Making Tax Digital for Income Tax is the biggest change to self-assessment in a generation, and for the first group of sole traders and landlords it is already here. Since 6 April 2026, anyone with qualifying income over £50,000 from self-employment or property has had to keep digital records and send HMRC updates every quarter, instead of relying on a single tax return each January. The next quarterly deadline is 7 November.
More people will follow. The threshold drops to £30,000 in April 2027 and £20,000 in April 2028, which will bring hundreds of thousands of smaller businesses and landlords into the system. This guide explains who is affected, how qualifying income is calculated, what you need to do in seven simple steps, and the penalties for missing a deadline.
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What is Making Tax Digital for Income Tax?
Making Tax Digital is HMRC’s long-running programme to move the tax system online. VAT-registered businesses have used it since 2019. The income tax version, sometimes shortened to MTD for ITSA (income tax self-assessment), extends the same approach to individuals who run a business or rent out property.
Instead of gathering a year’s paperwork after the tax year ends, people in scope must:
- Keep their business and property income and expenses in digital records
- Use software that works with HMRC’s systems
- Send a summary of income and expenses to HMRC every three months
- Submit a final tax return, sometimes called the final declaration, by 31 January after the tax year ends
The tax you pay does not change because of Making Tax Digital. The rates, allowances and payment dates stay the same. What changes is how and how often you report your figures.
Who has to join, and when
Making Tax Digital for Income Tax is being introduced in stages, based on your qualifying income:
- From 6 April 2026: qualifying income over £50,000
- From 6 April 2027: qualifying income over £30,000
- From 6 April 2028: qualifying income over £20,000
HMRC uses an earlier tax return to decide when you join. For the April 2026 start, it looked at income on the 2024 to 2025 tax return. For April 2027, it will look at 2025 to 2026. HMRC has been writing to people it believes are in scope, but you are responsible for checking whether the rules apply to you, even if no letter arrives.
Once you are in, you stay in unless your qualifying income falls below the threshold for three years in a row, or you stop being self-employed or a landlord.
How qualifying income is worked out
This is where many people get caught out. Qualifying income is your total gross income from self-employment and property, before any expenses are deducted. It is not your profit.
For example, a sole trader with turnover of £42,000 who also receives £12,000 a year in rent would have qualifying income of £54,000, even if their combined profit after costs is much lower. They would be in scope from April 2026.
Income from employment, pensions, dividends and savings interest does not count towards qualifying income. A person with a £70,000 salary and £8,000 of rental income would have qualifying income of £8,000 and would not need to join yet.
Making Tax Digital for Income Tax in 7 simple steps
1. Check whether you are in scope
Add up your gross self-employment turnover and gross property income from the relevant tax return. If the total is above the threshold for the year in question, you need to join. HMRC’s online checker on GOV.UK can help you confirm.
2. Choose compatible software
You must use software that can send information to HMRC. HMRC publishes a list of compatible products, including some free options for people with simple affairs. Many accountancy packages already used by small businesses now support Making Tax Digital for Income Tax.
Look for software that matches how you work. If you mostly use a phone, choose one with a good app. If you have several properties or businesses, check that it can handle each one separately.
3. Sign up for Making Tax Digital
You need to sign up through GOV.UK, or your accountant can sign you up as your agent. You will need your Government Gateway login and your National Insurance number. Signing up is separate from buying software, so make sure you complete both steps.
4. Keep digital records
Every business or property income and expense must be recorded digitally, either in your software or in a spreadsheet linked to it. You do not need to scan every receipt, but you need a digital record of each transaction, including the date, amount and category.
Many programs can connect to your business bank account and pull in transactions automatically, which saves a great deal of typing.
5. Send quarterly updates
Every three months, your software sends HMRC a summary of your income and expenses for that period. It is not a full tax return, and you do not pay tax each quarter because of it. HMRC uses the figures to give you an estimate of your tax bill so far.
6. Submit your final declaration
After the tax year ends, you make any year-end adjustments, add other income such as employment or savings, claim allowances and reliefs, and submit your final return through your software by 31 January.
7. Pay your tax on time
Payment dates are unchanged. Most people still pay any balance by 31 January, with payments on account on 31 January and 31 July if they apply to you.
Quarterly update deadlines
The standard quarterly periods follow the tax year, with each update due about a month after the quarter ends:
- 6 April to 5 July: update due by 7 August
- 6 July to 5 October: update due by 7 November
- 6 October to 5 January: update due by 7 February
- 6 January to 5 April: update due by 7 May
You can choose to use calendar quarters instead, ending on the last day of each month, which some businesses find easier to line up with their bank statements. The deadlines stay the same either way. You can also send updates before the deadline once the quarter has ended.
What goes into a quarterly update
A quarterly update is a summary, not a line-by-line report. For a sole trader, it includes total turnover and totals for categories of expense, such as cost of goods, travel, office costs and professional fees. For landlords, it includes rental income and property expenses such as repairs, insurance and letting agent fees.
If you get something wrong in one quarter, you can correct it in a later update or in your final declaration. Quarterly updates do not need to be perfect, but they should be based on your records.
Penalties under the new system
Making Tax Digital for Income Tax comes with a new, points-based system for late submissions. Each time you miss a quarterly update deadline, you receive a penalty point. Once you reach four points, you receive a £200 penalty, and a further £200 for each later missed deadline while you remain at the threshold.
Points can be cleared over time by keeping up with your deadlines for a set period. Late payment of tax is handled separately, with penalties and interest charged if you pay late.
HMRC has said it wants to help people adjust to the new system. Check GOV.UK for any first-year arrangements that apply to you, and contact HMRC early if you are struggling.
What changes for landlords
Landlords are among the groups most affected by Making Tax Digital. Many private landlords have never used accounting software, and some have relied on a shoebox of receipts and a once-a-year session with an accountant.
If you own property jointly, such as with a spouse, each owner reports their share of the income and expenses. Whether you are in scope depends on your own share of gross rent, plus any self-employment income, not the total rent from the property.
If you use a letting agent, ask whether their statements can be imported into your software. That can save hours each quarter.
Sole traders with more than one business
If you run more than one self-employed business, or have both a business and rental property, your qualifying income is the total from all of them. Each business needs its own digital records and quarterly updates, but you only submit one final declaration covering everything.
Good software makes this manageable by keeping each income source separate while producing one year-end return.
Can you still use spreadsheets?
Yes. You can keep your records in a spreadsheet, as long as you use bridging software to connect it to HMRC’s systems and send your updates. Bridging software reads the figures from your spreadsheet and submits them digitally.
This can suit people who already have a spreadsheet system they trust, but it needs care. Copying and pasting between spreadsheets can break the digital link HMRC expects, so set it up correctly from the start.
Using an accountant or agent
Many people will hand the work to an accountant, bookkeeper or tax agent. An agent can sign you up, keep your records, send your quarterly updates and submit your final declaration. Their fees may rise because the work is now spread across the year rather than done once.
Even if you use an agent, you are still legally responsible for your tax. Make sure your agent has your records in time for each deadline, and check the figures they submit on your behalf.
Who is exempt
Some people do not have to use Making Tax Digital for Income Tax. You can apply for an exemption if you are digitally excluded, for example because of age, disability, location or religious beliefs that make using computers impractical.
Partnerships are not included in the current timetable. Companies are also outside Making Tax Digital for Income Tax, because they pay Corporation Tax rather than income tax. If you are thinking about the difference between running a business as a sole trader or a company, our guide to how to start an LLC explains the equivalent choices in the United States.
If your qualifying income is below the threshold, you can also choose to join voluntarily.
The case for and against Making Tax Digital
HMRC argues that digital records reduce mistakes, which it estimates cost the Treasury billions of pounds a year in unpaid tax. Regular updates also give people a clearer picture of their tax bill during the year, which can make the January payment less of a shock.
Critics, including many accountants and small business groups, say the system adds cost and admin, especially for small landlords and older self-employed people who are not comfortable with software. Four submissions a year instead of one means more deadlines to track and more chances to incur penalty points.
Whatever your view, the rules now apply, and the sooner you set up a working system, the less stressful each quarter will be.
A checklist for the November deadline
If you joined the system in April, your second update covers the period from 6 July to 5 October and is due by 7 November. A little preparation now avoids a scramble in early November:
- Log into your software and check that the first quarter’s update was accepted by HMRC
- Make sure every bank transaction from July to early October has been recorded and categorised
- Upload or record receipts for cash spending, which bank feeds will not pick up
- Check that rent received through a letting agent has been entered gross, with fees recorded separately as expenses
- Review any large or unusual items, such as equipment purchases, so they are recorded correctly
- Submit the update once the quarter has closed, rather than waiting for the last day
If your software shows an estimated tax figure after submission, note it down. Comparing it with your savings for tax is a good early warning if you need to set more aside before January.
Record-keeping habits that save time
The people who find the new system easiest tend to share a few habits. They keep business and personal money in separate bank accounts, so every transaction in the business account belongs in their records. They record expenses as they happen, often by photographing receipts on their phone the same day. And they set aside a regular slot, such as an hour on the first Monday of each month, to tidy up their books.
Monthly reviews are far less painful than quarterly marathons. They also make it easier to spot problems early, such as a customer who has not paid or an expense that has been recorded twice.
Keep your records for at least five years after the 31 January deadline for the relevant tax year, as HMRC can ask to see them. Digital records make this simpler, because they do not fade, get lost in a move or take up space in a cupboard.
Common mistakes to avoid
The most frequent problems are easy to prevent:
- Working out qualifying income from profit instead of gross income
- Buying software but forgetting to sign up with HMRC
- Leaving records until the week of the deadline
- Missing the fact that rental income counts even if you are mainly employed
- Assuming HMRC’s letter is the only warning you will get
- Mixing personal and business spending in one bank account
A separate bank account for your business or rental income makes digital records far easier to keep.
Getting help from HMRC
HMRC publishes detailed guidance on GOV.UK, including step-by-step instructions for signing up, a list of compatible software and examples of what to include in each update. It also runs free online webinars for sole traders and landlords, where you can hear how the system works and ask questions.
Software providers offer their own help centres and tutorials, which are often the fastest way to solve a technical problem. If your affairs are complicated, or you simply want peace of mind, a qualified accountant or bookkeeper can set up your records and handle submissions for you.
Making Tax Digital for Income Tax: common questions
When does Making Tax Digital for Income Tax start?
It started on 6 April 2026 for people with qualifying income over £50,000. It extends to over £30,000 from April 2027 and over £20,000 from April 2028.
What counts as qualifying income?
Your gross income from self-employment and property combined, before expenses. Employment income and pensions do not count.
Do I pay tax every quarter?
No. You send quarterly updates, but payment dates stay the same as under self-assessment.
Can I use a spreadsheet?
Yes, with bridging software that sends the figures to HMRC.
What happens if I miss a quarterly deadline?
You receive a penalty point. At four points, you get a £200 penalty.
If you think you are in scope, check your figures this week and get your software in place well before the 7 November deadline. For more business guides, see our advice on how to write a business plan and our business section. Official guidance is available from HMRC.
This article is general information, not tax advice. Rules can change, so check GOV.UK or speak to a qualified accountant about your situation.
