The biggest change to how the self-employed and landlords report income in a generation is now under way. Making Tax Digital for Income Tax (MTD for IT) started on 6 April 2026 for people with qualifying income above £50,000. If that is you, the annual Self Assessment return you are used to is being replaced by digital record-keeping and quarterly updates to HMRC, followed by a final declaration. HMRC estimates several hundred thousand sole traders and landlords are caught in this first wave, with the net widening sharply over the following two years.
This guide explains who is affected and when, exactly what you now have to do, what software you need, how the new points-based penalty system works, who is exempt, and the practical steps to get ready so you are not scrambling before the first deadline. Figures and rules can change – always confirm your own position on GOV.UK or with a qualified accountant.
What is Making Tax Digital for Income Tax?
MTD for Income Tax requires sole traders and unincorporated landlords above the income threshold to do three things:
- Keep digital records of business and property income and expenses, using MTD-compatible software rather than paper or a basic spreadsheet alone.
- Send quarterly updates to HMRC – a running, cumulative summary of income and expenses, four times a year.
- Submit a final declaration after the tax year end, which replaces the Self Assessment tax return and is where you confirm the figures, bring in other income (such as savings, dividends or employment), and claim any reliefs and allowances.
Crucially, it does not change how much tax you pay or when you pay it – the payment deadlines of 31 January and 31 July are unchanged. It changes how often you report. The quarterly updates are estimates and do not need to include accounting adjustments or claim reliefs; the real reckoning still happens once a year at the final declaration.
Who has to use it, and when?
The rollout is phased by income level. The relevant figure is your qualifying income: total gross income from self-employment and property before deducting any expenses or tax. If you have both a trade and a rental, you add them together. Income such as a salary, savings interest or dividends does not count towards the qualifying-income test, although it is still declared at the final declaration.
| Mandation date | Qualifying income over | Tax year HMRC checks | Who it affects |
|---|---|---|---|
| 6 April 2026 | £50,000 | 2024/25 return | First wave – sole traders & landlords above £50k |
| 6 April 2027 | £30,000 | 2025/26 return | Second wave |
| 6 April 2028 | £20,000 | 2026/27 return | Third wave (lowest threshold confirmed) |
HMRC looks at the qualifying income on your most recent submitted return to decide whether you are in. So your 2024/25 Self Assessment figures are what determine whether you join from April 2026. Importantly, once you are in, you stay in even if your income later dips – unless your qualifying income falls below the threshold for three consecutive years. You can check your own status using HMRC’s tool: Find out if and when you need to use Making Tax Digital for Income Tax.
The new quarterly deadlines
Under the standard quarterly periods, updates are due roughly a month after each quarter ends, on the 7th of August, November, February and May. There is also an optional “calendar quarter” election that aligns periods to the end of each month, but the submission deadlines stay the same.
| Quarter covers | Update deadline |
|---|---|
| 6 April – 5 July | 7 August |
| 6 July – 5 October | 7 November |
| 6 October – 5 January | 7 February |
| 6 January – 5 April | 7 May |
| Whole tax year (final declaration) | 31 January following the tax year |
What software do you need?
You must use MTD-compatible software that can keep digital records and send updates directly to HMRC. Options range from full cloud accounting packages to lower-cost mobile apps and “bridging” tools that connect an existing spreadsheet to HMRC. HMRC maintains an official list of compatible software, which includes some free and low-cost products aimed at smaller businesses and landlords. Pick something that matches how complex your affairs are – a landlord with one property has very different needs from a sole trader carrying stock, staff and VAT.
| Software type | Best for | Typical cost |
|---|---|---|
| Full cloud accounting (e.g. Xero, QuickBooks, FreeAgent, Sage) | Sole traders with invoicing, expenses, VAT or multiple income streams | ~£10–£40/month |
| Landlord/simple self-employed apps (e.g. Hammock, Coconut, plus several free options) | One or two properties, or simple cash-basis trades | Free to ~£15/month |
| Bridging software | Those who want to keep working in a spreadsheet | Low one-off or subscription |
How to choose the right software for you
We weighed the realistic options against the criteria that matter most to a typical sole trader or landlord, rather than the longest feature list. When you compare products, work through the same questions:
- Is it on HMRC’s recognised list? Only software that appears on the official GOV.UK list can legally submit your updates. Check this first, before price or features.
- Does it match your complexity? If you have one rental and no employees, a free or low-cost app will do everything you need. Pay for a full accounting suite only if you genuinely use invoicing, payroll or stock.
- Will it import your bank feed? Automatic bank feeds and receipt-capture turn quarterly updates from a chore into a few clicks. This is the single biggest time-saver.
- Does your accountant support it? If you use an accountant, their preferred platform plus agent access can save fees and avoid duplicated work.
- What is the true annual cost? Watch for introductory discounts that jump after a few months, and check whether the price covers both quarterly updates and the final declaration.
Our steer for most people: start on HMRC’s recognised list, shortlist two products that fit your complexity and budget, and trial one well before the first deadline so any data-entry habits are bedded in.
The new points-based penalty system
MTD for Income Tax brings a tougher, points-based penalty regime for late quarterly updates, alongside revised late-payment penalties. Understanding both now is the cheapest insurance you can buy.
Late submission points
Each time you miss a submission deadline you receive one penalty point – whether the update is one day or three months late. Once you reach four points, HMRC charges a fixed £200 penalty, and a further £200 each time you miss another deadline while at the threshold. If you stay below the threshold, each point is automatically removed 24 months after the missed deadline. Once you hit four points, you must file on time for a sustained period and clear any outstanding submissions before the points are wiped.
Late payment penalties
Late payment of tax sits under a separate, harmonised regime. From the 2026/27 tax year there is no penalty for the first 15 days. If tax is still unpaid after day 15 a first penalty of 3% of the outstanding amount applies, with a further 3% if it remains unpaid after day 30. From day 31, a second penalty accrues daily at an annualised rate of 10% until you pay. These rates were increased in April 2026, so leaving tax unpaid is materially more expensive than under the old system.
A soft landing in year one
HMRC has confirmed a light-touch approach for the first wave: those joining in April 2026 will not be charged late-submission penalty points for the four quarterly updates during 2026/27, provided they are working to comply. Treat this as a chance to build good habits, not a reason to delay – the soft landing does not extend to late payment of tax.
Are there any exemptions?
Some people are exempt or excluded. You are automatically exempt if your qualifying income is £20,000 or less. Beyond that, you may be able to apply for an exemption where it is not “reasonably practicable” for you to use compatible software or keep digital records – for example because of age, disability, or living somewhere without reliable internet access. Certain groups, such as some individuals without a National Insurance number, are also outside the scope, and exemption may be available on religious grounds. Exemptions are not granted automatically for most people, so do not assume you qualify – check the criteria on GOV.UK and apply if relevant.
How to get ready: a practical checklist
- Work out your qualifying income from your latest return to confirm whether you are in the April 2026, 2027 or 2028 wave.
- Choose and set up MTD-compatible software now, rather than waiting for the first deadline.
- Sign up for the service through your software or GOV.UK once you have confirmed you are mandated – you are not enrolled automatically.
- Get into the habit of digital record-keeping – log income and expenses as you go, not in a year-end rush.
- Separate business and personal banking if you have not already, to make categorisation and bank feeds simple.
- Diarise the quarterly deadlines (7 Aug, 7 Nov, 7 Feb, 7 May) and the 31 January final declaration.
- Talk to your accountant early if you use one – they can set up software and agent access ahead of time.
Frequently asked questions
When does Making Tax Digital for Income Tax start?
It started on 6 April 2026 for sole traders and landlords with qualifying income over £50,000. The threshold drops to £30,000 from April 2027 and £20,000 from April 2028.
What counts as qualifying income for MTD?
Qualifying income is your gross income from self-employment and property combined, before deducting any expenses or tax. Salary, savings interest and dividends do not count towards the test, though they are still declared at the final declaration. If your trade and property total is over the threshold for the year, you must use MTD for Income Tax.
Do I still file a Self Assessment tax return?
No – for income covered by MTD, the annual Self Assessment return is replaced by quarterly updates plus a final declaration after the tax year ends. The final declaration is where you confirm figures, add any other income, and claim reliefs.
What are the penalties for missing an MTD deadline?
Late quarterly updates earn one penalty point each; at four points HMRC charges a fixed £200, plus £200 for each further miss. Late payment of tax triggers a 3% charge after 15 days, a further 3% after 30 days, then daily interest at an annualised 10%. First-wave taxpayers get a soft landing on submission points during 2026/27.
Can I use a spreadsheet for MTD?
Only if you use bridging software that connects the spreadsheet to HMRC and meets the digital record-keeping rules. A standalone spreadsheet on its own is not sufficient – the records must be kept and submitted through MTD-compatible software.
Last reviewed: June 2026.
This guide is general information, not tax or financial advice, and reflects the rules as of June 2026. Always check GOV.UK or speak to a qualified accountant for your own situation.