Making Tax Digital (MTD): What You Need to Know

Making Tax Digital (MTD) is HMRC's flagship programme to modernise the UK tax system. After years of delays, MTD for Income Tax Self Assessment (MTD for ITSA) finally goes live in April 2026. If you are self-employed or a landlord with qualifying income above £50,000, you will be required to keep digital records and file quarterly updates with HMRC using compatible software. This is the biggest change to self-assessment in a generation, and preparation is essential.

What Is Making Tax Digital?

Making Tax Digital is HMRC's plan to digitise the UK tax system. The core idea is that taxpayers keep digital records of their income and expenses using compatible software, which then submits information directly to HMRC. Instead of filing a single annual tax return, affected taxpayers will send quarterly summaries of their business income and expenses throughout the year, followed by a final declaration after the tax year ends.

HMRC's stated aims are to reduce errors (they estimate tax lost to avoidable mistakes at around £8 billion per year), make it easier for taxpayers to get their tax right, and give people a more real-time view of their tax position. MTD has been phased in gradually, starting with VAT-registered businesses in 2019. The extension to Income Tax is the next major milestone.

MTD for Income Tax: The Timeline

Who Is Affected?

From April 2026, MTD for Income Tax applies to individuals who are:

• Self-employed sole traders with gross self-employment income above £50,000 (from April 2026) or above £30,000 (from April 2027)
• Landlords with gross property income above the same thresholds, including those with income from a single rental property
• Individuals with both sources where the combined gross income from self-employment and property exceeds the threshold

Limited companies and their directors are not within scope of MTD for Income Tax (they fall under Corporation Tax rules instead). General partnerships will be brought in at a later date, still to be confirmed. It is important to note that the threshold is based on gross income (turnover), not profit. A landlord with £55,000 in rental income but only £5,000 profit after mortgage interest and expenses is still within scope.

What You Need to Do

If you are affected, there are three main obligations under MTD for Income Tax:

1. Keep Digital Records

You must maintain digital records of your business income and expenses using MTD-compatible software. Spreadsheets alone will not meet the requirements unless they are linked to compatible software that can communicate with HMRC's systems via their API. Paper records and manual entry into the HMRC website will no longer be sufficient for those within scope. Your records must include details of each transaction: the date, amount, and category of income or expense.

2. Submit Quarterly Updates

Instead of reporting your income once a year, you will submit a summary of your income and expenses to HMRC every quarter. These quarterly updates are cumulative summaries rather than mini tax returns — they show HMRC a running total of your income and costs for the tax year so far. You will not pay tax at each quarterly deadline; the purpose is to keep records up to date rather than to calculate a tax bill.

3. File a Final Declaration

After the end of the tax year, you will submit a final declaration. This replaces the current Self Assessment tax return. It is where you confirm your total income, claim any reliefs and allowances (such as pension contributions, Gift Aid, or the trading allowance), and finalise your tax liability. The final declaration deadline is 31 January following the end of the tax year — the same deadline as the current Self Assessment return.

Quarterly Submission Deadlines

Compatible Software

To comply with MTD for Income Tax, you must use software that is recognised by HMRC as compatible. The software must be able to:

• Record income and expenses digitally in the categories required by HMRC
• Submit quarterly updates directly to HMRC via their Application Programming Interface (API)
• Submit the final declaration at the end of the tax year
• Receive information from HMRC such as tax calculations and confirmation of submissions

HMRC maintains a list of compatible software on GOV.UK. There are options available at a range of price points, including some free products for people with simpler affairs. Many cloud accounting packages that you may already use for bookkeeping or VAT are being updated to support MTD for Income Tax. If your accountant currently files your Self Assessment return, speak to them about which software they recommend — many accountants will handle the quarterly submissions on your behalf using their own software.

You can use bridging software to connect spreadsheets to HMRC's systems, but the digital link must be maintained throughout — you cannot manually retype figures from a spreadsheet into a separate piece of software. Any transfer of data between software must be digital.

Penalties for Non-Compliance

HMRC is introducing a new points-based penalty system for late submissions and late payments under MTD. This replaces the old fixed penalty regime and is designed to be more proportionate.

MTD for VAT vs MTD for Income Tax

If you are already VAT-registered, you will be familiar with Making Tax Digital for VAT, which has been mandatory for all VAT-registered businesses since April 2022. MTD for Income Tax is a separate obligation that sits alongside MTD for VAT — it does not replace it. If you are both VAT-registered and within scope of MTD for Income Tax, you will need to comply with both.

How an Accountant Can Help

The transition to MTD for Income Tax is a significant change in how you manage your tax affairs, and an accountant can be invaluable during this period:

• Software selection: An accountant can recommend the most appropriate MTD-compatible software for your situation and help you set it up correctly.
• Quarterly submissions: Many accountants will file your quarterly updates on your behalf, ensuring deadlines are met and data is accurate.
• Record-keeping: They can set up your digital record-keeping processes and train you on using the software day-to-day.
• Tax planning: With quarterly visibility of your income, an accountant can provide more timely tax planning advice throughout the year rather than only at year-end.
• Compliance: Avoiding penalty points and ensuring you meet all obligations correctly from the outset.

If you do not already have an accountant, now is a good time to find one — before the April 2026 deadline rather than after. An accountant familiar with MTD can ensure you are set up correctly from day one. Find an accountant near you to get started.

Preparing for MTD: A Checklist

• Check if you are within scope: Calculate your gross self-employment and/or property income. If it exceeds £50,000, you are in the first wave from April 2026.
• Choose compatible software: Research HMRC-recognised software and select one that suits your needs and budget. Check HMRC's software list on GOV.UK.
• Set up digital records: Start keeping digital records now, even before the mandate begins. This gives you time to get comfortable with the software.
• Sign up for MTD: You will need to sign up through your Government Gateway account. HMRC will write to those who need to sign up.
• Speak to your accountant: If you use an accountant, discuss how MTD will change your working relationship and who will handle quarterly submissions.
• Note the deadlines: Mark the quarterly submission deadlines in your calendar so you do not accumulate penalty points.