Making Tax Digital for Income Tax, usually shortened to MTD for ITSA, is the biggest change to the way self-employed people and landlords report their income since Self Assessment was introduced. It is no longer on the horizon. From 6 April 2026, sole traders and landlords with qualifying income above £50,000 must keep digital records and send HMRC updates every quarter. If that describes you, the first reporting period has already begun and your first update is due in August 2026. This guide explains what is changing, who is affected, the deadlines that matter, and how to get ready without the stress.
We have guided Milton Keynes businesses through plenty of tax changes since 2007, and the message we keep giving clients is the same: MTD is very manageable once your record keeping is set up properly, and far more stressful if you leave it to the last minute. Here is everything you need to know.
What is Making Tax Digital for Income Tax?
MTD for Income Tax replaces the single annual tax return with digital record keeping and quarterly updates sent to HMRC through compatible software. In plain terms, it is the end of the shoebox of receipts and the once-a-year scramble to pull a return together. Instead of one submission, you send four quarterly summaries of your income and expenses during the tax year, and then a Final Declaration after the year ends to confirm your overall position and pay what is due.
This is not entirely new ground for HMRC. Making Tax Digital for VAT has been mandatory for all VAT-registered businesses since April 2022, and income tax is the next stage of the same programme. The stated aim is to reduce errors and bring tax reporting closer to real time. For most businesses the practical effect is that book keeping has to be kept up to date throughout the year, rather than left until January.
Who has to comply, and when?
MTD is being introduced in phases, based on your qualifying income. Qualifying income is your combined gross income from self-employment and property, measured before you take off any expenses.
- From 6 April 2026: sole traders and landlords with qualifying income over £50,000
- From 6 April 2027: those with qualifying income over £30,000
- From 6 April 2028: those with qualifying income over £20,000
Because the threshold looks at your combined gross income, you can be caught even if no single source is especially large. This trips a lot of people up, particularly those who have a small business alongside a rental property.
Example. A freelance designer turns over £45,000 and also receives £6,000 a year in rent from a flat. Neither source reaches £50,000 on its own, but the combined £51,000 puts them in the first phase, so they are mandated from 6 April 2026.
Limited companies, partnerships, trusts and estates are not in scope yet. Income from employment, dividends, savings interest and pensions does not count towards the threshold, so a salaried employee with a modest side business may still fall under the limit.
How HMRC decides your start date
Your start date is based on the income reported on your previous tax return. For the April 2026 phase, HMRC looks at your 2024/25 return, which was due by 31 January 2026. In other words, the decision about whether you are in the first wave has effectively already been made from figures you have already filed. HMRC has been writing to taxpayers it believes are in scope, but the responsibility to check and sign up rests with you. If you think your income is over the threshold and you have not heard from HMRC, you should still check using the tool on GOV.UK or ask your chartered accountant to confirm your position.
What a quarterly update actually involves
A quarterly update is not a full set of accounts, and it is not as onerous as it first sounds. It is a cumulative summary of your business income and expenses for the year so far, broken down into HMRC’s categories. If your income is below the VAT registration threshold, you can report simplified three-line figures: total income, total expenses and the resulting profit. The updates are estimates and do not trigger a tax payment; any adjustments, reliefs and allowances are dealt with in the Final Declaration at the end of the year. If your bookkeeping is up to date in the right software, each quarterly update is largely a case of checking the figures and pressing submit.
The Final Declaration
After your four quarterly updates, you complete a Final Declaration to finalise your tax position for the year. This is where you confirm your business figures, claim your reliefs and allowances, and bring in any other income such as employment, dividends, savings or capital gains. It replaces the Self Assessment return you file now and is due by 31 January following the end of the tax year. The first Final Declaration, for 2026/27, is due by 31 January 2028.
The key deadlines
If you are mandated, the standard quarterly update periods and deadlines are:
| Quarter covers | Update due by |
|---|---|
| 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 |
You can also elect to use calendar quarters, ending on the last day of June, September, December and March, which can be tidier if your bookkeeping runs to month end. The submission deadlines stay the same.
It changes how you report, not when you pay
This is the point that causes the most confusion. MTD changes how often you report, not when you pay. Your income tax and National Insurance are still due on 31 January and 31 July as they are now. Sending quarterly updates does not bring your payment dates forward, and the quarterly updates themselves do not create a payment. If you make payments on account, those continue exactly as before.
Penalties and the soft-landing year
MTD brings in a points-based penalty system for late submissions. The 2026/27 tax year is treated as a soft-landing period, so no penalty points apply for late quarterly updates, although you must still submit them, and all four quarterly updates have to be filed before you can make your Final Declaration. From 2027/28, each missed quarterly deadline earns one point, and reaching four points triggers a £200 fine, with further fines for later failures. Late payment of tax is dealt with under a separate penalty regime. The soft-landing year is a genuine opportunity to get your systems right before the penalties bite.
Are you exempt?
Some people are automatically exempt or can apply for an exemption, including those who are digitally excluded because of age, disability or a lack of reliable internet access, and those with a genuine religious objection to digital filing. Trustees, personal representatives and non-resident companies are also outside the rules. There are also some technical exemptions for specific circumstances. If you think an exemption might apply, it is worth confirming it well before your start date rather than assuming, because the default position is that you are mandated.
What MTD means for landlords
Landlords are firmly in scope, and the rules treat property income as its own stream. All of your UK property income is combined into a single property update, and any overseas property is reported separately. If you own a property jointly, you report your share. Importantly, your rental income counts towards the qualifying income threshold alongside any self-employment, so landlords with a portfolio can find themselves mandated even without a separate business. If you let property, it is well worth checking your position early.
Choosing software
You will need software that is recognised by HMRC. Cloud accounting packages such as Xero, QuickBooks, FreeAgent and Sage all offer MTD for Income Tax functionality, and if you prefer to keep records in a spreadsheet you can use bridging software that connects the spreadsheet to HMRC. HMRC will not accept figures typed in manually through its website, so everything has to flow through recognised software. The features worth looking for are automatic bank feeds, a mobile app for capturing receipts, and clear quarterly update screens. As a Xero firm, we can set this up for you and make sure it is configured correctly from the start.
How to get ready
- Check your position: confirm whether and when you are mandated, based on your qualifying income
- Choose recognised software: use HMRC-recognised software such as Xero, or bridging software if you want to keep using spreadsheets
- Go digital from day one: keep your records digitally from the start of the tax year rather than catching up later
- Sign up or authorise your agent: you, or your accountant on your behalf, need to be signed up for the service before your first update is due
- Build a routine: set aside a little time each week or month so the quarterly updates are quick reviews rather than a fresh start
Common misconceptions
- It is only for VAT-registered businesses: no longer true; MTD for Income Tax applies regardless of whether you are registered for VAT
- It looks at profit: the threshold is based on gross income, your turnover before expenses, not your profit
- You can wait until April to work it out: your start date is decided by income already reported, so the decision is effectively made now
- It means paying tax four times a year: no; the updates are reports only, and your payment dates do not change
How we can help
As Xero accountants based in Milton Keynes, we can confirm whether you are in scope, set up the right software, and take care of your quarterly updates and Final Declaration so the whole thing runs quietly in the background. If you would like to get ahead of the first deadline, call us on 01908 916233 and we will talk you through it.
About MW Accounting Services Ltd. Established in Milton Keynes in 2007, MW Accounting Services Ltd has helped thousands of business owners and individuals over the years. Our partners, Matt Wadsworth ACMA and Adam Sibley ACCA CTA, are supported by a team of qualified accountants, and between them they cover accounting and compliance, taxation, payroll and pensions, bookkeeping and VAT. To talk to us, call 01908 916233 or visit an accounting firm near Milton Keynes, at South House 4, Bond Estates, Mount Farm, Milton Keynes.
Frequently asked questions
-
Do I still need to file a Self Assessment return?
For the 2025/26 tax year, due by 31 January 2027, yes, in the usual way. From 2026/27 onwards, if you are mandated into MTD, the quarterly updates plus a Final Declaration take the place of the annual return.
-
Does MTD change when I pay my tax?
No. The payment dates stay the same, 31 January and 31 July. MTD only changes how and how often you report your figures.
-
What counts as qualifying income?
Your combined gross income from self-employment and property, before expenses. Wages from employment, dividends, savings interest and pension income are all excluded from the test.
-
I have both a business and a rental property. How does that work?
Your income from both is added together to test the threshold, and you keep a separate update stream for your self-employment and for your property income. All UK property is combined into a single property stream.
-
Can I still use a spreadsheet?
Only if it is linked to HMRC through bridging software. HMRC will not accept figures typed in manually, so your records and submissions need to flow through recognised software.
-
What if my income drops below the threshold later?
Once mandated you generally stay in MTD, but there are rules that allow you to leave if your qualifying income falls below the exit level for three consecutive years. It is worth checking your position with your accountant each year.
-
Do I have to use an accountant for MTD?
No, you can manage it yourself with the right software. Many people prefer to have an accountant handle the updates and Final Declaration so they can focus on running their business, and to be confident the figures are right.
