Making Tax Digital for Income Tax applies to a sole trader or landlord whose qualifying income is above a threshold: more than £50,000 from 6 April 2026, more than £30,000 from 6 April 2027 and more than £20,000 from 6 April 2028. If you are in scope, you keep digital records, send quarterly updates to HMRC through compatible software, and finish the year with a final declaration instead of the usual Self Assessment return.
The first phase is already running. Making Tax Digital in 2026 is the start of a change to the UK’s tax system that will reach more and more sole traders and the self-employed over the next two years. The question for most readers now is whether they join in April 2027 or April 2028, and what to have in place before then.
Making Tax Digital for Income Tax: what it is and who it covers
Making Tax Digital for income tax is a new way for sole traders and landlords to report their income and expenses to HMRC. Instead of keeping records however you like and completing one Self Assessment return a year, you use software to keep digital records and send HMRC short updates through the year. It is one stage of a wider move to a digital tax system: VAT-registered businesses have been in MTD for VAT since April 2019, and from April 2022 that covers all of them, whatever their turnover. Being in one regime does not put you in the other.
HMRC’s guidance says you must use the service if all three of these apply:
- you’re a sole trader or a landlord registered for Self Assessment
- you have income from self-employment or property, or both
- your qualifying income is more than the threshold for the relevant tax year
That covers self-employed individuals and landlords alike, and the rules are the same for both. Partnerships will also have to join later. HMRC has said it will set out that timeline at a later date, so nothing can be planned around it yet.
The three phases for sole traders and landlords
The test for sole traders and landlords looks backwards. HMRC checks your income in an earlier tax year to decide when you start.
| Your qualifying income was over | In tax year | You must use MTD from |
|---|---|---|
| £50,000 | 2024 to 2025 | 6 April 2026 |
| £30,000 | 2025 to 2026 | 6 April 2027 |
| £20,000 | 2026 to 2027 | 6 April 2028 |
HMRC reviews your Self Assessment return each year and checks your qualifying income. If you are over the relevant threshold, it writes to you to say you must start by the beginning of the following tax year. Its own example: to decide who had to start in April 2026, it reviewed 2024 to 2025 returns, and anyone over £50,000 should have received a letter.
A missing letter does not take you out of scope. HMRC’s guidance is explicit that it is still your responsibility to check whether and when you need to use the service, and to be signed up and ready. If you think you are over a threshold but have heard nothing, HMRC suggests using its online checker, speaking to your tax agent, or asking whoever helps with your tax affairs. If you think HMRC has put you in scope wrongly, you should contact HMRC.
You also still need to submit a Self Assessment tax return for the tax year before you start using Making Tax Digital.
The scale of the phasing matters if you are an accountant. HMRC’s estimates give roughly 864,000 individuals over £50,000 in April 2026, 1,077,000 between £30,000 and £50,000 in April 2027, and about 975,000 between £20,000 and £30,000 in April 2028. The April 2027 phase is the biggest. By 2028 to 2029, all 2.9 million self-employed individuals and landlords with qualifying income over £20,000 will be in.
A worked example
Suppose you invoiced £32,000 in 2025 to 2026. You were under £50,000 in 2024 to 2025, so you are not in the first phase. You were over £30,000 in 2025 to 2026, so you must start on 6 April 2027. Had that 2025 to 2026 figure been £28,000, you would not start in 2027, and your start date would depend on whether your 2026 to 2027 income was over £20,000, in which case it would be 6 April 2028.
The practical point: your 2025 to 2026 return, filed by 31 January 2027, is the one HMRC will use to decide whether you join in April 2027. Check your figure before you file it, not after the letter arrives.
How much tax will I pay on £20,000 of self-employed income?
The thresholds are not tax calculations. They measure gross income before expenses, and they decide when you start reporting digitally. Making Tax Digital does not change how much tax you owe, and the amount depends on your profit and your wider tax position. Taxable profit is not covered here, so work it out with your adviser or HMRC’s guidance. What the £20,000 figure tells you is that from April 2028 someone with qualifying income above that level is in scope.
What counts as qualifying income
Qualifying income is your gross income from self-employment and property, before expenses. It is not profit.
- Gross, not net. Take a builder who invoices £60,000 and spends £25,000 on materials, tools and fuel. The profit is far smaller, but qualifying income is £60,000, so the builder is in scope.
- Self-employment and property are added together. £12,000 of rental income plus £39,000 of self-employment income gives £51,000, which is over the £50,000 threshold.
- PAYE income does not count. If you earn £50,000 as an employee and £10,000 from rental income, only the £10,000 counts towards the threshold, so you would not need to use MTD.
- Cash counts. All business income is recorded however you were paid, whether by bank transfer, card or cash.
HMRC assesses your qualifying income for a tax year from the Self Assessment return you submitted for the previous tax year. Its guidance also covers how it treats jointly owned property where you only receive notice of your share of the income after expenses have been deducted. If that is your position, read that part of the gov.uk guidance or ask your adviser, because the answer can change which side of a threshold you fall on.
Do I need to pay tax on a small business?
That depends on your own figures, but one registration rule is worth knowing. If you are self-employed and earning above £1,000 a year, you need to be registered for Self Assessment, and you are issued a Unique Taxpayer Reference. Registration is also one condition of signing up for Making Tax Digital.
What you have to do to be Making Tax Digital compliant
If you’re in scope, the routine has four parts:
- Keep digital records of your business income and expenses.
- Use MTD-compatible software, which means software to keep digital records and send updates in the form HMRC requires.
- Send quarterly updates to HMRC.
- Complete a final declaration after the tax year ends.
In short, you must keep digital records and submit your figures through software rather than on paper or in an online form. That is what makes you Making Tax Digital compliant.
HMRC’s sign-up steps also ask you to choose and authorise your software, or to decide how your agent will act for you if you have one. If you use an accountant, the accountant can sign up on your behalf as your agent.
Reporting income and expenses: the quarterly updates
A quarterly update is a short summary of your income and expenses sent through your software. HMRC stresses these are not extra tax returns and describes them as short summaries that “take minutes to complete”. They are category totals, not a mini return, and they are not tax bills.
The deadlines follow the tax year:
| Period covered | Update due |
|---|---|
| 6 April to 5 July | 7 August |
| 6 July to 5 October | 7 November |
| 6 October to 5 January | 7 February |
| 6 January to 5 April | 7 May |
Two details catch people out.
The updates are cumulative. The update due on 7 November covers 6 April to 5 October, not July to October alone. Treat it as a standalone three months and you under-report by a quarter.
7 November 2026 is a Saturday. An accountant advising on this says the regulations give no working-day extension, so plan to file by Friday 6 November. The same accountant adds that you cannot file your tax return until the updates are in, so a late update blocks the final step even where no penalty applies.
For the two years after this one the dates run 7 February and 7 May 2027, then 7 August and 7 November 2027, then 7 February and 7 May 2028. Our separate article on the quarterly updates goes through them in more detail.
Do quarterly updates mean paying tax quarterly?
No. Payment dates do not change. Payments on account and balancing payments stay on their existing schedule. Making Tax Digital changes how you report, not when you pay, so it does not mean paying tax four times a year.
Do I need special software for MTD, and can I use spreadsheets?
Yes, you need software that works with Making Tax Digital. HMRC does not provide software to send MTD updates. Your accounting software, or a combination of products, must be able to:
- create, store and correct digital records of your self-employment and property income and expenses
- send your quarterly updates to HMRC
- submit tax returns, with any tax due paid by 31 January the following year
One program can do all of this, or you can use several, for example one for the records and another for submission, as long as the products work together.
HMRC runs a software finder tool. Everything listed has been through HMRC’s recognition process, but HMRC does not recommend any product. Free options exist.
Spreadsheets are allowed, with a condition. A spreadsheet can hold the records, but you need separate bridging software to put the data into the correct format and send it to HMRC. A spreadsheet on its own does not meet the requirement.
When choosing, the useful questions are practical ones. Does it connect to your bank? Does it automate the categorising? Is it easy enough that you will use it every week? Is there support when something fails? Cost applies whichever way you buy it, directly or as part of an accountant’s fee.
A separate business bank account is not a legal requirement, and HMRC does not insist on it. It still makes the bank feed into your accounting software much cleaner, and it keeps your personal spending out of any records HMRC might ask to see.
Do I have to submit a tax return this year if I use Making Tax Digital?
For 2025 to 2026, yes. The 2025 to 2026 tax year includes time before MTD began, so you submit a tax return the usual way by 31 January 2027, even if you are already sending quarterly updates.
After the tax year ends, MTD users submit a final declaration by 31 January. This is where year-end adjustments are made, and it replaces the annual Self Assessment return for people in MTD. The first one covers 2026 to 2027 and is due by 31 January 2028.
If you are in the April 2027 or April 2028 phase, you will have your own transition year with an old-style return before your first final declaration.
Exemptions
There are different reasons why you may be exempt. One example HMRC gives is being digitally excluded. HMRC’s guidance separates exemptions that apply automatically from those you need to apply for, and the full list now sits on a separate gov.uk page, so check that page against your own circumstances.
Examples of people who are automatically exempt include:
- trustees, including charitable trustees and those managing non-registered pension schemes
- individuals without a National Insurance number on 31 January before the start of the tax year
- personal representatives of a deceased person
- Lloyd’s members, but only for their underwriting business
- non-resident companies
Others can apply if it is not practical to keep digital records or submit them electronically because of age, disability, location or another valid reason, or if religious beliefs prevent the use of electronic communication. HMRC reviews the application and tells you its decision. If it refuses, it gives guidance on how to comply.
Being exempt does not take you out of tax reporting. You must continue to report your income and gains in a Self Assessment tax return.
Penalties for late quarterly updates
Using MTD is a legal requirement if you are in scope. In the first tax year, 2026 to 2027, HMRC is not applying penalty points for late quarterly updates. Late payment penalties still apply, and the relief covers the reporting side only.
From the following tax year, each late submission earns a penalty point, and reaching four points brings a £200 fine. The first-year relief applies to people mandated from April 2026. Those in the later phases should check what HMRC says about their own first year before assuming the same treatment.
The relief is not a reason to wait. HMRC says it will sign up people who have not done so themselves, and its director of Making Tax Digital has said that signing up yourself keeps you in control of your details and your choice of software. By HMRC’s figures, just over 436,000 taxpayers had used the system for the first quarterly update, against about 860,000 who need to sign up by the end of the tax year.
How to sign up for Making Tax Digital
To sign up for Making Tax Digital, you must be registered for Self Assessment and have submitted a tax return in the last two years. Sign-up on gov.uk takes around five minutes if you have your Government Gateway login. You pick the tax year, read the penalty information, confirm you have compatible software, and add each source of income, whether sole trade or rental property.
You can join voluntarily before your mandatory date. That can be useful for practising, but it starts the quarterly clock and the penalty rules differ for voluntary sign-ups, so decide deliberately. Once you are in, you can opt out if your qualifying income drops below the relevant threshold for three tax years in a row.
A guide for sole traders: what to do next
If you may be near a threshold:
- Work out your gross income from self-employment and property for 2025 to 2026, because that decides whether you start in April 2027.
- Choose software that suits your records. If you are staying with a spreadsheet, add bridging software.
- Run your records through the new routine before it is compulsory, so the first quarterly update is not your first attempt.
- If you have an accountant, ask now how they will handle your updates. Accountants advising on this describe each quarter as a short, busy window of checking records and chasing missing information, and expect the workload to rise when the £30,000 threshold applies.
An accountant is not mandatory. Many sole traders manage with software alone, but help is worth having if your finances are complex or you would rather not run your tax obligations yourself. Deplexify prepares accounts and tax for UK businesses, contractors, landlords and charities, and that is the place to start if you want someone to take the quarterly routine off you.
Frequently Asked Questions
When does Making Tax Digital start for sole traders?
The first phase started on 6 April 2026 for those with qualifying income over £50,000 in 2024 to 2025. The next starts on 6 April 2027 for those over £30,000 in 2025 to 2026, and the last on 6 April 2028 for those over £20,000 in 2026 to 2027.
Do landlords have to use MTD for Income Tax too?
Yes. Landlords registered for Self Assessment with property income over the threshold are covered, and property and self-employment income are added together when testing the threshold.
Can I use spreadsheets for MTD?
Yes, but only together with bridging software that puts the data into the correct format and sends it to HMRC.
Do I have to file a tax return this year if I use Making Tax Digital?
Yes, for 2025 to 2026, filed the usual way by 31 January 2027. The first MTD final declaration covers 2026 to 2027 and is due by 31 January 2028.
Are there penalties for late quarterly updates?
Not in the first year, 2026 to 2027, although late payment penalties still apply. From the following tax year, late submissions earn penalty points, and four points bring a £200 fine.
Sources
- Find out if and when you need to use Making Tax Digital for Income Tax - GOV.UK — gov.uk, read 2026-10-18
- Find out if and when you need to use Making Tax Digital for Income Tax - GOV.UK — gov.uk, read 2026-10-18
- Making Tax Digital for Income Tax - BDO — bdo.co.uk, read 2026-10-18
- Signing up for Making Tax Digital: A step-by-step guide for sole traders and landlords | Maslins — maslins.co.uk, read 2026-10-18
- Making Tax Digital for Landlords and Sole Traders Explained - PKF Littlejohn — pkf-l.com, read 2026-10-18
- Making Tax Digital for Sole Traders - Gorilla Accountants — gorillaaccounting.com, read 2026-10-18
- Making Tax Digital for Tradespeople: MTD Guide for Sole Traders | Coconut — getcoconut.com, read 2026-10-18
- MTD for Sole Traders: A Practical Guide | No Worries — no-worries.co.uk, read 2026-10-18
- Making Tax Digital: what is it and who does it affect? | MoneyWeek — moneyweek.com, read 2026-10-18
- Making Tax Digital: A Guide For Sole Traders & Freelancers — danbro.co.uk, read 2026-10-18