A practical guide to MTD for Income Tax for sole traders and landlords.
Making Tax Digital for Income Tax, sometimes referred to as MTD for Income Tax or MTD ITSA, is no longer something that's simply coming in the future.
The first phase officially began on 6th April 2026, which means some sole traders and landlords are already required to keep digital records and provide quarterly updates to HMRC.
If you're self-employed or receive income from property, it's important to understand whether Making Tax Digital applies to you now, when you may need to join in the future, and what you need to do differently.
The good news is that, with the right systems in place, the move to digital record keeping can make managing your finances easier rather than adding unnecessary complication.
What Is Making Tax Digital for Income Tax?
Making Tax Digital for Income Tax is a new way for sole traders and landlords to manage their self-assessment responsibilities.
Instead of relying primarily on an annual tax return and potentially gathering together a year's worth of financial information at once, those within MTD need to maintain digital records throughout the year and use compatible software to send information to HMRC.
Under Making Tax Digital for Income Tax, you'll need to:
Keep digital records of your self-employment and/or property income and expenses.
Use software that is compatible with Making Tax Digital.
Send quarterly updates to HMRC.
Review and finalise your information at the end of the tax year.
Submit your tax return using compatible software.
You will still submit one tax return each tax year, and the normal 31st January deadline for submitting your return and paying your tax remains.
Who Needs to Use Making Tax Digital for Income Tax?
MTD for Income Tax is being introduced gradually, based on your qualifying income.
The current timetable is:
From 6th April 2026
Sole traders and landlords with qualifying income of more than £50,000, based on their 2024/25 tax return.
From 6th April 2027
Sole traders and landlords with qualifying income of more than £30,000, based on their 2025/26 tax return.
From 6th April 2028
Sole traders and landlords with qualifying income of more than £20,000, based on their 2026/27 tax return.
If your qualifying income is £20,000 or less, you are currently automatically exempt from Making Tax Digital for Income Tax.
Partnerships are also not currently required to use MTD for Income Tax. HMRC has said that the timetable for partnerships will be confirmed at a later date.
What Does 'Qualifying Income' Mean?
This is an important point because qualifying income does not mean profit.
HMRC defines qualifying income as your total gross income from self-employment and property before expenses are deducted.
If you have both self-employment and property income, the amounts are combined when determining whether you are above the relevant threshold.
For example, if you receive £24,000 in gross self-employment income and £12,000 in gross rental income, your qualifying income would be £36,000.
It is therefore important not to look solely at the profit shown in your accounts when deciding whether MTD applies to you.
HMRC reviews the information on your self-assessment tax return to determine whether your qualifying income exceeds the relevant threshold.
What Do Landlords Need to Know About MTD?
Making Tax Digital isn't limited to traditional businesses.
If you're a landlord registered for self-assessment and your qualifying income exceeds the relevant threshold, you may also need to comply.
You'll need to maintain digital records of your property income and expenses using compatible software.
These records could include:
Rental income.
Repairs and maintenance.
Letting agent fees.
Insurance.
Property-related expenses.
Other allowable costs.
If you have both a property business and a sole trader business, you'll need to maintain the appropriate digital records for each.
For jointly let properties, HMRC also has specific rules around how income and expenses can be included in quarterly updates, so it's worth getting advice on how these rules apply to your circumstances.
What Are the MTD Quarterly Updates?
One of the biggest changes under Making Tax Digital is the introduction of quarterly updates.
Every three months, your compatible software adds together the digital records you've created for your self-employment and property income and expenses.
These totals are then sent to HMRC.
Importantly, quarterly updates are summaries, not separate tax returns.
HMRC does not receive copies of every individual receipt or invoice as part of the quarterly update. Instead, it receives totals for the relevant income and expense categories.
You also don't need to make accounting or tax adjustments before submitting each quarterly update.
When Are the Quarterly MTD Deadlines?
For those using the standard tax-year update periods, the quarterly periods and submission deadlines are:
6th April to 5th July: update due by 7th August.
6th April to 5th October: update due by 7th November.
6th April to 5th January: update due by 7th February.
6th April to 5th April: update due by 7th May following the end of the tax year.
Calendar update periods are also available for businesses whose accounting period runs from 1st April to 31st March.
One useful feature of the system is that each update is cumulative. This means it covers the period from the beginning of the tax year to the end of that particular update period.
If you correct something in your digital records, you don't necessarily have to go back and resubmit all your previous quarterly updates.
What Happens After You Submit a Quarterly Update?
After submitting an update, you'll be able to see an estimated tax bill based on your self-employment and property income.
This is one of the potential benefits of MTD.
Rather than reaching January and discovering how much tax you owe, keeping your records up to date throughout the year can give you a much clearer idea of your tax position.
That can make it easier to:
Put money aside for tax.
Manage your cash flow.
Spot unexpected changes.
Make better-informed business decisions.
Identify mistakes earlier.
The estimate isn't your final tax bill, but it can provide a useful indication of where you stand.
Do I Still Need to Complete a Tax Return?
No.
One common misunderstanding about Making Tax Digital is that quarterly updates replace the annual tax return. They don't.
You'll still submit a Final Declaration for each tax year.
At the end of the year, you'll review the information held in your software, make any necessary adjustments and include other sources of income and gains.
For example, you may need to add information about savings or dividends and claim relevant allowances or reliefs.
You'll then submit your tax return using your compatible software.
Your tax return and payment will normally still be due by 31st January following the end of the relevant tax year.
Do I Need Special MTD Software?
Yes. If Making Tax Digital for Income Tax applies to you, you'll need to use compatible software.
HMRC does not provide the accounting software itself, but it maintains information about software that has been through its recognition process.
That doesn't necessarily mean you have to abandon spreadsheets.
HMRC confirms that spreadsheets can still form part of your record-keeping system, but you'll need compatible software, sometimes referred to as bridging software, to connect your spreadsheet records to MTD and send the required information.
Alternatively, you may prefer an all-in-one accounting package that manages your digital records, quarterly updates and tax return in one place.
The right option will depend on your business, your existing bookkeeping processes and how involved you want to be in managing your records.
What Information Needs to Be Kept Digitally?
For your relevant self-employment and property income and expenses, HMRC requires digital records containing information such as:
The amount.
The date the income was received or the expense occurred.
The relevant income or expense category.
This may sound like additional administration, particularly if you're used to keeping paper receipts and handing everything to your accountant once a year.
However, getting into the habit of maintaining accurate digital records can actually make running your business easier.
You'll have a much clearer picture of your finances throughout the year, rather than finding out where you stand months after the tax year has ended.
Are There Exemptions From Making Tax Digital?
Yes. Not everyone will be required to use MTD for Income Tax.
Some exemptions are automatic, while others need to be applied for.
For example, HMRC says you may be able to apply for an exemption if you're digitally excluded.
There are also automatic exemptions in certain circumstances, including for people whose qualifying income is £20,000 or less, people without a National Insurance number before the start of the relevant tax year, and certain specific groups and tax situations.
Some exemptions are temporary rather than permanent.
Because the exemption rules can be quite detailed, it's important to check your individual circumstances rather than assuming MTD doesn't apply to you.
What About MTD Penalties?
HMRC has introduced a points-based penalty system.
This means you don't automatically receive a financial penalty for one late quarterly update. Instead, late submissions can result in penalty points, with a financial penalty becoming due when the relevant points threshold is reached.
There is an important concession for the first year.
For the 2026/27 tax year, HMRC has confirmed that it will not apply penalty points for late quarterly updates.
You still need to submit those quarterly updates before you can submit your tax return, and penalties can still apply to a late tax return.
After the 2026/27 tax year, taxpayers required to use MTD for Income Tax can receive a penalty point for missing a quarterly deadline. Reaching four points can result in a £200 penalty.
This makes developing good bookkeeping habits now particularly important.
How Can Making Tax Digital Make Life Easier?
It's understandable that another HMRC requirement may not immediately sound like good news.
However, the real benefit comes from changing how you manage your records.
Rather than collecting receipts, invoices and bank statements throughout the year and dealing with everything at once, digital bookkeeping encourages you to keep your finances up to date.
Done properly, this can mean:
Less paperwork.
Fewer missing receipts.
Better visibility over business performance.
More accurate bookkeeping.
Earlier identification of mistakes.
A clearer idea of your future tax bill.
Less pressure when the annual tax deadline arrives.
The technology is only part of the process. The biggest difference comes from having a simple bookkeeping system that works for you.
What Should You Do Now?
If your qualifying income was more than £50,000 for 2024/25 and you're within the MTD rules, you should already be using Making Tax Digital for Income Tax.
If you haven't signed up yet, it's important to deal with this as soon as possible.
If your qualifying income was more than £30,000 for 2025/26, your next key date is 6th April 2027.
Now is a good time to:
Check your qualifying income.
Confirm when MTD applies to you.
Review the software you're currently using.
Choose compatible software if necessary.
Start keeping your bookkeeping up to date.
Speak to your accountant about how quarterly reporting will be managed.
Don't rely solely on receiving a letter from HMRC. HMRC makes it clear that it remains your responsibility to check whether MTD applies to you, even if you haven't received correspondence telling you to sign up.
We're Here to Help You Prepare for Making Tax Digital
Making Tax Digital represents a significant change to the way many sole traders and landlords manage their tax, but it doesn't need to make running your business more complicated.
At Hammond-Barr, we'll help you understand whether MTD applies to you, when you need to start, what records you'll need to keep and which software is right for your circumstances.
More importantly, we'll help you put a practical system in place that makes managing your finances easier throughout the year.
If you're already required to use Making Tax Digital for Income Tax, or you're preparing for the 6th April 2027 or 6th April 2028 phases, now is the time to make sure you're ready.
Not sure where you stand with Making Tax Digital? Get in touch with the Hammond-Barr team. We'll explain what the changes mean for you in plain English and help you take the next steps with confidence.
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