Making Tax Digital for Income Tax: What You Need to Know
MTD for Income Tax becomes mandatory from 6 April 2026 for self-employed people and landlords with income over £50,000. That's just days away.
This guide covers who's affected, key deadlines, software requirements, and penalties.
What is Making Tax Digital?
Making Tax Digital (MTD) is an HMRC programme that requires businesses and individuals to keep digital records and submit tax information to HMRC using compatible software. MTD for VAT has been in place since 2019. Now, MTD for Income Tax Self Assessment (MTD for ITSA) is being rolled out to self-employed people and landlords.
Under MTD for Income Tax, instead of just filing one annual Self Assessment tax return, you must submit quarterly updates to HMRC showing your income and expenses. This is done through MTD-compatible software — you cannot use the HMRC online portal for quarterly updates.
Who is affected?
MTD for Income Tax applies to you if you are:
- Self-employed (sole traders) with gross annual income over the threshold, or
- A landlord with gross property income over the threshold, or
- Both — your self-employment and property income are combined to determine if you exceed the threshold
The income thresholds are based on gross income (turnover), not profit:
| Date | Income threshold | Status |
|---|---|---|
| 6 April 2026 | Over £50,000 | Mandatory |
| 6 April 2027 | Over £30,000 | Confirmed |
| 6 April 2028 | Over £20,000 | Confirmed |
| TBC | Below £20,000 | Not yet announced |
Important: The £30,000 threshold from April 2027 and the £20,000 threshold from April 2028 have both been confirmed. There is currently no confirmed date for those earning below £20,000.
What does MTD require you to do?
- Keep digital records — Your income and expenses must be recorded using MTD-compatible software (spreadsheets linked via bridging software also count).
- Submit quarterly updates — Send a summary of income and expenses to HMRC every quarter (deadlines: 7 July, 7 October, 7 January, 7 April).
- Submit an End of Period Statement (EOPS) — Finalise your business income and expenses after the tax year ends.
- Submit a Final Declaration — This replaces the Self Assessment tax return. Due by 31 January after the tax year ends, it confirms your total income, claims reliefs, and calculates your final tax liability.
What is MTD-compatible software?
MTD-compatible software is any accounting or record-keeping application that can connect to HMRC's systems via their API to submit your quarterly updates and final declaration. HMRC maintains a list of compatible software. Popular options include:
- Xero — Popular with small businesses and accountants
- QuickBooks — Self-employed and small business focused
- FreeAgent — Designed for freelancers and sole traders
- Sage — Established accounting software with MTD support
- HMRC's own free software — Basic option for simpler affairs
You can also use spreadsheets (e.g. Excel) if they are connected to HMRC via bridging software that handles the API submissions.
Penalties for non-compliance
HMRC has introduced a new points-based penalty system for late submissions under MTD:
- You receive 1 penalty point for each late quarterly update
- Once you reach the threshold of 4 points (for quarterly obligations), you receive a £200 penalty
- Every subsequent late submission also incurs a £200 penalty until you reset your points
- To reset points, you must meet all submission deadlines for a consecutive 12-month period
- Late payment penalties also apply: 2% of tax owed after 15 days, rising to 4% after 30 days, plus an annualised rate of 4% thereafter
MTD vs Self Assessment — what's the difference?
This is one of the most common areas of confusion. MTD for Income Tax does not replace Self Assessment. Here is how they differ:
| Self Assessment | MTD for Income Tax | |
|---|---|---|
| Frequency | Annual | Quarterly + annual final declaration |
| How to submit | HMRC online or paper | MTD-compatible software only |
| Records | Any format | Must be digital |
| Who | Anyone with untaxed income | Self-employed and landlords above income threshold |
In practice, the MTD Final Declaration will replace the income tax sections of your Self Assessment return. But you still need to report other income (dividends, capital gains, etc.) through the Self Assessment process.
Can I sign up for MTD voluntarily?
Yes. Even if your income is below the mandatory threshold, you can voluntarily sign up for MTD for Income Tax through your HMRC online account. This can be a good idea if you want to get familiar with the quarterly reporting process before it becomes compulsory for you. Voluntary participants use the same MTD-compatible software and follow the same quarterly submission schedule as those who are mandated. You can opt out of voluntary participation if you decide it is not right for you.
How to prepare for MTD now
With MTD going live in days, here is a practical checklist for anyone who needs to comply:
- Check if you are affected — Use our MTD checker tool to find out whether and when MTD applies to you.
- Choose MTD-compatible software — Compare options like FreeAgent, Xero, QuickBooks, and Sage. Many offer free trials.
- Sign up with HMRC — You need to register for MTD for Income Tax through your Government Gateway account before your first quarterly update is due.
- Set up digital records — Migrate your existing records (bank transactions, invoices, receipts) into your chosen software.
- Know your deadlines — Check the full MTD deadline calendar so you never miss a quarterly submission.
- Talk to your accountant — If you use an accountant or bookkeeper, confirm they are MTD-ready and discuss how responsibilities will be shared.
Use our self-employed tax calculator to estimate your tax liability for 2026/27 alongside your MTD obligations.
Frequently Asked Questions
What is Making Tax Digital for Income Tax?
Making Tax Digital (MTD) for Income Tax is an HMRC initiative that requires self-employed people and landlords to keep digital records and submit quarterly updates to HMRC using MTD-compatible software. It does not replace Self Assessment — it is an additional reporting requirement on top of your annual tax return.
When does MTD for Income Tax start?
MTD for Income Tax becomes mandatory from 6 April 2026 for self-employed individuals and landlords with annual gross income over £50,000. From 6 April 2027, the threshold drops to £30,000, and from 6 April 2028, it drops further to £20,000.
Do I need MTD if I'm employed and also have rental income?
Yes, if your total self-employment and/or property income exceeds the threshold (£50,000 from April 2026, £30,000 from April 2027), you must comply with MTD for Income Tax even if you also have PAYE employment income. The thresholds are based on gross income before expenses, not profit.
What software do I need for MTD?
You need software that is recognised by HMRC as MTD-compatible. This includes cloud accounting tools like Xero, QuickBooks, FreeAgent, and Sage, as well as some free options. The software must be able to maintain digital records and submit quarterly updates directly to HMRC via their API.
What happens if I miss a quarterly update?
HMRC uses a points-based penalty system. You receive one penalty point for each late submission. Once you reach the penalty threshold (4 points for quarterly obligations), you receive a £200 penalty for that late submission and every subsequent late submission until you reset your points by meeting all deadlines for a set period.
Does MTD replace my Self Assessment tax return?
No. MTD for Income Tax does not replace Self Assessment. You still need to submit a final declaration (which replaces the SA tax return) by 31 January after the tax year ends. MTD adds quarterly reporting on top of your existing obligations — it is an additional requirement, not a replacement.
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