Making Tax Digital for Income Tax: what sole traders and landlords must do from April 2026

Making Tax Digital for Income Tax (often shortened to MTD for ITSA) is the biggest change to Self Assessment since online filing arrived. Since 6 April 2026, many sole traders and landlords must keep digital records, send HMRC a summary of their income and expenses every quarter, and finish the year with a final declaration made through compatible software. The threshold then drops in 2027 and again in 2028, so hundreds of thousands more people will be pulled in over the next two years. This guide explains who is affected, how HMRC works out whether you are in scope, what the deadlines look like and what you can do now to make the change painless.

What Making Tax Digital for Income Tax actually is

Under the traditional Self Assessment system, most self-employed people and landlords gather their paperwork once a year, work out their profit and submit a single tax return by 31 January. MTD for Income Tax replaces that annual scramble with a more regular rhythm. You keep your business and property records digitally throughout the year, use software to send HMRC a short summary every three months, and then confirm your final figures after the tax year ends.

It is important to understand what MTD does not change. The tax rates, allowances and the dates on which you pay tax are the same as under ordinary Self Assessment. Quarterly updates are not quarterly tax bills. Balancing payments and payments on account are still due on 31 January and 31 July. What changes is how, and how often, you report.

Who is in scope, and when

MTD for Income Tax applies to individuals who are registered for Self Assessment and receive income from self-employment, property, or both. The rollout is phased according to your qualifying income:

Partnerships are not yet in scope, and limited companies are not affected at all because they pay Corporation Tax rather than Income Tax. If you are a partner in a partnership and also have a separate sole trade or rental property, however, that separate income may still bring you in.

HMRC looks back at a return that has already been filed to decide whether you must join. If your 2025/26 return shows qualifying income above £30,000, for example, you will need to be using MTD from 6 April 2027.

Exemptions and digital exclusion

Some people are exempt automatically, and others can apply. Automatic exemptions include certain trustees and personal representatives of someone who has died, and people who do not have a National Insurance number. You can also apply for an exemption on the grounds of being digitally excluded, meaning it is not reasonably practical for you to use computers, software or the internet because of:

• age, disability or health;
• where you live, for example an area without adequate internet access;
• religious beliefs that are incompatible with using electronic communications or keeping electronic records;
• any other reason that makes digital compliance unreasonable.

An exemption must be applied for; finding software inconvenient is not enough. HMRC sets out the full criteria in its guidance on checking whether you need to use Making Tax Digital for Income Tax.

How to work out your qualifying income

This is where many people go wrong. Qualifying income is your gross income from self-employment and property, before any expenses are deducted. It is turnover, not profit.

What counts

• Total sales or takings from every sole-trader business you run, added together.
• Gross rents from UK and overseas property, before letting agent fees, repairs, mortgage interest or other costs.
• For jointly owned property, only your share of the gross rent.

What does not count

• Employment income taxed through PAYE.
• Pensions, dividends and savings interest.
• Your share of partnership profits (while partnerships remain outside MTD).

A worked example

Consider a freelance video editor based in Camden who invoiced £38,000 in 2024/25 and also lets a flat in Kentish Town for £1,500 a month (£18,000 a year). Her profit from editing was only £24,000 and her rental profit, after mortgage interest and repairs, was around £6,000. On a profit basis she would appear to be well under £50,000, but her qualifying income is £38,000 + £18,000 = £56,000. She was therefore required to start MTD for Income Tax on 6 April 2026.

The quarterly update calendar

Each quarterly update is a summary of income and expenses for that period, grouped into HMRC's categories. It is generated by your software from the digital records you have kept; you do not fill in a form by hand. By default the quarters follow the tax year, but you can elect to use calendar quarters (ending on the last day of the month) if that suits your bookkeeping better. The submission deadlines are the same either way.

Under HMRC's current design, each update is cumulative, reporting the year to date, which means an error in an earlier quarter can usually be corrected simply by fixing the records and letting the next update reflect the change. For the 2026/27 tax year, the first update was due on 7 August 2026 and the next is due on 7 November 2026.

If you have more than one income source, for example a sole trade and a rental portfolio, you send a separate quarterly update for each. Two businesses mean eight updates a year, plus one final declaration.

The final declaration and year-end adjustments

After the fourth quarter, you still need to finalise the year. The final declaration replaces the traditional Self Assessment return and must be submitted through compatible software by 31 January following the end of the tax year, so 31 January 2028 for 2026/27.

At this stage you or your adviser will:

• make accounting adjustments such as capital allowances, accruals, private-use adjustments and disallowable expenses;
• add any other income that sits outside MTD, such as employment income, dividends, savings interest or capital gains;
• claim reliefs and allowances, including pension contributions and Gift Aid;
• review HMRC's calculation and confirm that the information is correct and complete.

If you already have an accountant who prepares your return, they will normally handle this step.

Software, digital records and digital links

You must use software that HMRC recognises as compatible with MTD for Income Tax. HMRC publishes a searchable list of compatible software on GOV.UK, including some free products for people with straightforward affairs. There are two broad approaches:

• Full bookkeeping software that records every transaction, often with a live bank feed, and submits updates directly to HMRC.
• Bridging software that takes figures from a spreadsheet and sends them to HMRC. This can suit people who are comfortable with spreadsheets, but the spreadsheet itself must still hold the individual transactions, and the link to the bridging tool must be digital.

Whichever route you take, your digital records must capture the date, amount and category of each transaction. "Shoebox" record-keeping transcribed once a year will no longer work. Copying and pasting between programs is not generally treated as a digital link; formula links, imports and API connections are.

If you are choosing or migrating software, our cloud accounting setup service can help you pick a product, set up categories that map to HMRC's, and connect your bank feeds.

Penalties: the points-based regime

MTD for Income Tax uses a points-based system for late submissions rather than an automatic fine for each missed deadline.

• Each late quarterly update or late final declaration earns one penalty point.
• For quarterly obligations, once you reach four points you receive a £200 financial penalty, and a further £200 for each subsequent late submission while you remain at the threshold.
• Points expire after a period of compliance, but only if you have met all your submission obligations during that time.

Late payment of tax is dealt with separately, with penalties that increase the longer tax remains unpaid, plus late payment interest. Details of both regimes are in HMRC's guidance on using Making Tax Digital for Income Tax.

A practical step-by-step preparation plan

Whether you are already in scope or expect to join in 2027 or 2028, the following plan works well. Start at least three months before your first quarter begins if you can.

1. Check your qualifying income. Add up gross self-employment turnover and gross rents (your share) from your most recent filed return, and compare the total with the threshold for the coming year.
2. Separate your finances. Use a dedicated bank account for each business or rental portfolio if possible. Mixed personal and business transactions are the single biggest cause of slow, error-prone quarterly updates.
3. Choose compatible software. Pick a product from HMRC's list that suits the way you work, and set up income and expense categories that map to HMRC's headings.
4. Connect bank feeds and capture receipts. Link your accounts and use a receipt app or photo capture so evidence is attached to each transaction as you go.
5. Sign up through GOV.UK or your agent. You, or an authorised agent acting for you, sign up for MTD for Income Tax, then authorise your software to connect to HMRC.
6. Diarise the deadlines. Put 7 August, 7 November, 7 February and 7 May in your calendar, with a reminder two weeks earlier to reconcile.
7. Agree roles with your accountant. Decide who submits quarterly updates and who prepares the final declaration, and make sure they have the correct agent access.

Before each quarterly update, run through this short checklist:

• All bank and card transactions for the quarter are imported and categorised.
• Bank balances in the software agree to your statements.
• Sales invoices and rent received are complete, including cash takings.
• Receipts or invoices are attached to expenses.
• Personal items are excluded or flagged as private use.
• Each income source is reviewed separately before submission.

How a bookkeeper helps with MTD

MTD for Income Tax is fundamentally a bookkeeping change: accurate, categorised, up-to-date records four times a year. That is exactly the work a bookkeeper does.

At Verdi Bookkeeping, based in Camden, London NW1, our team has over 25 years' experience keeping records for self-employed people, freelancers in entertainment and media, and private landlords. Every client has a named member of the team who looks after their books. For MTD, that typically means:

• setting up or tidying your software and bank feeds;
• keeping your records up to date weekly, monthly or quarterly, as suits you;
• reconciling everything before each quarterly update so the figures are right first time;
• preparing year-end schedules so your accountant can finalise the final declaration efficiently.

We are bookkeepers rather than tax advisers, so we work alongside your accountant, who remains responsible for tax advice and the final declaration. You can read more about our bookkeeping service and Self Assessment support, and our article on bookkeeping habits that keep small businesses stress-free covers the routines that make quarterly reporting easy.

Rates, thresholds and deadlines change, so always check the latest position on GOV.UK or speak to us or your accountant before acting.

Frequently asked questions