Making Tax Digital for Income Tax is now live. As of 6 April 2026, sole traders and landlords with qualifying income above £50,000 must keep digital records and file quarterly updates with HMRC - and fewer than three in ten of those affected have actually signed up (The Register, 2026). If you fall into that group and you're still relying on spreadsheets and an annual self-assessment return, here's what needs to change.
TL;DR: From 6 April 2026, around 780,000 sole traders and landlords must switch to quarterly digital reporting using HMRC-approved software. The income threshold is £50,000 gross, dropping to £30,000 in 2027 and £20,000 in 2028. No penalties apply for late quarterly updates in the first year - but that grace period won't last.
What Is Making Tax Digital for Income Tax?
MTD for Income Tax Self Assessment (MTD ITSA) replaces the single annual self-assessment return with quarterly digital reporting. Instead of pulling everything together once a year in January, you'll send income and expense summaries to HMRC every three months through compatible software (GOV.UK, 2026).
HMRC has been working on this programme since 2015. The original launch date was 2018, then 2020, then 2024 - and each delay pushed the projected costs higher. A House of Commons Library briefing estimated the total programme cost at £1.4 billion, while HMRC's own forecast of additional tax revenue has been revised down from £6.3 billion to £4.3 billion (House of Commons Library, 2025). The programme has had a rocky road, but it is now happening.
Who Needs to Sign Up for MTD?
The rollout is phased by income. Your qualifying income is the combined gross figure from self-employment and property rental - before any deductions or expenses (GOV.UK, 2026).
- April 2026: Gross qualifying income above £50,000 (around 780,000 taxpayers)
- April 2027: Gross qualifying income above £30,000
- April 2028: Gross qualifying income above £20,000 (bringing the total to 2.725 million taxpayers)
In our experience, many sole traders underestimate their gross income because they think in terms of profit. A freelancer earning £55,000 gross but spending £15,000 on expenses has qualifying income of £55,000 - and they're in scope from day one. If you're not sure where you fall, check your 2024/25 self-assessment return. HMRC has been writing to taxpayers who reported gross income above £50,000 on that return (CIOT, 2026).
Quarterly Reporting: What You Submit and When
MTD ITSA requires four types of submission each year:
- Four quarterly updates - summaries of income and expenses for each quarter
- An End of Period Statement (EOPS) confirming annual figures
- A Final Declaration - replacing the SA100 self-assessment return - due by 31 January
The quarterly deadlines for the 2026/27 tax year follow the standard quarters: 6 April to 5 July (first update due 7 August 2026), then 5 October, 5 January, and 5 April. What we see most often with clients who moved early into the pilot is that the quarterly updates themselves are straightforward if your bookkeeping is already digital. The real pain comes when records are patchy and three months of receipts need sorting in a rush.
These quarterly updates are not four mini tax returns. They're year-to-date summaries of your business income and expenses - relatively simple if your records are up to date (ATT, 2026).
What Happens If You Miss a Deadline?
HMRC is giving everyone a year to settle in. For the 2026/27 tax year, no penalties will apply for late quarterly updates (GOV.UK, 2026). This is the "soft landing" period - and it applies only to quarterly submissions, not to the Final Declaration.
From 2027/28 onwards, the penalty points system kicks in. Each missed quarterly deadline earns one penalty point. Reach four points within two years and you'll face a £200 fine - plus a further £200 for every subsequent late submission until the points are cleared (Menzies LLP, 2026). Late payment penalties are separate and proportionate to how long the amount stays unpaid.
The soft landing is a sensible move from HMRC. But waiting until 2027 to get your systems right means you'll have no buffer when penalties do start applying.
Choosing MTD-Compatible Software
You'll need HMRC-recognised software that can maintain digital records and submit quarterly updates directly. The GOV.UK software directory lists all compatible options. Some of the established names include Xero, QuickBooks, FreeAgent, and Sage - all of which most accountants already work with.
One question clients always ask is whether they can keep using spreadsheets. The short answer: not on their own. You can maintain a spreadsheet if you use bridging software to submit to HMRC, but for most people, moving to a proper cloud accounting platform will be simpler in the long run. If you already use Xero or a similar tool for invoicing and expenses, you're closer than you think. We've written about choosing between payment providers that integrate with Xero - the same logic applies here. Pick software that connects to your existing workflow.
What Should You Do Right Now?
If your gross self-employment or property income is above £50,000, three things need to happen before your first quarterly update deadline on 7 August 2026:
Sign up with HMRC. You can register through your Government Gateway account or ask your accountant to sign you up as a client. As of today, only around 219,000 of the 780,000 affected taxpayers have done this - roughly 28% (The Register, 2026).
Get your software sorted. If you're already on cloud accounting software, check it supports MTD ITSA submissions. If you're still on paper or basic spreadsheets, now is the time to switch. Your accountant can help with the migration - and the earlier you start, the less painful it is. Outsourcing your bookkeeping is one way to take the whole problem off your plate.
Clean up your records from 6 April onwards. Your first quarterly update covers 6 April to 5 July 2026. That means every business receipt, invoice, and bank transaction from now needs to be in your digital records. If your bookkeeping has gaps, a financial health check is a good starting point.
Below the threshold? Plan ahead anyway
For those below the £50,000 threshold today, keep an eye on the timeline. The threshold drops to £30,000 in April 2027 and £20,000 in April 2028 - eventually, most self-employed people in the UK will need to comply. With 4.3 million self-employed workers in the UK (Statista, 2024), MTD will touch a significant portion of the workforce over the next two years.
Frequently Asked Questions
Does MTD for Income Tax apply to limited companies?
No. MTD ITSA applies to sole traders and landlords only. If you operate through a limited company, you're already reporting through Corporation Tax and year-end accounts. MTD for Corporation Tax has not been confirmed yet.
Can I still file an annual self-assessment return?
Not if your qualifying income exceeds the threshold for your phase. The Final Declaration replaces the SA100 return. You'll still file by 31 January, but the route is through MTD software rather than the HMRC self-assessment portal.
What if my income drops below the threshold mid-year?
Your qualifying income is based on the previous tax year's return. If your 2024/25 return shows income above £50,000, you're in scope for 2026/27 regardless of what happens during the year. HMRC reassesses each year based on the latest return.
Do I need to submit VAT through MTD as well?
If you're VAT-registered, you should already be filing VAT returns digitally under MTD for VAT - that's been mandatory since April 2022. MTD for Income Tax is a separate obligation on top of your VAT reporting.
Is there any exemption from MTD?
Yes. HMRC can grant exemptions on grounds of disability, age, remoteness of location, or religious objections to using electronic communications. You need to apply directly to HMRC - your accountant can handle this.
Not sure where you stand with MTD? Talk to our team - we'll check whether you're in scope, recommend the right software, and make sure your first quarterly update goes smoothly. No obligation, no jargon.