Making Tax Digital (MTD) for Income Tax is changing how sole traders and landlords keep records and report income to HMRC. Instead of completing most of the work once a year, you will spread your tax admin more evenly across the year. As a result, you can keep better control of your figures and identify issues earlier, way before the January deadline.
What MTD for Income Tax Is
Making Tax Digital for Income Tax Self Assessment, often shortened to MTD for Income Tax, forms part of the government’s plan to modernise the UK tax system. The aim is to reduce errors while making it easier for people to manage their tax affairs throughout the year.
Under MTD for Income Tax, you must:
- Keep digital records of your income and expenses
- Use HMRC-recognised software (such as an app or cloud accounting software)
- Send quarterly updates to HMRC through your chosen software
- Digitally submit your end-of-year return by 31 January
You will still finalise your tax position at the end of the year. However, quarterly updates provide regular estimates during the year. This gives you earlier visibility of your likely tax bill and more time to prepare.
Who Needs to Use MTD for Income Tax
You will need to use MTD for Income Tax if one of the following applies and your qualifying income exceeds the relevant threshold:
- You act as a sole trader and submit a Self Assessment tax return
- You receive rental income and submit a Self Assessment tax return
Qualifying income means your gross income from self-employment and property. HMRC does not deduct expenses, allowances or reliefs when testing the threshold.
If you receive income from both trading and property, HMRC combines these figures. This combined total decides whether MTD for Income Tax applies to you.
Start Dates and Income Thresholds
MTD for Income Tax will not apply to everyone at the same time. Instead, HMRC will introduce it in phases. Each phase looks at your income from an earlier tax year.
| Start Date | Qualifying Income Threshold |
|---|---|
| 6 April 2026 | Over £50,000 (based on 2024/25 tax year) |
| 6 April 2027 | Over £30,000 (based on 2025/26 tax year) |
| 6 April 2028 | Over £20,000 (based on 2026/27 tax year) |
This phased approach gives people time to prepare. Even so, many taxpayers will join the system over the next few years.
If you want to make sure you are ready before the start date, you should consider some of the following:
- Check your qualifying income and monitor the thresholds
- Start digital record-keeping now, even if you still fall outside the rules
- Set reminders for the quarterly deadlines
- Review your processes for invoices, receipts and bank transactions
- Separate your business and personal finances where possible
Even small changes today can make the move to MTD far easier later.
What You Must Do Under MTD for Income Tax
Once you fall within scope, you must complete four tasks each year. Together, these tasks form the core of MTD compliance.
1. Keep Digital Records
You must record income and expense using compatible software as part of your normal routine. You should also record:
- The transaction date
- The amount
- The category (such as sales, rent, travel or utilities)
This approach replaces paper records and manual spreadsheets. It also reduces the risk of missing information at year end.
2. Send Quarterly Updates
Your software will total your digital records and send updates to HMRC every three months. Each update uses year-to-date totals, not a standalone quarter. Simply, every update starts from 6 April and builds on the previous one. You can also correct earlier figures in later updates, so you do not need to finalise accounts every quarter.
| Standard Update Period | Submission Deadline |
|---|---|
| 6 April to 5 July | 7 August |
| 6 April to 5 October | 7 November |
| 6 April to 5 January | 7 February |
| 6 April to 5 April | 7 May |
Some software also supports calendar update periods, where quarters end on the last day of a month. This option can suit people whose accounting periods do not align with the tax year. Your software will guide the correct choice.
3. Finalise Your Year-End Position
After the tax year ends, you will review and confirm your figures. At this stage, you can make accounting adjustments and include claims for reliefs or allowances. You will also declare other sources of income, such as dividends or employment income. This ensures that HMRC holds a complete and accurate picture of your tax position.
4. Submit Your End-of-Year Return
You will submit your final declaration through MTD-compatible software. The deadline remains 31 January following the end of the tax year. You must send all four quarterly updates before you can submit this final return.
Choosing the Right Software
You must use software that connects directly to HMRC systems. You can choose from several types of software, depending on your needs and experience.
Options include:
- Mobile apps for straightforward income and expenses
- Cloud accounting software with built-in reporting features
- Spreadsheets combined with bridging software
When choosing your type of software, consider the following:
- Does it support quarterly updates and year-end submission?
- Does it handle all your income sources? (including property income where relevant)
- Does it suit your confidence level with technology?
- Does it provide guidance or support when you need help?
Points-Based Penalties
MTD for Income Tax uses a points-based penalty system for late submissions. Each missed deadline adds points. Once you reach the threshold, HMRC can charge a fixed penalty.
However, HMRC plans a gentler introduction for the first affected group:
- HMRC will not apply penalty points for late quarterly updates in the first year for those starting from 6 April 2026
- HMRC will still apply penalties for late tax returns
- HMRC will still apply charges for late payment of tax
Although the first year offers some breathing space, good habits remain important.
Exemptions and Digital Exclusion
MTD for Income Tax aims to include most taxpayers. However, HMRC recognises that digital systems will not suit everyone.
You may not need to join if:
- You cannot use digital tools due to age, disability or location
- Your beliefs conflict with digital record keeping
- You submit returns in certain roles, such as trustee or personal representative
HMRC also applies some automatic exemptions, like where person does not hold a National Insurance number.
If digital tools will not work for you, you can ask HMRC to consider an exemption. HMRC offers non-digital routes for applications and ongoing support.
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This article is for general informational purposes only and does not constitute legal or financial advice. While we aim to keep our content up to date and accurate, UK tax laws and regulations are subject to change. Please speak to an accountant or tax professional for advice tailored to your individual circumstances. Pi Accountancy accepts no responsibility for any issues arising from reliance on the information provided.