Making Tax Digital for Income Tax is now here, bringing important changes to the way some sole traders and landlords keep their financial records and report information to HMRC.
The first phase began on 6th April 2026, and the income threshold will reduce over the next two years, bringing more people into the system.
If you're self-employed, a sole trader or receive income from property, it's important to understand when Making Tax Digital may apply to you and what you'll need to do differently.
The good news is that, with the right preparation and support, moving to digital record-keeping doesn't need to be complicated.
What Is Making Tax Digital for Income Tax?
Making Tax Digital for Income Tax, sometimes referred to as MTD for Income Tax or MTD ITSA, is a new way for sole traders and landlords to manage their Self Assessment obligations.
Instead of relying on records that are brought together once a year, those affected need to use compatible software to keep digital records of their self-employment and property income and expenses.
They also need to send summary updates to HMRC every three months.
You'll still complete a tax return each year and pay your tax by the usual deadline. The main difference is that more of the process takes place digitally throughout the year.
Who Needs to Use Making Tax Digital?
Making Tax Digital for Income Tax is being introduced gradually.
The date you need to start depends on your qualifying income, which is broadly your total gross income from self-employment and property before expenses.
The current HMRC timetable is:
From 6th April 2026 - if your qualifying income for the 2024/25 tax year was more than £50,000.
From 6th April 2027 - if your qualifying income for the 2025/26 tax year was more than £30,000.
From 6th April 2028 - if your qualifying income for the 2026/27 tax year is more than £20,000.
This applies to individuals registered for Self Assessment who receive income from self-employment, property, or both.
If you have more than one relevant source of income, they need to be considered together when determining your qualifying income.
What Does 'Qualifying Income' Mean?
This is an important distinction.
The thresholds are based on gross qualifying income, not profit.
For example, if you're a sole trader with £35,000 of gross business income and you also receive £20,000 of gross property income, your combined qualifying income would be £55,000.
You don't deduct your business or property expenses before deciding whether you've crossed the Making Tax Digital threshold.
What Do You Need to Do Under Making Tax Digital?
1. Keep Digital Records
You'll need to create and maintain digital records of your self-employment and property income and expenses.
Your records will generally need to include information such as the:
Amount.
Date of the income or expense.
Relevant income or expense category.
Rather than waiting until the end of the tax year to gather receipts, invoices and other paperwork, your records will need to be maintained digitally as you go.
2. Use Compatible Software
You'll need software that works with Making Tax Digital for Income Tax. HMRC does not provide the software itself, so you'll need to choose a suitable commercial product.
If you currently use spreadsheets, this doesn't necessarily mean you have to abandon them. HMRC confirms that spreadsheets can still be used, but you'll need compatible software, sometimes called bridging software, to connect your records to HMRC and make the required submissions.
3. Send Quarterly Updates to HMRC
Every three months, your compatible software will total the income and expenses recorded for your self-employment or property business. You'll then send these summaries to HMRC as a quarterly update.
These quarterly updates are not separate tax returns. They are summaries of the information contained within your digital records.
If you have more than one sole trader business or property business, separate quarterly information may need to be provided for each.
When Are the Quarterly Updates Due?
For people using the standard quarterly update periods in the first year of Making Tax Digital, HMRC's deadlines are:
7th August 2026 - first quarterly update.
7th November 2026 - second quarterly update.
7th February 2027 - third quarterly update.
7th May 2027 - fourth quarterly update.
Your exact reporting periods can depend on your accounting period, so it is important to check what applies to you.
Do You Still Need to Complete a Tax Return?
No.
Making Tax Digital does not mean the end of the annual tax return.
You'll still need to submit a Final Declaration for each tax year and pay the tax you owe by 31st January following the end of the relevant tax year.
Your compatible software will bring together the information you've recorded during the year. You'll then need to check it, make any necessary adjustments, claim relevant allowances or reliefs and add other sources of income or gains where required before submitting your tax return.
What If HMRC Has Contacted You?
If your 2024/25 Self Assessment tax return showed qualifying income of more than £50,000, you should already have started using Making Tax Digital from 6th April 2026.
HMRC has also confirmed that from September 2026 it will begin signing up people who need to use Making Tax Digital for the 2026/27 tax year but have not yet signed themselves up, where HMRC's records show qualifying income above £50,000 for 2024/25.
If HMRC has contacted you or confirmed that you've been signed up, don't ignore the correspondence. It's important to make sure you have compatible software in place and understand what you need to do next.
Equally, not receiving a letter from HMRC doesn't necessarily mean Making Tax Digital doesn't apply to you. It remains your responsibility to check.
Are There Any Exemptions?
Yes. Some people may be exempt from Making Tax Digital for Income Tax.
For example, HMRC recognises that some people may be digitally excluded and unable to use digital systems because of their individual circumstances.
There are different types of exemptions, and some are automatic while others need to be applied for.
If you're exempt from Making Tax Digital, you'll still need to report your income and gains through Self Assessment where required.
What About Penalties?
Making Tax Digital also introduces changes to the way penalties work.
Under the new system, late submissions generally operate using a points-based approach rather than an immediate penalty every time something is submitted late.
There is, however, an important concession for the first year.
HMRC has confirmed that penalty points will not be applied for late quarterly updates during the 2026/27 tax year. You will still need to submit your quarterly updates before you can submit your tax return.
Penalties can still apply for a late tax return or late payment of tax, so deadlines shouldn't be ignored.
How Can Digital Records Make Life Easier?
Making Tax Digital may initially feel like another administrative responsibility, particularly if you have traditionally organised your accounts once a year. However, keeping your records up to date throughout the year can have practical benefits.
It can help you:
See your income and expenses more clearly.
Identify missing information or mistakes earlier.
Keep your financial records organised.
Avoid the annual rush to find receipts and paperwork.
Get a better indication of your potential tax liability.
Make more informed decisions about your business or property finances.
The key is having the right system in place from the beginning.
Don't Wait Until Your Threshold Year to Prepare
Even if your qualifying income is currently below £50,000, it's worth checking when Making Tax Digital could apply to you.
With the threshold falling to £30,000 from 6th April 2027 and £20,000 from 6th April 2028, many more sole traders and landlords will be brought into the system.
Moving towards digital record-keeping before you're required to do so can give you time to find a system that works for you, rather than having to make changes at the last minute.
We're Here to Help
Making Tax Digital represents a significant change to Self Assessment, but you don't have to work through the new requirements alone.
At TRS Secretaries, we provide a personal and friendly tax service designed around your individual circumstances.
Whether you're a sole trader, landlord or receive income from both, we'll help you understand when Making Tax Digital applies to you, what records you need to keep and how to prepare for your reporting obligations.
If you're unsure whether you should already be using Making Tax Digital, or want to get ready before the next income threshold comes into effect, get in touch with our team.
We'll help you understand what you need to do and make the move to digital record-keeping as straightforward as possible.
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