until year end.
• If you use an accountant, agree who will maintain the records, send the quarterly updates and submit your tax return.

Quick FAQ

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

Your PAYE salary does not count towards the qualifying-income threshold. However, if your qualifying gross income from self-employment and property exceeds the relevant threshold, MTD can apply to that income.

Is this the same as MTD for VAT?

No. MTD for VAT is a separate system that already applies to VAT-registered businesses. Using MTD for VAT does not automatically mean you are signed up for MTD for Income Tax.

Do I still pay tax on the usual dates?

Yes. Quarterly updates are reporting requirements, not quarterly tax payments.

Your normal Self Assessment payment rules continue. Tax is generally due by 31 January, with a further payment on 31 July where payments on account apply.

Can I join early?

Yes. You can voluntarily sign up before your mandatory start date.

HMRC currently allows eligible taxpayers to volunteer for the current tax year or the next tax year. Penalties for late quarterly updates do not apply while you are using MTD voluntarily, although tax-return and payment obligations still apply.

What if I genuinely can’t use digital software?

You may be able to receive or apply for an exemption.

This can include circumstances where it is not reasonable for you to use digital tools because of age, disability, health, religious beliefs or lack of suitable internet access.

There are also some automatic exemptions for particular circumstances. Simply preferring not to use digital records is not enough by itself.

Official sources

This guide is based on official UK government information. MTD rules and guidance can change, so GOV.UK should always be checked for the latest position.

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