1. What is Making Tax Digital?
Making Tax Digital (MTD) is HMRC's programme to modernise the UK tax system. It requires businesses and individuals to keep digital records and submit tax information to HMRC using MTD-compatible software — replacing the annual Self Assessment tax return with more frequent, digital updates.
MTD for VAT has been mandatory since April 2019 for VAT-registered businesses above the threshold, and since April 2022 for all VAT-registered businesses. MTD for Income Tax Self Assessment (MTD ITSA) extends this to sole traders and landlords, starting from 6 April 2026.
2. Who must comply?
MTD for Income Tax applies to individuals who are registered for Self Assessment and have qualifying income above the relevant threshold. Qualifying income includes:
- Self-employment income — gross turnover from one or more sole trader businesses
- Property income — gross rental income from UK and/or overseas property
If your combined qualifying income from all sources exceeds the threshold, you must comply with MTD for all qualifying income sources — not just the one that pushes you over. HMRC assesses thresholds using the income reported in your prior-year Self Assessment tax return.
Income thresholds — worked examples
| Scenario | Self-emp. income | Property income | Combined | In scope from |
|---|---|---|---|---|
| Freelance designer | £62,000 | — | £62,000 | April 2026 |
| Plumber + rental | £28,000 | £18,000 | £46,000 | April 2027 |
| Part-time landlord | — | £35,000 | £35,000 | April 2027 |
| Dog walker (sole trader) | £22,000 | — | £22,000 | April 2028 (TBC) |
| Weekend market trader | £14,000 | — | £14,000 | Not yet required |
Important: HMRC measures qualifying income on a gross basis (total turnover/rent received before any expenses). The threshold is not based on profit.
3. Key dates and thresholds
| Date | Threshold | Who's affected | Est. taxpayers |
|---|---|---|---|
| 6 April 2026 | £50,000+ | Sole traders & landlords | ~864,000 |
| 6 April 2027 | £30,000+ | Sole traders & landlords | ~970,000 additional |
| 6 April 2028 (TBC) | £20,000+ | Subject to confirmation | ~975,000 additional |
Source: HMRC policy paper, updated January 2024. The £20,000 threshold and April 2028 date are subject to parliamentary confirmation.
4. Quarterly updates explained
Under MTD, you must submit a summary of your business income and expenses to HMRC every quarter, rather than once a year. The quarterly periods align with the tax year:
| Quarter | Period | Deadline |
|---|---|---|
| Q1 | 6 April – 5 July | 7 August |
| Q2 | 6 July – 5 October | 7 November |
| Q3 | 6 October – 5 January | 7 February |
| Q4 | 6 January – 5 April | 7 May |
After Q4, you also submit a final declaration (formerly the End of Period Statement and tax return) by 31 January following the end of the tax year — the same deadline as the current Self Assessment return.
5. MTD-compatible software
You must use software that can connect to HMRC's MTD APIs to keep digital records and submit quarterly updates. HMRC maintains an official list of recognised software, which includes both full accounting packages and bridging software. Below are the four most widely used options for sole traders and landlords (prices exclude VAT, verified February 2026 — check provider websites for latest pricing).
| Software | Price (excl. VAT) | Best for | Free trial | Bank feed | Mobile app |
|---|---|---|---|---|---|
| Xero SimpleXero | £7/mo | Sole traders & landlords new to MTD | 30 days | ✓ | ✓ |
| QuickBooks Sole TraderIntuit | £12/mo | Sole traders comfortable with US-origin software | 30 days | ✓ | ✓ |
| FreeAgentNatWest Group | £19/mo (free with NatWest/RBS/Mettle) | Freelancers, contractors, landlords wanting simplicity | 30 days | ✓ | ✓ |
| Sage Accounting IndividualSage | Free (basic) / £12/mo (Standard) | Sole traders wanting a free or low-cost option | Free tier available | ✓ | ✓ |
6. How to prepare
With the April 2026 deadline approaching, here's a practical preparation checklist:
- Check your income. Add up your gross self-employment and property income. If it exceeds £50,000, you must comply from April 2026. Between £30,000–£50,000? April 2027. Between £20,000–£30,000? April 2028 (subject to confirmation).
- Choose MTD software. Research and select software that suits your business. Most offer free trials — start now to get comfortable before the deadline.
- Set up digital record-keeping. Transition from paper records or spreadsheets to your chosen software. Ensure all income and expense categories are correctly mapped.
- Sign up for MTD. Register for MTD for Income Tax through your Government Gateway account. HMRC recommends signing up well before the start date.
- Authorise your software. Link your MTD software to your HMRC account so it can submit updates on your behalf.
- Set quarterly reminders. Add the Q1–Q4 deadlines to your calendar. Consider subscribing to our newsletter for automated reminders.
7. Penalties for non-compliance
HMRC is introducing a new points-based penalty system for late submissions and late payments under MTD for Income Tax:
Late submission penalties
Each late quarterly update adds one penalty point. At 4 points (the threshold for quarterly obligations), you receive a £200 penalty. Points expire after 24 months of meeting all deadlines.
Late payment penalties
No penalty if paid within 15 days of the due date. After 15 days, a first penalty of 2% on the amount outstanding is charged. After 30 days, an additional 2% is charged. Daily interest also accrues on outstanding amounts.
8. Exemptions and exclusions
Not everyone is required to use MTD. Current exemptions include:
- Individuals with qualifying income below the current threshold
- Trustees and personal representatives of deceased persons
- Individuals who are digitally excluded (e.g. due to age, disability, or location)
- Partnerships (deferred — no confirmed date)
- Non-UK resident landlords with UK property income may be included, but guidance is evolving
If you believe you qualify for a digital exclusion exemption, you can apply to HMRC for an exemption from MTD requirements.
9. Frequently asked questions
Do I need to sign up for MTD for Income Tax, or will HMRC enrol me automatically?
You must sign up through your Government Gateway account. HMRC has been writing to affected taxpayers, but the responsibility to sign up and choose compatible software is yours.
Can I use spreadsheets for MTD?
Plain spreadsheets alone are not sufficient. You need either dedicated MTD software or a bridging application that can submit your spreadsheet data digitally to HMRC via their API.
What counts towards the £50,000 threshold?
The threshold is based on your gross income (turnover) from self-employment and/or property — not your profit. If your combined qualifying income exceeds £50,000, you must comply from April 2026.
I have multiple businesses — do I need separate software for each?
Not necessarily. Most MTD software supports multiple income sources within a single account. However, you must submit quarterly updates for each qualifying source of income.
What happens if I miss a quarterly update deadline?
HMRC operates a points-based penalty system. Each late submission adds a penalty point. Once you reach the threshold (4 points for quarterly obligations), you receive a £200 penalty. Points expire after a period of compliance.
Are partnerships included in MTD for Income Tax?
General partnerships were originally planned for April 2025 but have been deferred. HMRC has not confirmed a new start date. Limited partnerships and LLPs remain excluded for now.
Last updated: February 2026. Information is based on HMRC published guidance and is subject to change. DigiTaxHub.co.uk is not affiliated with HMRC. Always verify details at GOV.UK.