Making Tax Digital for Income Tax – Explained

Making Tax Digital for income tax is a government initiative to transform the tax system to a fully online working environment.

It comes in a few mandatory stages starting from April 2026, where all sole traders and landlords with a yearly business and property income above £50,000 will have to sign up.

You can use the HMRC interactive tool to check if you need to use Making Tax Digital for income tax.

These changes will significantly increase the reporting responsibilities expected from sole traders and landlords.

In this guide, we explain whether you need to sign up for Making Tax Digital, what software you need, when your quarterly submission deadlines are, and what penalties apply for missing them.

What is Making Tax Digital for income tax?

Making Tax Digital for income tax is a new way HMRC will require sole traders and landlords to report income and expenses. These updates must be reported quarterly through HMRC’s authorised software.

Who exactly will need to report with Making Tax Digital for income tax?

One of the most searched questions right now is: Do I need to use Making Tax Digital for Income Tax? The answer depends on your qualifying income and which tax year HMRC is assessing.

Sole traders and landlords must use the new reporting system if all of the following apply:

Registered for self-assessment

Receive qualifying income (before deducting expenses) from self-employed or property.

Have a qualifying income of more than

• £50,000 for the 2024 to 2025 tax,

• £30,000 for the 2025 to 2026 tax year,

• £20,000 for the 2026 to 2027 tax year

If you have both self-employment income and rental income, these are combined when calculating whether you meet the MTD income threshold. For example, £28,000 from freelancing plus £25,000 from a rental property gives a qualifying income of £53,000, which is above the £50,000 threshold for April 2026.

Making Tax Digital for landlords, what you need to know

While MTD for Income Tax applies equally to sole traders and landlords, there are several MTD landlord-specific points worth understanding:

Jointly owned property – where a rental property is jointly owned, each owner counts only their share of the rental income towards the qualifying income threshold. So if a property generates £70,000 in rent and is owned 50/50, each owner counts £35,000 below the £50,000 April 2026 threshold, but above the £30,000 April 2027 threshold.

Multiple properties – All UK property income is treated as a single property business for MTD purposes. You submit one quarterly update covering all your UK rental properties not one per property.

Overseas rental property – Income from overseas rental properties counts towards your qualifying income total for MTD purposes.

Furnished holiday lettings – Following the abolition of the FHL tax regime from April 2025, income previously treated as FHL income is now ordinary property income and counts towards your MTD threshold.

How Making Tax Digital works in practice?

Sarah is a self-employed freelance copywriter. In 2024/25 she earned £58,000 before expenses. HMRC checks this against the £50,000 threshold using her 2024/25 Self Assessment return and confirms she must use MTD for Income Tax from 6 April 2026.

Throughout the year, Sarah logs income and expenses digitally through a MTD-compatible software as she works. At the end of each quarter her software compiles the figures and she submits the update to HMRC taking around 20 minutes each time.

After her Q4 submission in May 2027, she reviews the full year, her accountant checks the figures and makes necessary adjustments, and she submits her final declaration. She pays her tax by 31 January 2028 as normal.

The main practical change: Sarah can no longer leave her bookkeeping until January. The quarterly submissions require reasonably current records throughout the year.

What is a qualifying income for Making Tax Digital for income tax?

Your qualifying income is the total amount you earn in a tax year from self-employment and property income even If it is from an overseas rental property. This can include income from multiple self-employment activities or more than one property source.

What is not included in your qualifying income is:

• Employment income from PAYE
• Dividend income (including from own company)
• Income from private or state pension
• Income from a partnership (this will be included to the qualifying income at a later date)

When to start using Making Tax Digital for income tax?

Qualified businesses will be assessed by HMRC for eligibility to use the services. You do not need to start using Making Tax Digital for income tax until after you have filed your previous year’s self-assessment.

Example. Assessing qualifying income for tax year 2026/27, HMRC will look at the previous year’s tax return for 2025/26

Exactly when you need to start using Making Tax Digital for income tax depends on the qualifying income you have earned in each tax year. The new reporting system will be implemented in three different stages based on qualifying income thresholds.

If your qualifying income for Making Tax Digital for income tax are:

• £50,000 for the 2024 to 2025 tax year (start using from 6 April 2026),
• £30,000 for the 2025 to 2026 tax year (start using from 6 April 2027),
• £20,000 for the 2026 to 2027 tax year (start using from 6 April 2028)

If you are a new business, you do not need to use Making Tax Digital for income tax until you submit your first-year tax return.

What needs to be reported using Making Tax Digital for income tax?

When using Making Tax Digital for income tax, HMRC will require you to make two types of submissions:

• Quarterly Making Tax Digital MTD returns
• Annual personal tax return

For the quarterly returns, you will need to send details of income from self-employment, UK property, or foreign sources.

As stated above, you will need to use Making Tax Digital (MTD) compatible software to keep and submit digital records of income and expenses.

Making Tax Digital quarterly submission deadlines

One of the most important and most searched aspects of MTD for Income Tax is when quarterly submissions are due. Many sole traders and landlords assume they can leave their bookkeeping until the end of the year, as they did under Self Assessment. Under MTD, that is no longer possible.

Each tax year is split into four quarterly periods. You must submit your update to HMRC within one month of each period ending:

Quarter	Period	Submission Deadline
Q1	6 April – 5 July	5 August
Q2	6 July – 5 October	5 November
Q3	6 October – 5 January	5 February
Q4	6 January – 5 April	5 May

After your fourth quarterly update, you then complete your end-of-year declaration the equivalent of your final Self Assessment submission by 31 January each year.

What are the penalties for missing MTD for Income Tax submissions?

What are the penalties for missing MTD for Income Tax submissions?

Missing an MTD quarterly submission triggers HMRC’s points-based late submission penalty system. This works as follows:

• Each missed quarterly deadline earns 1 penalty point
• Once you reach 4 penalty points, a fixed £200 financial penalty is charged
• Further £200 penalties are charged for each subsequent missed submission while at the threshold
• Points expire after a period of sustained compliance

Separately, any tax paid late attracts:

• A 2% penalty on tax unpaid after 15 days
• A further 2% penalty (total 4%) if unpaid after 30 days
• A daily rate after 31 days, plus interest at the Bank of England base rate plus 2.5%

The points system means a single missed quarterly update won’t immediately cost you money but a pattern of missed submissions will, and the underlying late payment penalties are significant.

Final year-end adjustment

Throughout the year, as you send the quarterly returns, you should regularly update your digital records to keep them accurate.

After you’ve submitted your fourth quarterly update, you will have the option to see your self-employment and property income and expenses for the full tax year.

Before finalising your Income Tax and submitting your return, you will be able to review and adjust the data you’ve submitted. This could include:

• Removing disallowable expenses (tax adjustments)
• Applying accounting adjustments, such as prepayments or accruals
• Adjusting income and expenses if your accounting period differs from the tax year (e.g., 1 April to 31 March)
• Claiming reliefs or allowances, such as capital allowances, Rent a Room relief, or the trading/property income allowance.

After you’ve reviewed and made all the adjustments on your personal tax return, you need to finalise and submit it to HMRC.

What software do I need for Making Tax Digital for Income Tax?

You must use HMRC-recognised MTD-compatible software to keep digital records and submit your quarterly updates. Spreadsheets alone do not qualify unless used with approved bridging software.

The most widely used MTD software for sole traders and landlords in the UK includes:

• Xero – well-suited to sole traders with complex finances or multiple income streams; from around £16/month. Xero is a full accounting platform and handles MTD quarterly submissions directly.
• QuickBooks Self-Employed / QuickBooks Online – popular with freelancers for its simplicity; from around £10/month
• FreeAgent – often included free with NatWest or Royal Bank of Scotland business bank accounts; strong for sole traders and simple landlords
• Sage Accounting – broad feature set for those with more complex needs; from around £15/month

If you are unsure which software best fits your situation, your accountant can advise and in many cases your accountant’s own software will handle submissions on your behalf.

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