Confused about Making Tax Digital for Income Tax? You’re not alone

Making Tax Digital for Income Tax is a new government initiative that requires sole traders and landlords to keep digital records and report their income and expenses to HMRC each quarter using compatible software. Due to launch on 6 April 2026, it will gradually replace the current system of filing an annual Self Assessment tax return.

Eligible individuals can voluntarily sign up to HMRC’s testing phase now to familiarise themselves with the new process ahead of time. Once the service is live, the requirement to use Making Tax Digital for Income Tax will become compulsory in phases based on an individual’s total annual income from self-employment or property.

What is Making Tax Digital for Income Tax?

Making Tax Digital (MTD) for Income Tax is a new digital system for recording and reporting income from self-employment and property. Under MTD for Income Tax, sole traders and landlords with qualifying income above a certain threshold will be required to:

• Use software that is compatible with Making Tax Digital for Income Tax
• Create, store, and amend digital records of their business income and expenses
• Send quarterly updates to HMRC for each self-employment and property income source (summaries of their income and expenses)
• Submit a tax return by 31 January following the end of the tax year

These new digital requirements will help businesses manage their record-keeping and tax affairs more efficiently, reduce errors, and better understand their finances and tax obligations throughout the year.

Do I need to use Making Tax Digital for Income Tax?

From 6 April 2026, Making Tax Digital (MTD) for Income Tax will be compulsory for sole traders and landlords with qualifying income over a certain threshold. 

Qualifying income is the total gross income (before expenses, allowances, and tax deductions) you receive from self-employment and property in a tax year. It does not include income from employment (PAYE), a partnership, or dividends from company shares.

You will only need to sign up for the service if you meet the following three conditions:

• You are an individual registered for Self Assessment
• You receive income from your sole trader business, property business (in the UK or another country), or both
• Your qualifying income exceeds a specified threshold in a tax year 

The requirement to use Making Tax Digital for Income Tax will be introduced in phases:

• From 6 April 2026, if your qualifying income is more than £50,000 in the 2024-25 tax year
• From 6 April 2027, if your qualifying income is more than £30,000 in the 2025-26 tax year
• From 6 April 2028, if your qualifying income is more than £20,000 in the 2026-27 tax year

HMRC will identify which individuals need to use MTD for Income Tax based on the qualifying income reported on their most recent Self Assessment tax return. 

For example, customers who must use the service from 6 April 2026 will be identified based on their 2024-25 tax return (which is due by 31 January 2026).

There will be no change to annual Self Assessment obligations for individuals who don’t have to join the new service. However, sole traders and landlords who do not qualify can join voluntarily at any time.

You can use HMRC’s online tool to find out if you need to use MTD for Income Tax to report your self-employment and property income.

Exemptions from Making Tax Digital for Income Tax

When the application process opens, you can apply for an exemption from using Making Tax Digital for Income Tax if:

• It’s not practical for you to use software to keep or submit digital records – e.g. due to your age, a disability, location, or another valid reason
• You are a practising member of a religious society (or order) whose beliefs are incompatible with using electronic communications or keeping electronic records

HMRC will release detailed guidance on the application process at a later date.

You are automatically exempt and unable to sign up for MTD for Income Tax if you are a:

• Trustee (including a charitable trustee or a trustee of a non-registered pension scheme)
• Person who does not have a National Insurance number (the exemption will only apply for the tax year where you do not have a National Insurance number on 31 January before the start of that tax year)
• Personal representative of someone who has died
• Lloyd’s member (in relation to your underwriting business)
• Non-resident company

You won’t need to apply for an exemption if you are automatically exempt. 

Exempt individuals must continue to report their income to HMRC as usual on a Self Assessment tax return.

How to sign up for Making Tax Digital for Income Tax 

If you need to use Making Tax Digital for Income Tax (or want to sign up voluntarily), you must first find commercial MTD-compatible software. The software will allow you to:

• Create, store, and amend digital records of your business income and expenses
• Submit quarterly updates to HMRC
• File your tax return by 31 January after the end of the tax year (and include any other sources of income or gains you need to declare)
• Receive information from HMRC, such as tax estimates

When choosing your software, consider your specific needs – for example, whether you require software that creates digital records or connects to your current spreadsheets or accounting software. 

If you have an agent (e.g. an accountant or bookkeeper), we recommend discussing software options with them before deciding. Your agent may be able to sign you up for the MTD service and act on your behalf if you formally authorise them to do so. 

Once you’ve chosen your software, you can sign up for Making Tax Digital for Income Tax online using the Government Gateway user ID and password you received when you signed up for Self Assessment. 

What information do I need to provide?

You’ll need to provide the following information to sign up for MTD for Income Tax:

• The accounting period you use for your business
• Your National Insurance number
• Your business start date or the date you started receiving property income (if within the last two tax years)
• The accounting method you use (e.g. traditional accounting or cash basis)
• The tax year you’d like to start using MTD for Income Tax

If you are a sole trader, you will also need to provide:

• Your business name (the name you use on your invoices)
• Your business address
• The nature of your business (i.e. your trade)

If you have multiple sources of income from self-employment or property, you’ll need to sign up each one for MTD.

Proof of ID

HMRC may request further proof of your identity to use the MTD service. You can provide this using an app on your mobile phone or by answering questions relating to information that HMRC already holds about your identity. 

Authorising your MTD-compatible software

After signing up, you’ll need to authorise your compatible software to connect to HMRC for Making Tax Digital for Income Tax. You’ll do this by:

1. Entering your Government Gateway user ID and password into your software
2. Following your software’s instructions to complete the setup

You must renew this connection every 18 months. Your software should remind you when it is time to reconnect.

Once you’ve signed up and connected your software, you should be able to access your new MTD for Income Tax service through your existing HMRC online account.

Using your HMRC online account for Making Tax Digital for Income Tax

Through your HMRC online account, you’ll get access to information about your Making Tax Digital for Income Tax service. You’ll be able to:

• View your Self Assessment tax calculations
• View quarterly update periods  and due dates
• Check how much tax you owe
• View your Self Assessment and property business details
• Add a new business
• Tell HMRC when an income source stops
• Make payments to HMRC
• Adjust any payments on account
• Claim refunds and view the status of refund requests
• Opt out of quarterly updates if you’ve signed up voluntarily 

Once the service launches on 6 April 2026, you should also be able to set up regular payments, print your Self Assessment tax calculations, view and appeal any penalties, and update your business’s details. 

What digital records will I need to keep?

When you start using Making Tax Digital for Income Tax, you must create and store digital records of your sole trader and property income and expenses using your MTD-compatible software.

You must keep all digital records for at least 5 years after the 31 January filing deadline for a tax year.

You’ll also need to keep original records and supporting documents (or copies) that you use to submit your tax return, just as you already do for Self Assessment.

Records you must keep digitally

The records you must create and store digitally include:

• Self-employment income, including sales, takings, and fees
• Self-employment expenses, including the cost of stock, travel expenses, office costs, and financial costs
• Property income, including rent, premiums for the grant of a lease, reverse premiums and inducements
• Property expenses, including rent, the cost of repairs, maintenance, or other services

When you create these digital records, you’ll need to record the:

• Amount of business income or expenditure 
• Date you received the income or incurred the expenses
• Category (this will depend on your record-keeping requirements)

MTD for Income Tax uses the same income and expenses categories as Self Assessment.

If you have more than one business, you’ll need to create separate digital records and send separate quarterly updates for each source of self-employment income you have.

If you have property income and are a UK tax resident, you should create separate digital records for your UK and foreign property businesses. Your UK properties will be treated as one ‘UK property business’, while any non-UK properties will be treated as one ‘foreign property business’.

HMRC provides further guidance on record-keeping requirements for Making Tax Digital for Income Tax.

Sending quarterly updates to HMRC

Using your digital records, your MTD-compatible software will produce summaries of your income and expenses for HMRC every 3 months. These are known as quarterly updates. 

You must send quarterly updates for each self-employment and property business you have, regardless of whether you received any income or incurred any expenses during the last quarterly update period.  They will include:

• Your income and expenses from self-employment and property from the previous 3 months
• The digital records you’ve created since the beginning of that tax year, and any corrections you’ve made to those records

After submitting an update, you can view an estimate of your tax bill in your software or HMRC online services account.

Your quarterly update periods and filing deadlines

The deadlines for filing your quarterly updates will depend on your quarterly update periods. You can use either of the following: 

• Standard update periods – these align with the UK tax year (6 April to 5 April)
• Calendar update periods – these align with the calendar year (1 January to 31 December) and end on the last day of the month

The calendar year will make your record-keeping easier if your accounting period ends on 31 March. 

Standard update periods

If you use the standard update periods, you must send your quarterly update to HMRC no later than one month after the end of the update period. The update periods and deadlines are as follows:

	Update period	Update deadline
First quarterly update	6 April to 5 July	7 August
Second quarterly update	6 April to 5 October	7 November
Third quarterly update	6 April to 5 January	7 February
Fourth quarterly update	6 April to 5 April	7 May

When Making Tax Digital for Income Tax becomes a legal requirement, HMRC will impose a late submission penalty if you fail to send your update by the relevant deadline. These penalties won’t apply during the testing phase (i.e. before 6 April 2026).

Calendar update periods

If you use the calendar year periods, your quarterly update period will end on the last day of the month, but you will need to meet the same submission deadlines as standard update periods.

The update periods and deadlines are as follows:

	Update period	Update deadline
First quarterly update	1 April to 30 June	7 August
Second quarterly update	1 April to 30 September	7 November
Third quarterly update	1 April to 31 December	7 February
Fourth quarterly update	1 April to 31 March	7 May

To use these update periods, you’ll need to select calendar update periods in your software before submitting your first quarterly update for the tax year. After sending an update, you won’t be able to return to the standard update periods until the next tax year.

What happens next?

Once you’ve sent an update to HMRC, you can view an estimate of your tax bill for your self-employment and property income in your software or your HMRC online services account.

If you choose to keep digital records of other income sources in your MTD-compatible software (e.g. income from employment, dividends, or savings), you may be able to report them during the tax year. However, they won’t be included in your quarterly updates. 

If you cannot report your other income sources during the tax year (or you choose not to), you must declare them before finalising your Income Tax position and submitting your tax return after the end of the tax year.

Adjusting your business income throughout the year

When using Making Tax Digital for Income Tax, you should correct your digital records throughout the tax year to ensure their accuracy. 

After sending your fourth quarterly update, your software will show your income and expenses from self-employment and property for the whole tax year and each business you have.

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You may need to adjust the data you’ve sent to HMRC before finalising your Income Tax position and submitting your tax return. This may involve:

• Making tax adjustments – e.g. removing disallowable expenses
• Making accounting adjustments – e.g. for prepayments or accruals
• Adjusting your income and expenses if your accounting period doesn’t align with the tax year
• Claiming tax reliefs or allowances – e.g. capital allowances, Rent a Room Scheme, or the trading or property income allowance

Read HMRC’s guidance for more information on adjusting your business income.

Finalising your Income Tax position and submitting your tax return 

After making all necessary adjustments to your business income and expenses, you must finalise your Income Tax position for the year. This is when you’ll send HMRC information on any other sources of taxable income you have. 

Once you’ve done this, you must send your final tax return through your MTD-compatible software by 31 January following the end of the relevant tax year. 

HMRC will use the information you provide in the tax return to generate your final Self Assessment tax bill for that tax year. The payment deadlines for Making Tax Digital for Income Tax are the same as the Self Assessment payment deadlines. This new service won’t change how you pay your tax bill or the dates your payments are due.

Thanks for reading

We hope you’ve found this post informative. If you need further help or advice, we recommend seeking professional guidance from an accountant and exploring HMRC’s videos and webinars on Making Tax Digital for Income Tax.

Are you running your business as a sole trader and thinking about changing to a limited company? Check out our blog post: How to change from sole trader to limited company. When you are ready to form a limited company, you can start the simple process on the 1st Formations homepage.