What is Making Tax Digital for Income Tax? The complete guide

Making Tax Digital for Income Tax is the biggest change to how sole traders and landlords report their taxes in decades. From 6 April 2026, those earning over £50,000 from self-employment or property must keep digital records and submit quarterly updates to HMRC using compatible software.

This guide covers everything you need to know — who's affected, what's changing, the timeline, and what you need to do to be ready.

What's changing?

Currently, sole traders and landlords file one annual Self Assessment tax return after the end of the tax year. Under MTD for Income Tax, this changes to:

• Digital record keeping — income and expenses must be recorded using MTD-compatible software (not spreadsheets or paper)
• Quarterly updates — a summary of income and expenses submitted to HMRC four times a year
• End of Period Statement (EOPS) — confirming the annual figures are complete for each income source
• Final declaration — the equivalent of the current tax return, confirming all income and claiming any reliefs, due by 31 January

Who needs to use MTD for Income Tax?

MTD for Income Tax applies if all of the following are true:

1. You are registered for Self Assessment
2. You get income from self-employment and/or property
3. Your qualifying income exceeds the threshold for the tax year

What is qualifying income?

Qualifying income is your gross income (turnover) from self-employment and property — before deducting any expenses. It includes:

If you have multiple income sources (e.g. self-employment AND rental property), you add them together to see if you exceed the threshold.

The rollout timeline

The quarterly update cycle

Under MTD, the tax year (6 April – 5 April) is split into four quarters. After each quarter, you must submit a summary of your income and expenses to HMRC.

Quarterly updates are cumulative for tax years from 2026–27 onwards — each submission includes all transactions from the start of the year, not just the latest quarter.

End of year: final declaration

After Q4, you'll need to:

1. Complete annual adjustments — capital allowances, private use adjustments, loan interest
2. Review your Business Source Adjustable Summary (BSAS) — check HMRC's calculation and adjust if needed
3. Add other income — employment, dividends, savings, pensions, capital gains
4. Submit your final declaration — by 31 January following the end of the tax year

What software do I need?

You need software that is MTD for Income Tax compatible — meaning it can:

• Keep digital records of your income and expenses
• Submit quarterly updates to HMRC via their APIs
• Submit end of period statements and final declarations
• Receive tax calculations from HMRC

HMRC publishes a list of compatible software on GOV.UK. Regulas is built specifically for MTD for Income Tax compliance.

Penalties

MTD introduces a new points-based penalty system:

• Each late quarterly update earns you 1 penalty point
• At 4 points, you receive a £200 penalty for each further late submission
• Points expire after 24 months of compliance

Good news for the first year: HMRC has confirmed that no penalty points will be issued for late quarterly updates in 2026–27. Late payment penalties still apply from day 16.

Exemptions

You may be exempt from MTD for Income Tax if:

• You are digitally excluded — for example, due to age, disability, location, or religious beliefs that prevent you from using digital tools
• You are a partnership — partnerships will be brought in separately in a future phase
• You are not registered for Self Assessment

What should I do now?

1. Check if you're affected — use HMRC's eligibility tool
2. Sign up for MTD — register on GOV.UK
3. Choose your software — pick MTD-compatible software and start keeping digital records
4. Start recording digitally — practise before it becomes mandatory