What Is Making Tax Digital (MTD)?
Making Tax Digital is HMRC’s (His Majesty’s Revenue and Customs) system for keeping tax records and reporting income digitally. It forms part of the government’s wider plan to modernise the UK tax system and make it easier for people to get their tax right. For sole traders and landlords, this is more than an administrative update. It means moving away from a once-a-year filing process towards digital record-keeping, quarterly updates, and year-end reporting through compatible software.
This guide focuses on Making Tax Digital for Income Tax, which is the next major change for people earning income from self-employment or property. From April 2026, it will apply to those with combined gross income over £50,000, before extending to £30,000 in April 2027 and £20,000 in April 2028.
For anyone affected, the key issue is not just what MTD means, but when it starts applying, how to prepare before the new reporting cycle begins, and where specialist support may be needed to stay compliant with confidence.
When Do I Need to Comply With MTD Rules?
MTD for Income Tax is rolling out in stages based on your qualifying income from self-employment and property.
- From 6 April 2026: you must comply if your total gross income from self-employment and/or UK property as reported in your 2024/25 Tax Return was £50,000 or more
- From 6 April 2027: you must comply if your qualifying income is £30,000 or more
- From 6 April 2028: the threshold is due to fall to £20,000 subject to legislative sign-off
If you are a resident outside the UK but earn UK self-employment or property income, your timing may differ. In particular, if you filed Form SA109 in your 2024/25 tax return, you do not need to join before 6 April 2027.
Incidentally, if you are Non-Resident for UK tax purposes and did not file the Form SA109 with your 2024/25 Tax Return, perhaps because you file using HMRCs own gateway, MTD applies to you from 6th April 2026. In which case, we would strongly advise you to refile your 2024/25 Tax Return with these pages correctly completed – something that we can assist you with.
Otherwise, there is no need to sign up for Making Tax Digital at the last minute, but you should prepare well before your start date. That includes choosing compatible software, organising your records digitally, and getting ready for quarterly updates.
If your income stays below the threshold for three consecutive years, you may no longer be required to use MTD.
Making Tax Digital Benefits
Whilst it is certainly true to say that replacing a ‘once a year exercise’ with something that must be done quarterly appears to add to complexity, there are some reasons why the move could make your tax life a little simpler:
- Improved accuracy: Compatible software reduces manual entry and lowers the risk of mistakes.
- Better visibility: Regular updates give you a clearer picture (cash flow clarity) of your tax position during the year.
- A smoother year-end process: Quarterly reporting can make tax feel more like a manageable routine, rather than one cumbersome annual obligation that gets left until the last minute.
- Easier record management: Digital records are simpler to search, back up, and share with your accountant.
- Less admin stress: Software can help track income and expenses, making compliance more manageable.
If you want to realise these benefits without adding unnecessary complexity to your reporting process, getting the right support early can make the transition to MTD much smoother.
How Does MTD Change Income Tax?
Making Tax Digital for Income Tax moves you away from annual-only, more manual tax reporting towards digital record keeping, quarterly updates, and a final year-end submission.
Digital Record Keeping
Under MTD for Income Tax, you must keep income and expense records digitally using software that works with HMRC’s systems.
Paper records and spreadsheets on their own will not usually be enough, as your records need to be kept in a digitally compatible format throughout the year.
If you are choosing software, look for HMRC-compatible options that let you track transactions, categorise income and expenses, and submit updates directly.
Quarterly Updates
You must send HMRC quarterly updates four times a year, summarising your income and expenses for each period.
These updates are not your final tax return. They are intended to give HMRC a more up-to-date view of your business or property income and help you keep track of your tax position during the year.
Because the deadlines come regularly, keeping your records updated throughout the year becomes much more important.
The quarterly deadlines are:
- Quarter 1 (6th April – 5th July) – submission deadline 5th August
- Quarter 2 (6th July – 5th October) – submission deadline 5th November
- Quarter 3 (6th October – 5th January) – submission deadline 5th February
- Quarter 4 (6th January – 5th April) – submission deadline 5th May
End-of-Year Return
Quarterly updates do not replace the final year-end step.
You will still need to complete an end-of-period statement and final declaration to reconcile your figures, report other income where relevant, claim Non-Resident status where relevant, claim allowances or reliefs, and finalise your tax position. The deadline for the End of Year Return is 31st January following the end of the Tax Year in question – i.e., in line with the current Self-Assessment filing deadline.
Who Does Making Tax Digital Apply To?
Making Tax Digital for Income Tax mainly affects sole traders and landlords whose qualifying income exceeds the relevant threshold. Limited companies and agents are affected differently.
Sole Traders
Landlords
Limited Companies
Tax Advisers and Accountants
Sole Traders
If you are self-employed as a sole trader, you will need to join MTD for Income Tax once your gross business income crosses the threshold as reported in the relevant previous Tax Return.
From April 2026, this applies to those whose gross earnings from self-employment were over £50,000 as reported in their 2024/25 Tax Return. You will need to keep digital records, use compatible software, send quarterly updates, and complete a final declaration at year-end.
The threshold is based on gross income before expenses, not profit.
Landlords
Landlords with rental income above the threshold must also use MTD for Income Tax.
If your gross property income was over £50,000 for the 2024/25 Tax Year, you will fall within scope from 6th April 2026. HMRC looks at your total rental income across your properties when working out whether you meet the threshold.
You will need software that can track rental income and allowable expenses digitally and submit updates to HMRC.
Limited Companies
Limited companies are not the main focus of the current income tax rollout.
They pay corporation tax, not income tax, so the rules discussed here do not usually apply to company income itself. However, if you are a company director who also earns income as a sole trader or landlord, those personal income streams may still bring you into scope.
Tax Advisers and Accountants
Tax Advisers and Accountants are not the taxpayers under MTD, but they often help clients comply.
They can assist with choosing software, maintaining records, registering for MTD, and submitting updates on a client’s behalf.
Which Taxes Does Making Tax Digital Cover?
Making Tax Digital already applies to VAT and is now rolling out for Income Tax. Corporation Tax is part of the wider MTD roadmap, but it is not yet in active mandatory rollout in the same way.
Income Tax
This is the most relevant part of MTD for sole traders and landlords.
From April 2026, those with qualifying income over £50,000 must comply. That means keeping digital records, sending quarterly updates, and completing a final declaration through compatible software.
Corporation Tax
Corporation Tax is part of the wider MTD plan, but no mandatory start date has been set yet.
For now, limited companies should mainly be aware of it as a future development rather than an immediate compliance requirement under this article’s focus.
VAT
The first tax brought under MTD rules. VAT is a tax charged on many goods and services sold by businesses in the UK.
If you are VAT-registered, you may already need to keep digital records and submit returns through HMRC-compatible software.
How to Register for Making Tax Digital
First, confirm that Making Tax Digital applies to you and that you need to join.
You will then need a Government Gateway account and HMRC-compatible software. Once these are in place, you can sign up through HMRC’s online process yourself or ask your accountant to handle it for you.
When to Sign Up for Making Tax Digital
You should not leave sign-up until the last minute.
Your expected start date depends on your qualifying income:
- 6 April 2026: gross income over £50,000 in the 2024/25 Tax Year
- 6 April 2027: gross income over £30,000 in the 2025/26 Tax Year
- 6 April 2028: gross income over £20,000 in the 2026/27 Tax Year, subject to legislative sign off
In practice, it is sensible to sign up a few months before your start date so you have time to:
- choose suitable software
- move your records into digital format
- get comfortable with quarterly reporting
- fix any gaps in your bookkeeping before deadlines begin
Who Is Exempt From MTD?
Not everyone will need to follow MTD rules straight away.
Some people may also qualify for exemption, for example if:
- they are digitally excluded due to age, disability, or location
- their religious beliefs prevent them from using digital technology
- they cannot manage digital records because of a mental or physical condition
- they do not have a National Insurance Number
As mentioned above, some non-residents and people with specific filing circumstances, including certain SA109-related cases, may also have different timings or exemptions.
If you are exempt, you do not need to use MTD for Income Tax, but you must still report your income and gains through a Self Assessment tax return as normal. Some exemptions are automatic, while others require you to apply to HMRC, so it is important to check which category your circumstances fall into.
Why Choose Spice Taxation
Making Tax Digital will affect many taxpayers in similar ways, but not every firm supports the same type of client. For many people, the challenge is not just the new reporting cycle itself, but how it fits into a wider UK personal tax position, especially where overseas living, non-residence, and UK-source income are involved.
We support clients through:
- Over 30 years of experience supporting expatriates, non-residents and former expatriates who have returned to the UK: we have handled thousands of UK personal tax cases and built deep experience advising on the international aspects of UK personal taxation, including areas such as Self Assessment, rental income, and wider cross-border personal tax matters
- A client base that is predominantly international: around 80% of Spice Taxation’s work involves clients living outside the UK, giving us day-to-day experience with the practical realities of cross-border tax reporting, residence issues, overseas living arrangements, and UK-source income
- Fixed fee pricing: giving our clients greater certainty over the cost of tax returns, Making Tax Digital submissions, and structured tax advice
If you are unsure how Making Tax Digital affects you, or you want experienced support in managing the transition, get in touch with us. We can help you understand your position, prepare properly, and stay compliant with more confidence.
FAQs
Is Making Tax Digital compulsory?
Yes, MTD is compulsory if you fall within the relevant income thresholds and deadlines. From April 2026, it becomes mandatory for sole traders and landlords with qualifying income over £50,000 arising in the 2024/25 tax year. From April 2027, the threshold drops to £30,000. If your income is below these levels, you can join voluntarily but you’re not legally required to.
What are the changes to Making Tax Digital for Income Tax?
The main change is moving from annual-only reporting to digital records, quarterly updates, and a final declaration. Instead of waiting until 31 January after the tax year ends to report everything in one go, you send updates throughout the year.
The rollout is phased by income level, starting in April 2026 for those earning over £50,000 and expanding in April 2027 for those over £30,000.
What do I have to do for Making Tax Digital?
You need to keep digital records of your income and expenses using compatible software. You must send quarterly updates to HMRC and submit a final declaration after the end of the tax year. You still pay any tax owed by the usual self-assessment deadline.
What digital records do I need to keep?
You need to record all business income, such as sales or rental income, together with all allowable expenses, such as certain travel costs, materials, property repairs, and rental agent fees. Broadly, these should be expenses incurred wholly and exclusively for your trading and/or property business. These records must be stored digitally from the start of the tax year. This applies to both sole traders and landlords. If VAT also applies to you, you may have separate VAT record-keeping requirements as well.
You need to record all business income, such as sales or rental income, and all allowable expenses like certain travel expenses, materials, property repairs, rental agent fees etc – i.e. expenses which are ‘wholly and exclusively’ in relation to your sole tradership and/or property business. The records must be stored digitally from the start of the tax year.
If you are a sole trader, that may include sales income, invoices, receipts, and business expenses. If you are a landlord, it includes rent received and property-related expenses such as repairs, letting fees, or other allowable costs. If VAT also applies to you, you may have separate VAT record-keeping requirements as well.
What does submitting tax information “digitally” involve?
Submitting digitally means using HMRC-recognised software to maintain your records and send updates directly to HMRC. You can’t rely on paper records or manual filing alone. The software handles the submission process, so you don’t need to type figures into separate online forms.
Which software to use for Making Tax Digital?
Choose software that’s compatible with HMRC and suits your type of business. Look for options listed on HMRC’s official software directory. Leading software includes options for sole traders, landlords, and limited companies. Features like automatic bank feeds, receipt capture, and direct submission to HMRC are common. Your accountant can help you pick the right one.
What if my business already uses accounting software?
Your current software may already support MTD, but you should check that it meets HMRC’s requirements. Some older versions need updating or replacing. If your software is compatible, you may just need to enable MTD features and sign up through your account. Contact your software provider to confirm.
Do the self-employed need to sign up for MTD for VAT and MTD for IT separately?
Yes. MTD for VAT and MTD for Income Tax are separate systems. Signing up for one does not automatically enrol you in the other. If you’re VAT-registered and also earn income as a sole trader or landlord, you’ll need to manage both. Each has its own software requirements and submission deadlines.
Can you use Excel for Making Tax Digital?
Excel on its own is not enough. You can use spreadsheets to track income and expenses, but you still need compatible software or bridging software to submit updates to HMRC.
What does MTD compliance mean?
MTD compliance means meeting HMRC’s rules for digital record keeping, using compatible software, and submitting the required updates on time. It covers how you store your records, how data moves between systems, and how you send information to HMRC. Non-compliance can lead to penalties.
Was Making Tax Digital delayed?
Yes, the original timetable has been pushed back more than once. The current schedule starts in April 2026 for higher earners and broadens in April 2027. HMRC has adjusted deadlines to give businesses more time to prepare.
Can I use spreadsheets to send MTD for VAT and Income Tax returns in Xero?
If your workflow includes spreadsheets, Xero may still be used as the software through which records and submissions are managed. The key point is that the final submission must go through HMRC-compatible software, rather than through spreadsheets alone.