Written and reviewed by James Whitfield · Updated for 2026/27 · Editorial standards · Methodology
MTD for Income Tax starts in April 2026 for sole traders and landlords earning over £50,000. This guide explains who is affected, the quarterly update deadlines, compatible software, the new penalties, and how to get ready.
Making Tax Digital for Income Tax Self Assessment — usually shortened to MTD for Income Tax or MTD for ITSA — is the biggest change to how self-employed people report to HMRC in a generation. It is being introduced in stages, based on your qualifying income, and the first sole traders and landlords are brought into the system from 6 April 2026.
The rollout follows a falling income threshold. From April 2026, MTD for Income Tax applies if your qualifying income is above £50,000. From April 2027, the threshold drops to £30,000. From April 2028, it falls again to £20,000. HMRC has said it intends to bring even lower-income traders in over time, and it is reviewing how to do so, so it is worth assuming the rules will eventually reach most sole traders.
Qualifying income is your gross income from self-employment and property combined — your turnover before any expenses are deducted, not your taxable profit. A sole trader with £58,000 of fees and £12,000 of expenses has a taxable profit of £46,000 but qualifying income of £58,000, so they are in scope from April 2026. HMRC works out who must join by looking at the qualifying income reported on your most recent Self Assessment return, so the 2024/25 return you filed by 31 January 2026 is what determines whether you are mandated from April 2026.
Some people are automatically exempt or can apply for an exemption — for example if you are digitally excluded because of age, disability, location or religious grounds. A small number of groups have also been given more time. But for most established sole traders over the threshold, MTD is coming, and the sensible planning assumption is that you will need to comply.
MTD for Income Tax does not change the tax you pay, the rates, the bands or the allowances. The same Income Tax and National Insurance rules apply. What changes is how you keep records and how often you report to HMRC. There are three core obligations.
First, digital record-keeping. You must record your business income and expenses digitally, using MTD-compatible software, rather than on paper or in a standalone spreadsheet. Second, quarterly updates. Four times a year you send HMRC a running summary of your income and expenses for each business. Third, a final declaration. After the tax year ends you confirm the full picture, make any accounting adjustments and claim reliefs — this replaces the annual Self Assessment tax return you file today.
It is important to understand that quarterly updates are not tax bills and do not change when you pay. They are cumulative summaries, not precise accounts, and no tax becomes due when you send one. Your tax is still calculated after the year ends, and payment dates are unchanged: the balancing payment is still due by 31 January, with payments on account on 31 January and 31 July as now.
The standard quarters run 6 April to 5 July, 6 July to 5 October, 6 October to 5 January, and 6 January to 5 April. The update for each quarter is due roughly one month after it ends: 7 August, 7 November, 7 February and 7 May. Each update is cumulative, showing the totals for the year so far, so a mistake in an earlier quarter can be corrected in a later one.
If you prefer to work to calendar months, you can make an election to use calendar quarters instead — quarters ending 30 June, 30 September, 31 December and 31 March — which many people find easier to reconcile against bank statements and card terminals. The final declaration, which brings everything together for the year, is due by 31 January following the end of the tax year, the same date as today's Self Assessment deadline.
If you run more than one business, or have both a trade and rental property, you send a separate set of quarterly updates for each source. That is one reason getting your bookkeeping cleanly separated by business now, rather than at the last minute, saves a lot of friction later.
You will need software that meets HMRC's technical standards and can submit updates through its Making Tax Digital service. HMRC publishes and regularly updates a list of compatible software on GOV.UK, and it is the definitive place to check before you buy anything.
Most of the mainstream accounting platforms sole traders already use — such as Xero, QuickBooks, FreeAgent and Sage — either support MTD for Income Tax or are building it in, and there is a growing set of lower-cost and free products aimed specifically at sole traders and landlords with simple affairs. If you are also registered for VAT you are likely already using MTD-compatible software for Making Tax Digital for VAT, and choosing a single package that handles both keeps your systems in one place.
You do not necessarily have to abandon spreadsheets entirely. Bridging software can connect a suitably structured spreadsheet to HMRC's systems and submit the updates for you. The key point is that a spreadsheet on its own is no longer enough — there has to be a digital link all the way through to HMRC, with no manual retyping of figures.
MTD for Income Tax uses HMRC's points-based penalty system for late submissions. Each time you miss a quarterly update or the final declaration deadline you receive a penalty point. Points accumulate, and once you reach the threshold for your filing frequency you are charged a fixed £200 penalty, with a further £200 for each subsequent late submission while you remain at the threshold. For quarterly filers the threshold is four points. Points expire after a set period of good compliance, so a single slip does not cost you anything immediately, but repeated lateness does.
Late payment is penalised separately. Interest runs on any tax paid late, and escalating penalty charges apply the longer a balance stays unpaid, so paying promptly still matters even though the payment dates themselves are not changing. HMRC increased its late-payment penalty rates for taxpayers within MTD, so the cost of paying late is higher than many people expect.
The rates, thresholds and exact timing of these penalties can be adjusted, and the figures above are a guide rather than a substitute for the current rules. Always check the latest penalty guidance on GOV.UK before relying on a specific number.
The single most useful thing you can do is get into the habit of clean, current bookkeeping before you are mandated. Reconstructing twelve months of records under a quarterly deadline is painful; keeping them up to date as you go is not. If you are already close to or above £50,000 of gross income, treat April 2026 as a hard date and work back from it.
A practical checklist: confirm whether your qualifying income is over the threshold that applies to you; check whether your current software is on HMRC's compatible list or whether you need to switch or add bridging software; separate your personal and business banking so income and expenses are easy to categorise; and start recording transactions at least monthly so the first quarterly update is a formality rather than a scramble.
There is a genuine upside beyond compliance. Keeping records up to date means your tax position is visible throughout the year instead of only in January. Pairing current figures with a good estimate of what you owe makes your monthly set-aside far more reliable — you can use the sole trader tax calculator and the tax set-aside calculator to keep a running reserve, rather than being surprised by the bill. If you have an accountant, ask them now which software they will support and how they want your records structured, so the transition is smooth when your start date arrives.
From 6 April 2026 for sole traders and landlords with qualifying income over £50,000. The threshold drops to £30,000 from April 2027 and £20,000 from April 2028. Qualifying income is gross income before expenses. Always confirm current dates on GOV.UK.
Turnover. The threshold is measured against your qualifying income — your gross self-employment and property income before expenses are deducted — not your taxable profit. So a business with high turnover but modest profit can still be in scope.
No. Quarterly updates are cumulative summaries of income and expenses, not tax payments. Your tax is still calculated after the tax year ends, and the payment deadlines of 31 January and 31 July are unchanged.
Not on its own. You need MTD-compatible software, though bridging software can connect a suitably structured spreadsheet to HMRC's systems. There must be a digital link right through to HMRC with no manual retyping.
Late submissions use a points-based system: you get a point per missed deadline and a £200 penalty once you reach the threshold, which is four points for quarterly filers. Late payment is penalised separately with interest and escalating charges. Check GOV.UK for the latest figures.
A final declaration made after the tax year ends. It brings together your quarterly figures, accounting adjustments and reliefs to confirm your total income and tax. It is due by 31 January, the same date as the current Self Assessment deadline.