What Is Making Tax Digital? MTD Rules, Thresholds and Deadlines for 2026

Last reviewed: 10 August 2026.

Making Tax Digital (MTD) is HMRC’s system for requiring certain taxpayers and businesses to keep specified tax records digitally and use compatible software to send information to HMRC.

Making Tax Digital is already established for VAT and, from 6 April 2026, became mandatory for the first group of sole traders and landlords under Making Tax Digital for Income Tax. Sole traders and landlords whose qualifying income was more than £50,000 in the 2024/25 tax year are generally within the first mandatory phase.

The system will expand further. The threshold falls to more than £30,000 from 6 April 2027 and more than £20,000 from 6 April 2028, based on qualifying income from the relevant earlier tax return.

For people affected by MTD for Income Tax, the change is more substantial than simply filing a tax return online. They generally need to:

• keep digital records of relevant self-employment and property income and expenses;
• use software compatible with Making Tax Digital;
• send quarterly updates to HMRC;
• make necessary year-end adjustments; and
• submit the annual tax return through compatible MTD software.

What Is Making Tax Digital?

Making Tax Digital is an HMRC programme that moves tax record-keeping and reporting into compatible digital software.

In 2026, there are two particularly important parts for small businesses:

MTD for VAT: VAT-registered businesses generally have to keep specified VAT records digitally and submit VAT returns through compatible software.

MTD for Income Tax: From 6 April 2026, qualifying sole traders and landlords with annual qualifying income above £50,000 must generally keep digital records and send quarterly updates using compatible software.

MTD does not mean tax has to be paid quarterly. Quarterly Income Tax updates provide HMRC with summaries of income and expenses; the normal annual tax-return and payment processes still apply.

Making Tax Digital Key Facts for 2026

MTD requirement	Current position
MTD for VAT	Applies generally to VAT-registered businesses
MTD for Income Tax start date	6 April 2026
2026 Income Tax threshold	Qualifying income over £50,000
2027 threshold	Qualifying income over £30,000
2028 threshold	Qualifying income over £20,000
Qualifying income	Gross self-employment and property income
Digital records	Required for relevant MTD information
Compatible software	Required
Income Tax updates	Generally four per year
First 2026 quarterly deadline	7 August 2026
Annual MTD tax return	Still required
Tax payment deadline	Normally 31 January
2026/27 quarterly late penalty points	Not applied during first mandatory year
Partnerships	Not currently mandated for MTD for Income Tax
Corporation Tax	MTD for Income Tax does not apply to company Corporation Tax

The detailed Making Tax Digital for Income Tax guidance should be checked before deciding whether a person is within the rules.

Why Was Making Tax Digital Introduced?

Making Tax Digital is part of HMRC’s wider effort to modernise tax administration and move businesses away from fragmented paper records and manual tax-return processes.

The central idea is to maintain relevant financial information digitally throughout the year rather than reconstructing an entire set of records shortly before a filing deadline.

For a sole trader, that might mean recording invoices, bank transactions and allowable business expenses in accounting software as transactions occur.

For a landlord, it may mean digitally recording rent received and property expenses.

For a VAT-registered business, it means keeping specified VAT information in functional compatible software and using that software to submit the VAT return through HMRC’s API system.

Good digital record keeping can also support ordinary bookkeeping for small businesses by providing a clearer record of sales, costs, tax liabilities and cash flow.

Is Making Tax Digital Already Mandatory in 2026?

Yes, but the answer depends on the tax involved and the taxpayer’s circumstances.

MTD for VAT

Making Tax Digital for VAT is already established.

All VAT-registered businesses should generally now be within MTD for VAT unless they qualify for an exemption. HMRC automatically signs up new VAT registrations to MTD for VAT unless the business is exempt or has applied for exemption.

MTD for Income Tax

Making Tax Digital for Income Tax became mandatory for its first group on 6 April 2026.

The first phase covers sole traders and landlords whose qualifying income for 2024/25 was more than £50,000.

The system expands in April 2027 and April 2028.

What Is the Making Tax Digital Income Threshold?

The rollout is based on qualifying income, not taxable profit.

Qualifying income shown for	Threshold	MTD starts
2024/25 tax year	More than £50,000	6 April 2026
2025/26 tax year	More than £30,000	6 April 2027
2026/27 tax year	More than £20,000	6 April 2028

These are now the confirmed phases in HMRC’s rollout.

A person who falls below the first threshold should therefore not assume that MTD will never apply.

For example, a sole trader with qualifying income of £38,000 might not have been mandated from April 2026 but could enter MTD from April 2027 if their 2025/26 qualifying income exceeds £30,000.

What Does Qualifying Income Mean for MTD?

This is one of the most important parts of the rules.

Qualifying income generally means gross income from self-employment and property before expenses are deducted.

It is not the same as:

• taxable profit;
• take-home earnings;
• profit after business expenses;
• total household income; or
• salary received through PAYE.

HMRC generally adds together qualifying gross income from a person’s self-employment businesses and property businesses when testing the threshold.

Example: Self-Employment and Rental Income

Suppose a person has:

• £29,000 gross self-employment income; and
• £24,000 gross property income.

Their qualifying income is:

£29,000 + £24,000 = £53,000

If those figures were reported for the 2024/25 tax year, the £53,000 qualifying income would generally put the person above the £50,000 threshold for MTD from 6 April 2026.

It does not matter that deductible expenses might reduce the person’s taxable profit below £50,000.

Does Partnership Income Count Towards the MTD Threshold?

A person’s share of profit received as a partner does not currently count as qualifying income for MTD for Income Tax.

HMRC states that individual partnership profit does not need its own MTD digital records or quarterly updates under the current rules, although the partnership income still needs to be included in the person’s annual tax return.

Partnerships themselves are also not currently required to use MTD for Income Tax. HMRC says a future timetable will be set out separately.

How Does Making Tax Digital for Income Tax Work?

For a person within MTD for Income Tax, the process can be viewed as a continuous cycle.

1. Keep Digital Records

The taxpayer records relevant self-employment or property transactions using compatible software.

2. Send Quarterly Updates

Every three months, the software produces totals from the digital records and submits an update to HMRC.

3. Review the Records

The taxpayer can correct records and make necessary accounting or tax adjustments.

4. Complete the Annual Tax Return

After the end of the tax year, the taxpayer completes the tax return using MTD-compatible software.

5. Pay the Tax Due

The normal 31 January payment deadline continues to apply.

This means MTD changes how records and information are maintained and submitted, rather than introducing four separate Income Tax bills each year.

What Are Quarterly Updates?

Quarterly updates are summaries created from the digital records maintained in MTD-compatible software.

HMRC says the updates contain totals for income and expense categories used for each relevant self-employment and property business.

They are not tax returns.

The taxpayer does not normally have to make accounting or tax adjustments before sending each quarterly update.

HMRC can then provide an estimate of the developing tax position, but that estimate is not necessarily the final amount payable.

What Are the MTD Quarterly Deadlines?

The standard deadlines are:

Update period	Submission deadline
6 April to 5 July	7 August
6 April to 5 October	7 November
6 April to 5 January	7 February
6 April to 5 April	7 May

HMRC also allows taxpayers to choose calendar update periods in appropriate circumstances, but the deadlines remain 7 August, 7 November, 7 February and 7 May.

The update periods are cumulative within the tax year under HMRC’s current system.

What Was the First Making Tax Digital Deadline in 2026?

For most people who entered mandatory MTD for Income Tax on 6 April 2026, the first quarterly update covered the period ending 5 July 2026 and was due by:

7 August 2026

The deadline has therefore already passed as of this page’s 10 August 2026 review date.

Anyone who was required to use MTD from April 2026 and has not yet sent the first update should check their account and compatible software promptly.

HMRC is not applying penalty points for late quarterly updates during the 2026/27 tax year, but taxpayers still have to keep digital records and send the required updates before they can submit the annual tax return.

That first-year easement should not be interpreted as removing the legal requirement to make quarterly submissions.

Does MTD Replace the Self Assessment Tax Return?

No. Quarterly updates do not replace the annual tax return.

People who entered MTD in April 2026 still need to submit their 2025/26 Self Assessment tax return through the usual process by 31 January 2027, because that tax year ended before mandatory MTD began.

Their first annual tax return completed through MTD software covers the 2026/27 tax year and is due by:

31 January 2028.

This distinction is particularly important for taxpayers transitioning into the new system.

Is an End of Period Statement Still Required?

Older explanations of MTD for Income Tax often refer to an End of Period Statement, or EOPS.

The current HMRC process instead focuses on making any necessary year-end adjustments and then completing the annual tax return through MTD-compatible software. HMRC’s current instructions state that tax years after the transition year should be completed and submitted using Making Tax Digital for Income Tax software.

For that reason, older references suggesting that every taxpayer must separately submit an EOPS in addition to the annual tax return should not be relied on as a description of the current 2026 process.

What Digital Records Must Sole Traders Keep for MTD?

A sole trader who is within MTD for Income Tax needs to use compatible software to create, store and correct digital records relating to the relevant business income and expenses.

Depending on the business, the records may include:

• sales;
• fees received;
• invoices;
• cash receipts;
• platform income;
• business purchases;
• travel expenses;
• premises costs;
• professional fees;
• advertising;
• equipment costs; and
• other relevant business expenses.

A business already following reliable small-business bookkeeping practices may find the transition easier because much of the underlying transaction information is already being captured consistently.

What Digital Records Do Landlords Need?

Landlords within MTD for Income Tax need to maintain digital records of relevant property income and expenses using compatible software.

Records may include:

• rent received;
• property-management fees;
• repairs;
• insurance;
• professional fees;
• eligible finance information;
• service costs; and
• other relevant property-business transactions.

Where a taxpayer operates both a property business and a self-employment business, HMRC requires quarterly updates for each relevant business.

Does MTD Mean Receipts Must Be Scanned?

Not necessarily.

Making Tax Digital is principally concerned with keeping specified information digitally. It does not mean every physical document automatically has to be destroyed or converted into an image.

Accounting software may allow receipts and invoices to be photographed or scanned, which can make record keeping easier, but businesses should still comply with the underlying HMRC record-retention requirements applying to their tax affairs.

Digital accounting systems can be particularly useful for new founders organising their wider UK business setup because tax records can be established correctly from the first transaction.

What Does Making Tax Digital Mean for VAT?

Making Tax Digital for VAT is already fully established.

All VAT-registered businesses should generally now use MTD for VAT unless exempt. New VAT-registered businesses are normally enrolled automatically.

Under MTD for VAT, businesses must:

• keep specified VAT records digitally;
• maintain those records within functional compatible software;
• calculate the VAT return using data maintained through the digital system; and
• send the VAT return to HMRC through compatible software.

Businesses unfamiliar with the underlying reporting process can review how to submit VAT returns alongside HMRC’s official MTD rules.

What VAT Information Must Be Kept Digitally?

HMRC requires VAT-registered businesses within MTD to maintain specified designatory and transaction information digitally.

This includes information such as:

• business name;
• principal business address;
• VAT registration number;
• VAT accounting scheme used;
• time of supply;
• net value of supplies; and
• rate of VAT charged.

Businesses should separately understand which transactions attract the standard, reduced or zero rate. Current UK rate information can be compared with the practical explanation of UK VAT rates.

What Is a Digital Link?

A business does not necessarily have to store all its VAT information in one software program.

However, where several programs make up the functional compatible software system, required data generally needs to move between them using digital links.

Examples of accepted digital links can include:

• linked spreadsheet cells;
• CSV imports and exports;
• automated software transfers;
• API connections;
• uploaded digital files; and
• emailed spreadsheets that are imported into another system.

Manually retyping figures between different pieces of software generally does not satisfy the digital-link requirement once the information forms part of the electronic VAT account.

Can a Business Still Use Spreadsheets for Making Tax Digital?

Yes, potentially.

A spreadsheet is not automatically prohibited by MTD.

For VAT, HMRC says a spreadsheet can form part of functional compatible software when it is used with one or more programs that provide the other required functions, including communication with HMRC.

For Income Tax, HMRC’s MTD campaign also confirms that bridging software options may allow taxpayers to continue using spreadsheets where the overall setup meets the requirements.

The important question is therefore not:

“Is a spreadsheet allowed?”

It is:

“Does the complete software setup satisfy HMRC’s digital-record and submission requirements?”

What Is MTD-Compatible Software?

MTD-compatible software is software capable of performing the required Making Tax Digital functions and communicating with HMRC.

For MTD for Income Tax, compatible software needs to support the relevant digital record keeping, quarterly reporting and annual tax-return processes.

Businesses can use:

• a full accounting package;
• specialist MTD software;
• an app;
• spreadsheets combined with compatible bridging software; or
• several digitally connected programs.

HMRC maintains a software finder for MTD for Income Tax, allowing users to compare supported functions.

Businesses comparing products can also examine free accounting software options, while confirming directly with HMRC and the software provider that the particular product and subscription level support the required MTD functions.

Does HMRC Provide Free MTD Software?

HMRC does not provide a general-purpose bookkeeping package itself.

However, HMRC’s software finder includes products from external providers, and the government’s MTD campaign confirms that both free and paid software options exist.

Before choosing software, users should check:

• whether it supports MTD for Income Tax, VAT or both;
• whether the required features are included in the chosen plan;
• support for property income;
• support for multiple self-employment businesses;
• bank feeds;
• invoicing;
• receipt capture;
• spreadsheet integration;
• accountant access;
• annual tax-return submission;
• subscription cost; and
• data export and backup options.

A product being capable of MTD for VAT does not automatically mean every version of it can handle the full MTD for Income Tax process.

Does a Business Need an Accountant for MTD?

No.

A sole trader or landlord can manage MTD personally if they understand the rules and use appropriate compatible software.

However, an accountant or tax agent may be useful where:

• several businesses are involved;
• property and self-employment income are combined;
• accounting adjustments are complex;
• VAT also applies;
• Capital Gains Tax is involved;
• records need correcting;
• the taxpayer has foreign income;
• losses need to be considered; or
• the taxpayer is uncertain about allowable expenses.

HMRC allows authorised agents to sign clients up for MTD and manage relevant submissions.

The taxpayer remains responsible for making sure the information submitted is complete and accurate.

How Does Someone Sign Up for MTD for Income Tax?

Unlike MTD for VAT, taxpayers required to use MTD for Income Tax should not assume that simply having a Self Assessment account completes the process.

HMRC states that people required to use MTD for the 2026/27 tax year should sign up now.

Before signing up, a person should:

1. confirm whether MTD applies;
2. make sure they are registered for Self Assessment;
3. make sure a recent Self Assessment return has been filed where required;
4. choose compatible software;
5. decide whether an accountant or agent will manage MTD;
6. gather the required personal and tax details; and
7. follow HMRC’s MTD sign-up process.

A Unique Taxpayer Reference may be required for Self Assessment administration. Anyone unfamiliar with that number can review how to apply for a UTR number before attempting to organise their digital tax account.

The official MTD for Income Tax sign-up service provides the current eligibility and registration process.

What If HMRC Has Not Sent an MTD Letter?

A taxpayer should not assume that MTD does not apply merely because no HMRC letter has arrived.

HMRC reviews Self Assessment returns and normally writes to people identified as being above the relevant threshold. However, HMRC explicitly says taxpayers remain responsible for checking whether they need to use MTD even if they do not receive a letter.

For the April 2026 phase, HMRC generally used qualifying income reported in the 2024/25 Self Assessment return.

Can Someone Join MTD Voluntarily?

Yes. HMRC allows eligible people to volunteer for MTD for Income Tax before they become legally required to use it.

For example, someone who expects to become mandatory from April 2027 can choose to start using MTD during the current period if eligible.

Voluntary participation can allow a sole trader or landlord to test:

• compatible software;
• bookkeeping routines;
• quarterly submissions;
• accountant workflows; and
• digital record keeping

before mandatory participation begins.

However, joining voluntarily creates operational requirements, so taxpayers should understand how the service works before opting in.

Who Is Exempt From MTD for Income Tax?

Not everyone within Self Assessment has to use MTD for Income Tax.

HMRC currently provides several automatic exemptions as well as exemptions that need to be applied for.

Automatic Exemptions

Examples include certain people or entities where:

• qualifying income is £20,000 or less;
• there is no National Insurance number before the start of the relevant tax year;
• the return is being made for certain trusts;
• a person is acting as personal representative of somebody who has died; or
• the income relates to a partnership under the current rules.

Specific temporary exemptions can also apply in particular circumstances.

Digital Exclusion

A person may be able to obtain an exemption where it is not reasonably practical for them to use digital tools.

Reasons may include circumstances connected to:

• age;
• disability;
• remoteness or lack of reliable internet;
• religious beliefs; or
• another genuine barrier that makes digital compliance unreasonable.

An exemption should not be assumed. Where an application is necessary, HMRC assesses the individual’s circumstances.

Is Someone Automatically Exempt Because They Are Older?

No. Age on its own does not automatically create an MTD exemption.

The relevant question is whether the person’s circumstances make it unreasonable or impractical for them to use digital tools.

HMRC uses a similar approach under MTD for VAT, where age may contribute to digital exclusion but is considered alongside the person’s actual ability to use technology and available support.

Can Someone Be Exempt Because Software Is Too Expensive?

Cost alone does not automatically create an MTD for VAT exemption, and HMRC considers the overall circumstances where digital exclusion is claimed.

For MTD for Income Tax, anyone who genuinely cannot engage digitally should use HMRC’s exemption process rather than simply failing to keep digital records or file updates.

Free software options may also be available for some users through HMRC’s recognised software listings.

What Happens if Income Falls Below the MTD Threshold?

Once a person enters MTD, falling below a threshold does not necessarily mean they can immediately stop using it.

HMRC applies specific exit rules designed to avoid people moving repeatedly in and out of MTD as their income fluctuates.

Current guidance explains when someone can opt out after qualifying income remains at or below the applicable levels.

Someone whose income drops should therefore check HMRC’s current rules before stopping digital records or quarterly submissions.

Does MTD Change How Income Tax Is Calculated?

MTD does not create a new Income Tax rate.

Tax is still calculated under the relevant Income Tax rules based on taxable income, allowable expenses, reliefs and other circumstances.

The quarterly updates themselves are primarily summaries of income and expenses rather than final tax calculations. HMRC says accounting or tax adjustments do not have to be completed before each quarterly update.

Where a taxpayer uses traditional accounting rather than cash basis, year-end accounting adjustments such as accruals and prepayments can be made through the software. Cash basis is the default method for many self-employment and property businesses.

For broader tax obligations outside MTD, self-employed people can compare the different liabilities covered under taxes for the self-employed, while checking current figures against HMRC before relying on historic rates.

Does MTD Mean Tax Must Be Paid Four Times a Year?

No. This is one of the most common misconceptions surrounding Making Tax Digital.

Quarterly updates are reporting obligations. They do not create four quarterly Income Tax payment deadlines.

The main annual Self Assessment payment deadline remains 31 January after the tax year, with payments on account continuing to apply where the existing Self Assessment rules require them.

The quarterly information can help taxpayers monitor estimated liabilities during the year, but the estimate is not itself a quarterly tax bill.

What Penalties Apply to MTD for Income Tax in 2026?

A points-based late-submission regime applies to MTD for Income Tax.

However, HMRC has introduced an important transitional easement for the first mandatory year.

Quarterly Updates in 2026/27

HMRC will not apply penalty points for missing quarterly-update deadlines during 2026/27.

Affected taxpayers still need to send those updates before they can submit their annual tax return.

After the First Year

For quarterly updates after 2026/27, a missed deadline can create a penalty point.

The quarterly filing penalty threshold is four points. Once the threshold is reached, the taxpayer can receive:

• a £200 penalty; and
• another £200 penalty for each subsequent missed submission while at the threshold.

Late tax-return and late-payment rules continue separately.

Are MTD Penalty Points the Same as VAT Penalty Points?

No. Where someone has MTD obligations for both Income Tax and VAT, the relevant penalty points are managed separately for the different tax obligations.

A VAT late-submission issue therefore does not simply merge into an Income Tax quarterly-update record.

What Happens if MTD Software Stops Working?

A taxpayer should first record what went wrong and contact the software provider.

Where a genuine technical failure prevents a submission, the circumstances may potentially be relevant to HMRC’s reasonable-excuse rules.

However, taxpayers should not assume that every software problem automatically removes a filing obligation.

Useful evidence can include:

• screenshots of the error;
• dates and times;
• software support tickets;
• emails from the provider;
• HMRC service-status information; and
• records showing attempts to make the submission.

The problem should be resolved and the outstanding submission completed as soon as reasonably possible.

Can MTD Be Managed Entirely by an Accountant?

An authorised agent can carry out much of the practical MTD work for a client.

For example, an accountant can potentially:

• help choose software;
• maintain digital records;
• review bookkeeping;
• submit quarterly updates;
• make year-end adjustments; and
• submit the annual tax return.

HMRC provides a specific process for agents to sign clients up for MTD for Income Tax.

However, businesses still need an effective way to get accurate transaction information to the accountant throughout the year.

Leaving twelve months of receipts in a box and expecting the accountant to reconstruct everything immediately before 31 January does not fit well with quarterly digital reporting.

What Should Sole Traders Do to Prepare for MTD?

A practical preparation process includes:

Check the Relevant Tax Return

Identify the gross self-employment and property income reported for the tax year HMRC uses to assess mandation.

Calculate Total Qualifying Income

Combine relevant self-employment and property gross income.

Confirm the MTD Start Date

Determine whether the threshold places the taxpayer into April 2026, April 2027 or April 2028.

Choose Software Early

Make sure the software supports the actual income sources and required MTD functions.

Organise Business Banking

Separating business and personal transactions can simplify categorisation and reconciliation.

Create a Weekly Bookkeeping Routine

Record income and costs throughout the year rather than several months later.

Keep Supporting Evidence

Retain invoices, receipts and other required tax records.

Add Quarterly Deadlines to the Calendar

For Income Tax, remember:

7 August → 7 November → 7 February → 7 May

Review the Position With an Accountant

Professional advice can be particularly valuable where the taxpayer has more than one business, property income, VAT, foreign income, losses or complex adjustments.

MTD Example: Sole Trader Earning £62,000

Consider a self-employed consultant whose gross business income was £62,000 in 2024/25.

Assume there is no applicable exemption.

Because the qualifying income exceeds £50,000:

• MTD for Income Tax generally starts from 6 April 2026;
• relevant records need to be kept digitally;
• compatible software is required;
• quarterly updates are required;
• the first update was due on 7 August 2026;
• later 2026/27 quarterly deadlines are 7 November 2026, 7 February 2027 and 7 May 2027; and
• the first annual MTD tax return for 2026/27 is due by 31 January 2028.

The £62,000 is gross business income. The consultant’s taxable profit after allowable expenses could be substantially lower.

MTD Example: Sole Trader With £28,000 and Rental Income of £25,000

Consider a person with:

• £28,000 of gross self-employment income; and
• £25,000 of gross property income.

Combined qualifying income is:

£53,000

If this was the qualifying income for 2024/25, the person would generally fall into MTD for Income Tax from April 2026, subject to exemptions and other rules.

Looking only at the £28,000 self-employment figure would therefore produce the wrong result.

MTD Example: Sole Trader Earning £42,000

Suppose qualifying income was £42,000 in 2024/25.

That amount is not above the £50,000 threshold, so the taxpayer would not generally be mandated into the April 2026 phase on that basis.

However, if qualifying income for 2025/26 remains £42,000, it exceeds the £30,000 threshold and would generally result in MTD becoming mandatory from 6 April 2027.

This is why sole traders below £50,000 still need to prepare for the next phase.

MTD Example: Sole Trader Earning £24,000

A taxpayer with £24,000 qualifying income would ordinarily be:

• below the 2026 £50,000 threshold;
• below the 2027 £30,000 threshold; but
• potentially within the April 2028 phase because the threshold then falls to more than £20,000.

The exact start date depends on qualifying income for the relevant assessment year.

What Does MTD Mean for Limited Companies?

MTD for Income Tax primarily affects individuals with self-employment and property income. It is not a replacement for a limited company’s Corporation Tax return.

However, a limited company that is VAT registered is generally within MTD for VAT and must comply with the VAT digital record-keeping and software requirements unless exempt.

A founder deciding between self-employment and incorporation should therefore consider the wider implications of tax administration when starting a business in the UK.

What Are the Benefits of Making Tax Digital?

Potential operational benefits include:

• more regular bookkeeping;
• fewer missing transactions;
• improved visibility of income and costs;
• integration with business bank feeds;
• easier collaboration with accountants;
• less manual re-keying of information;
• better preparation for tax bills; and
• more current financial information for business decisions.

These benefits depend heavily on the software and processes used.

MTD itself does not guarantee accurate tax reporting. Incorrectly categorised transactions or incomplete records can still produce incorrect submissions.

What Are the Main Challenges of MTD?

For smaller businesses, practical challenges can include:

• software subscription costs;
• learning new accounting systems;
• migrating records from spreadsheets or paper;
• integrating several systems;
• understanding digital-link requirements;
• keeping bookkeeping up to date;
• managing four quarterly deadlines;
• correcting historical records;
• working with accountants more frequently; and
• recognising that MTD thresholds are based on gross qualifying income rather than profit.

A business should therefore choose software around its actual requirements rather than simply buying the cheapest product labelled “MTD compatible”.

Common Making Tax Digital Misconceptions

“MTD Only Applies to VAT”

No.

MTD for VAT is already established, while mandatory MTD for Income Tax began for the first affected sole traders and landlords on 6 April 2026.

“Everyone Earning Over £50,000 Uses MTD”

No.

The threshold concerns qualifying gross self-employment and property income, not ordinary salary or every type of personal income.

“£50,000 Means Profit After Expenses”

No.

The test is based on qualifying gross income before business expenses are deducted.

“Quarterly Updates Mean Quarterly Tax Bills”

No.

Quarterly updates provide income and expense summaries. The normal annual tax-return and payment framework remains.

“A Spreadsheet Can Never Be MTD Compliant”

Incorrect.

Spreadsheets can form part of a compliant system where the required digital records, links and HMRC submission functions are provided by the overall software setup.

“The £20,000 Threshold for 2028 is Only a Proposal”

No longer correct.

HMRC’s current rollout states that those with qualifying income over £20,000 will enter MTD from April 2028 based on the applicable assessment period.

“HMRC Automatically Signs Everyone Up for MTD for Income Tax”

No.

People required to use MTD for Income Tax need to follow the sign-up process, and HMRC currently tells those in the 2026/27 mandatory group to sign up now.

“No First-year Quarterly Penalties Means Quarterly Updates Are Optional”

Incorrect.

HMRC will not apply penalty points for late 2026/27 quarterly updates, but taxpayers still need to keep digital records and send the required updates before they can submit their annual tax return.

Making Tax Digital Readiness Checklist

A sole trader or landlord preparing for MTD should check:

• Has qualifying income been calculated using gross figures?
• Have self-employment and property income been combined?
• Has the correct MTD start year been identified?
• Is the taxpayer already registered for Self Assessment?
• Is the UTR available?
• Has compatible software been selected?
• Can the software handle every relevant business or property source?
• Are records being maintained digitally?
• Are spreadsheets digitally connected where necessary?
• Have quarterly deadlines been added to the calendar?
• Is an accountant or agent going to manage submissions?
• Has HMRC’s sign-up process been completed?
• Have possible exemptions been checked?
• Is there a process for correcting records?
• Is the 31 January annual tax deadline also being tracked?

Final Takeaway

Making Tax Digital has moved from being a future HMRC project to an active part of the UK tax system.

MTD for VAT already applies generally to VAT-registered businesses, requiring specified digital records and compatible software.

MTD for Income Tax became mandatory on 6 April 2026 for qualifying sole traders and landlords with gross self-employment and property income above £50,000. That threshold falls to more than £30,000 in April 2027 and more than £20,000 in April 2028.

The most important practical changes are digital record keeping, compatible software and four quarterly updates. Those updates do not replace the annual tax return and do not create quarterly Income Tax payment dates.

For the first mandatory group, the first quarterly deadline was 7 August 2026. Although HMRC is not applying quarterly late-submission penalty points during 2026/27, affected taxpayers should still bring any outstanding update up to date because all required quarterly submissions must be completed before the annual tax return can be filed.

Anyone uncertain about whether the rules apply should check their qualifying income against HMRC’s official MTD eligibility guidance and obtain professional tax advice where their circumstances are complex.

Frequently Asked Questions About Making Tax Digital

What is Making Tax Digital in Simple Terms?

Making Tax Digital is HMRC’s system for requiring certain businesses and taxpayers to maintain specified tax information digitally and submit information through compatible software. MTD currently applies widely to VAT and, from April 2026, to qualifying sole traders and landlords for Income Tax.

Who Has to Use Making Tax Digital in 2026?

Sole traders and landlords generally need MTD for Income Tax from 6 April 2026 where their qualifying self-employment and property income for 2024/25 was more than £50,000, unless an exemption applies. VAT-registered businesses generally continue to use MTD for VAT.

What is the MTD Threshold for 2026?

The mandatory MTD for Income Tax threshold for the April 2026 phase is qualifying income over £50,000, measured using the 2024/25 Self Assessment return.

What is the MTD Threshold for 2027?

From 6 April 2027, MTD for Income Tax expands to people whose qualifying income for 2025/26 is more than £30,000.

What is the MTD Threshold for 2028?

From 6 April 2028, the threshold falls to qualifying income of more than £20,000, assessed using the relevant previous return.

Is the MTD Threshold Based on Turnover or Profit?

It is based on qualifying gross income, before expenses. Relevant self-employment and property income are generally combined when testing the threshold.

Does PAYE Salary Count Towards the MTD Threshold?

Ordinary employment income is not part of the qualifying self-employment and property income used for this MTD threshold. The test focuses on qualifying gross income from relevant self-employment and property businesses.

When Are MTD Quarterly Returns Due?

The standard MTD for Income Tax quarterly-update deadlines are 7 August, 7 November, 7 February and 7 May.

Was the First 2026 MTD Quarterly Deadline 7 August?

Yes. The first quarterly update for most taxpayers mandated from April 2026 was due on 7 August 2026.

Is There a Penalty for Missing the August 2026 MTD Update?

HMRC says it will not apply penalty points for late quarterly updates during the 2026/27 tax year. However, the quarterly updates still need to be submitted before the annual tax return can be completed.

Does MTD Replace Self Assessment?

No. MTD changes the way relevant taxpayers maintain and submit information, but an annual tax return is still required. For people entering MTD in April 2026, the first MTD annual return covers 2026/27 and is due by 31 January 2028.

Does MTD Mean Paying Tax Quarterly?

No. Quarterly updates are reporting submissions, not quarterly Income Tax bills. The annual tax payment deadline remains 31 January under the normal Self Assessment framework.

Can a Spreadsheet Be Used for Making Tax Digital?

Yes, provided the complete setup satisfies HMRC’s requirements. A spreadsheet may need compatible bridging software and appropriate digital links to transmit information to HMRC.

Is Accounting Software Compulsory for MTD?

Functional compatible software is required. This can be a complete accounting package or a combination of compatible systems, including spreadsheets and bridging software where the arrangement satisfies HMRC’s requirements.

Are Landlords Included in Making Tax Digital?

Yes. Landlords can fall within MTD for Income Tax when their qualifying property income, combined with relevant self-employment income, exceeds the applicable threshold.

Are Limited Companies Affected by MTD?

A limited company can be subject to MTD for VAT if it is VAT registered. The current MTD for Income Tax rules discussed here apply to qualifying individuals with self-employment and property income rather than a company’s Corporation Tax reporting.

Are Partnerships Required to Use MTD for Income Tax?

Not currently. HMRC says partnerships will be brought into MTD for Income Tax in the future, but a timetable has not yet been set out in the current guidance.

Can Someone Be Exempt From Making Tax Digital?

Yes. Automatic and application-based exemptions exist. These can include some people with low qualifying income, those without a National Insurance number in relevant circumstances, certain entities and taxpayers who are genuinely digitally excluded.