What is Making Tax Digital for Income Tax?

Making Tax Digital for Income Tax Self Assessment (MTD ITSA) requires self-employed people and landlords to keep digital records of income and expenses and submit quarterly updates to HMRC using compatible software, instead of filing a single annual tax return. It replaces the traditional self-assessment process with more frequent, digital reporting.

When does MTD for Income Tax start?

MTD for Income Tax starts in April 2026 for self-employed individuals and landlords with qualifying income over £50,000. From April 2027, the threshold drops to £30,000. Those earning under £30,000 are not yet required to join, though HMRC may extend MTD further in future.

Do I need to buy software for MTD?

Yes. You must use HMRC-recognised MTD-compatible software to keep digital records and submit quarterly updates. Some free options exist (like HMRC's own basic tool) but most people will need commercial software. Prices range from free to around £30/month depending on features.

What are quarterly updates under MTD?

Under MTD, you submit a summary of your business income and expenses to HMRC every quarter. The quarters run April-June, July-September, October-December, and January-March, with each update due by the 7th of the month after the quarter ends. At year end, you also submit a final declaration (replacing the annual tax return).

What happens if I don't comply with MTD?

HMRC operates a points-based penalty system for MTD. You receive a penalty point for each late quarterly update. Once you reach the threshold (4 points for quarterly obligations), you receive a £200 penalty. Further late submissions incur additional £200 penalties. Points expire after a period of compliance. Penalties for late payment are separate and based on the amount owed.

Can I use spreadsheets for MTD?

You can use spreadsheets to record your transactions, but you need bridging software to submit the data digitally to HMRC. The spreadsheet alone is not sufficient — the submission must go through MTD-compatible software via HMRC's API. Some providers offer affordable bridging tools specifically for spreadsheet users.

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Making Tax Digital (MTD) Complete Guide UK 2026: Everything You Need to Know

Published: 2026-03-08 · Updated for the April 2026 deadline

⏰ MTD for Income Tax starts April 2026. If you're self-employed or a landlord with income over £50,000, you need compatible software and digital records in place before the new tax year begins. Less than a month to go.

Making Tax Digital is the biggest change to UK tax reporting in a generation. Instead of filing one annual tax return, you'll submit quarterly digital updates to HMRC using approved software.

This guide covers who's affected, what changes, what software you need, and a practical action plan to get ready.

What is Making Tax Digital?

Making Tax Digital for Income Tax Self Assessment (MTD ITSA) requires self-employed individuals and landlords to:

Keep digital records of all business income and expenses
Submit quarterly updates to HMRC through compatible software
Submit a final declaration at year end (replacing the annual tax return)

The aim is to reduce errors, give HMRC more timely data, and give taxpayers a clearer picture of their tax position throughout the year.

Am I affected?

You must join MTD from April 2026 if:

You are self-employed OR receive income from property
Your qualifying income is over £50,000 per year

From April 2027: the threshold drops to £30,000.

Qualifying income means your gross income from self-employment and/or property — before expenses. It's the total turnover, not your profit.

Who is NOT affected (yet)?

Self-employed people or landlords earning under £30,000
People whose only income is from employment (PAYE)
Companies and corporations (already under MTD for Corporation Tax separately)
Partnerships (deferred — no confirmed start date yet)

💡 Not sure? Use our MTD Readiness Checker to find out if you're affected and how prepared you are.

Timeline: what happens when

April 2019 — MTD for VAT launched (VAT-registered businesses over £85k)

April 2022 — MTD for VAT extended to all VAT-registered businesses

April 2026 — MTD for Income Tax begins (income over £50,000)

April 2027 — MTD for Income Tax extends (income over £30,000)

TBC — Possible further extension to lower income thresholds

What changes in practice?

Now (Self-Assessment)	Under MTD
File one annual tax return	Submit 4 quarterly updates + final declaration
Can use paper records	Must keep digital records
Submit via Government Gateway	Submit via MTD-compatible software
Deadline: 31 January	Quarterly deadlines + year-end deadline
Fixed penalties for late filing	Points-based penalty system

Quarterly update deadlines

Under MTD, the tax year is split into four quarters:

Quarter	Period	Update deadline
Q1	6 April – 5 July	7 August
Q2	6 July – 5 October	7 November
Q3	6 October – 5 January	7 February
Q4	6 January – 5 April	7 May
Final declaration		31 January (following year)

Each quarterly update is a summary of income and expenses for that period. It doesn't need to be perfect — you can make adjustments in later quarters or the final declaration.

Detailed guide: what to include in quarterly updates →

What software do I need?

You must use software that is HMRC-recognised for MTD ITSA. This means it can connect to HMRC's systems via their API to submit your updates digitally.

Your options:

Option	Cost	Best for
HMRC's free MTD tool	Free	Very simple affairs (limited features)
FreeAgent	~£15-25/month	Freelancers and sole traders
Xero	~£15-35/month	Small businesses with multiple income streams
QuickBooks	~£12-30/month	Sole traders who want invoicing built in
Sage	~£12-25/month	Traditional businesses, bookkeeper-friendly
Bridging software	£5-15/month	Spreadsheet users who want to keep their current setup

Full comparison: free vs paid MTD software →

⚠️ Spreadsheets alone aren't enough. You can use a spreadsheet to track your records, but you need bridging software to submit to HMRC. The submission must go through their API — you can't email or upload a spreadsheet.

Digital record-keeping requirements

Under MTD, your digital records must include:

Business name, address, and nature of business
Date, amount, and category for each transaction
Each item of income and each expense
For property income: details of each property and rental income/expenses

What "digital" means: records must be created, stored, and maintained digitally. You can photograph paper receipts and store them digitally, but the record of the transaction itself must be in your software or spreadsheet — not a shoebox of paper.

The new penalty system

MTD introduces a points-based penalty regime (replacing the old fixed penalties):

Late submission penalties

Each late quarterly update = 1 penalty point
At 4 points (the threshold for quarterly obligations) = £200 penalty
Each further late submission while at threshold = additional £200
Points expire after a period of compliance (24 months of on-time submissions once at threshold)

Late payment penalties

15 days late: first penalty charge (2% of tax outstanding at day 15)
30 days late: additional 2% of tax outstanding at day 30
31+ days late: daily penalty at 4% annualised on the outstanding amount

💡 Grace period: HMRC has confirmed a lighter touch in the first year of MTD, with more support and fewer penalties while people adjust. But don't rely on this — build good habits from day one.

Action plan: how to prepare

If you earn over £50,000 (must join April 2026)

Now: Choose your MTD software and sign up
Now: Start entering current transactions to learn the software
March 2026: Ensure all 2025/26 records are in the software
6 April 2026: Begin recording in MTD format from day one of the new tax year
7 August 2026: Submit your first quarterly update

If you earn £30,000-£50,000 (must join April 2027)

Now: Start researching software options
Summer 2026: Choose software and begin transition
January 2027: Have software set up and tested
6 April 2027: Begin MTD reporting

If you earn under £30,000

You're not currently required to join MTD, but moving to digital record-keeping is still good practice. It makes your annual self-assessment easier and prepares you in case the threshold drops further.

Costs to budget for

MTD adds ongoing software costs that many self-employed people haven't had before:

Item	Typical annual cost
MTD software subscription	£60-£360
Accountant support (if needed)	£150-£500
Time spent on quarterly updates	4-8 hours/year (if records are up to date)

The good news: software subscription costs are an allowable business expense — you can deduct them from your taxable profit.

Calculate your MTD costs →

Common questions

Can my accountant do it for me?

Yes. Your accountant can submit quarterly updates on your behalf using agent services. But you still need to keep digital records and provide timely information — they can't submit what they don't have.

What if I have both self-employment and property income?

You submit updates for each income source. Your software should handle multiple income streams. Both count towards the qualifying income threshold.

Will I still need to file a self-assessment return?

The annual tax return is replaced by the final declaration, which serves the same purpose but is submitted through your MTD software. The deadline remains 31 January.

I'm VAT registered — do I need to do both?

If you're already using MTD for VAT, you'll need MTD for Income Tax as well if your income qualifies. They're separate obligations with separate submissions, though some software handles both.

Related guides and tools

📦 Get MTD-Ready with the Getting-Paid Toolkit

Includes expense tracking templates, invoice templates, payment chasing sequences, and compliance checklists — everything you need to keep your freelance finances organised as MTD kicks in.

Get the toolkit — £19 →

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