April 2026 didn’t just bring another round of HMRC tweaks. For hundreds of thousands of sole traders and landlords, it marked the start of a fundamental change in how they report income — one that’s been delayed, adjusted, and debated since it was first floated nearly a decade ago.
Making Tax Digital for Income Tax is now live. And whether someone falls into scope today or is watching the 2027 and 2028 thresholds approach, the mechanics are worth understanding properly — not just at a headline level.
What Making Tax Digital Actually Means
Making Tax Digital (MTD) is HMRC’s programme to replace paper records and annual filings with a fully digital system of record-keeping and quarterly reporting. The broader project covers VAT, income tax, and eventually corporation tax — though HMRC has ruled out an MTD mandate for companies for the foreseeable future.
For income tax specifically, the shift is significant. Rather than filing one Self Assessment tax return each January, those within scope submit four quarterly updates throughout the year, summarising income and expenses, followed by a final year-end declaration. Tax payment deadlines themselves don’t change — it’s the reporting frequency that does.
The aim is to give both taxpayers and HMRC a clearer, near-real-time view of tax positions throughout the year, while reducing the errors that tend to accumulate when everything is reconciled at once in January.
Who Is in Scope and When
The rollout happens in three phases, each determined by gross qualifying income — not profit. That distinction matters more than it might seem.
MTD income tax applies from April 2026 to those with income from sole trades and/or property combined above £50,000. Those above £30,000 are mandated from April 2027, and those above £20,000 from April 2028.
| Phase | Threshold | Mandatory From |
|---|---|---|
| Phase 1 | £50,000+ | April 2026 |
| Phase 2 | £30,000+ | April 2027 |
| Phase 3 | £20,000+ | April 2028 |
HMRC will use 2024/25 Self Assessment returns to identify who falls into the first wave. That means anyone whose 2024/25 return showed qualifying income above £50,000 — whether or not they’ve received a direct notification — is expected to be complying now.
HMRC has been explicit on one point: even if taxpayers do not receive direct notification, it remains their responsibility to check if and when they need to use MTD ITSA.
What counts as qualifying income:
- Self-employment turnover (gross, before expenses)
- Rental income from UK property
PAYE salary, dividends, savings interest, and pension income do not count toward the threshold. A landlord earning £35,000 in rent and £60,000 in employment income was in scope from April 2026 only if the rental figure exceeded £50,000 — the employment figure is irrelevant.
The Basis Period Reform Complication
This is where some taxpayers have been caught out in the 2026 rollout, and it doesn’t get enough attention.
Basis Period Reform, which concluded its transition in 2024/25, moved all self-employed businesses onto the tax year as their accounting period. Previously, a business with a March year-end reported income from one accounting year in a given tax year — now everyone reports from April to April.
The 2024/25 year was a transition year. Some businesses reported more than one accounting period’s income in a single return to complete the changeover. For others, overlap profits that had accumulated over the years were released and added to that year’s figures.
The result: a taxpayer who normally earns £43,000 might have shown £54,000 on their 2024/25 return purely because of the transition mechanics — putting them in scope for April 2026 despite their underlying income sitting below the threshold.
Anyone who suspects their 2024/25 figures were inflated by transition adjustments should review the relevant boxes on that return carefully. The threshold is applied to specific income boxes, and what drove those figures matters when considering whether the mandate is based on a genuinely representative year.
The Four Quarterly Deadlines
Once within MTD, reporting follows a fixed schedule tied to the tax year — not to the business’s own accounting period.
| Quarter | Period | Submission 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 |
Unlike VAT returns, quarterly updates under MTD are cumulative — each submission reflects the year-to-date position rather than just the three months in isolation. The final declaration, which replaces the traditional SA100 return and allows adjustments for allowances and reliefs, is due by 31 January following the end of the tax year.
One further point worth noting: taxpayers within MTD ITSA will be required to submit their final declaration using MTD-compatible software. HMRC has explicitly ruled out providing an online Self Assessment filing service for those in MTD — the existing system remains only for taxpayers outside the regime.
How the Penalty System Works
The old fixed-fine approach has been replaced with a points-based system across MTD.
Every missed quarterly update or final declaration deadline earns one penalty point. A fine of £200 is issued once the threshold of four points is reached. Further late submissions after that threshold trigger additional fines.
Points can expire — they reset after a defined period of clean compliance, or if income drops below £20,000 for three consecutive years. But accumulation can happen quietly if quarterly deadlines are treated casually.
There is a soft-landing element in the first year. For 2026/27, there will be no penalties for missing quarterly update deadlines during this initial period, although taxpayers must still keep digital records and submit updates. Penalties will apply for failures relating to annual obligations — late submission of the final declaration or late payment of tax.
That grace doesn’t extend indefinitely. And it doesn’t remove the obligation to file — it just reduces the immediate financial consequence of a missed quarterly deadline in year one.
Software: What’s Actually Required
MTD requires the use of HMRC-compatible software for record-keeping and submissions. No workaround involves continuing to file manually.
In practice, this means one of two approaches:
Full cloud accounting software — tools like Xero, QuickBooks, or FreeAgent handle bookkeeping, connect directly to bank feeds, and submit quarterly updates to HMRC through built-in MTD functionality. Suited to those with more complex records, multiple income streams, or who want automated bank reconciliation.
Bridging software — connects existing spreadsheets to HMRC’s systems without requiring a move to full cloud accounting. The records stay in Excel or similar; the bridging tool handles the submission. Lower cost, less disruption to existing workflows, but requires the spreadsheets themselves to be well-maintained and structured correctly.
The honest distinction: bridging software keeps things familiar but doesn’t help with the underlying quality of record-keeping. If a spreadsheet is currently a mess, it will remain one — and submitting inaccurate quarterly updates creates a different kind of problem.
For landlords with one or two properties and straightforward income, bridging often makes sense. For sole traders running an active business with regular transactions, cloud software tends to reduce the administrative burden over time despite the initial setup cost.
Joint Property Income: A Common Miscalculation
For properties owned jointly, the threshold assessment is based on each owner’s share — not the total rental income.
If a property generates £90,000 in annual rent and ownership is split 50/50, each owner’s qualifying income from that property is £45,000. Both fall below the 2026 threshold. Neither is mandated until the £30,000 phase from 2027 — and even then, only if their share exceeds that figure.
This catches people who assume that because total rental income is high, they must already be within scope. The calculation runs on individual figures. Anyone with jointly owned property should confirm their specific share before concluding they’re in or out.
Understanding how rental income interacts with other income tax obligations is part of getting this right — particularly for higher earners where the 40% and 45% bands come into play on property profits.
Who Can Apply for Exemption
Individuals can apply for an exemption from MTD for ITSA if they are digitally excluded — including those for whom use of computers would not be reasonable or practical due to age, disability, or location, and those who object to using computers on religious grounds.
Exemption isn’t automatic and must be applied for through HMRC. Those who already hold an exemption for MTD for VAT are likely to qualify but still need to notify HMRC separately for the income tax requirement.
Certain categories of taxpayers also qualify for a temporary exemption until April 2027 due to technical constraints — including those with trust or estate income on supplementary pages, or those with entries relating to non-residence and remittance basis claims.
MTD for VAT: Already Mandatory
For anyone not already tracking this: MTD for VAT has been mandatory for all VAT-registered businesses since April 2022 — including those voluntarily registered below the £90,000 threshold. Digital VAT records and software-based submissions are a legal requirement regardless of whether a business chose to register or was compelled to.
Anyone VAT-registered who hasn’t already moved to MTD-compliant software is already non-compliant — that’s a separate and more immediate issue than the income tax rollout.
What Comes After 2028
The stated endpoint of the income tax rollout is the £20,000 threshold by April 2028. Whether further expansion below that level follows depends on how the 2026–2028 phase performs in practice.
From April 2028, drivers of electric and plug-in hybrid cars will pay a per-mile charge — but for MTD specifically, the government has signalled an interest in eventually extending the system to partnerships, though no timeline has been confirmed. HMRC has confirmed it does not intend to introduce MTD for corporation tax.
The direction is toward more real-time data flowing to HMRC, not less. Businesses that build clean digital record-keeping habits now — regardless of whether they’re in scope today — tend to find the formal mandation significantly less disruptive when it arrives.
Checking Your Position
The most reliable starting point is the 2024/25 tax return. For those trading or receiving rental income, the qualifying income figure sits in specific boxes on the Self Assessment forms — gross income from self-employment (SA103) and gross property income (SA105). Adding those two figures gives the number HMRC used to determine April 2026 mandation.
For anything uncertain — particularly where Basis Period Reform adjustments, joint ownership splits, or temporary exemption categories are involved — the GOV.UK MTD guidance sets out the current rules, and the ICAEW has published a detailed technical guide covering the legislation as it stood at the end of March 2026.
The system is live. The deadlines are fixed. Getting familiar with the quarterly rhythm now, even informally, is more useful than waiting until the first submission window arrives.
FAQs
Q. What is Making Tax Digital in simple terms?
Making Tax Digital (MTD) is a UK tax system that requires individuals and businesses to keep digital records and submit tax updates to HMRC every quarter using approved software instead of filing one annual tax return.
Q. What is Making Tax Digital for Income Tax?
Making Tax Digital for Income Tax (MTD for ITSA) is a system where sole traders and landlords must report their income and expenses to HMRC every three months using MTD-compatible software, followed by a final annual declaration.
Q. What is the threshold for Making Tax Digital?
The Making Tax Digital threshold for Income Tax is:
- £50,000 from April 2026
- £30,000 from April 2027
- £20,000 from April 2028
You must comply if your qualifying income exceeds these limits.
Q. What is qualifying income for Making Tax Digital?
Qualifying income for MTD includes:
- Self-employment income
- Rental (property) income
It does not include salary (PAYE), dividends, or savings interest.
Q. How do Making Tax Digital penalties work?
MTD penalties use a points-based system.
You receive 1 penalty point for each late submission. When you reach 4 points, HMRC issues a £200 fine, with additional fines for continued non-compliance.
Q. Do I need accounting software for Making Tax Digital?
Yes. Making Tax Digital requires MTD-compatible software to keep records and submit updates.
Alternatively, you can use bridging software to connect spreadsheets like Excel to HMRC.
Q. Does joint property income count fully for MTD?
No. For Making Tax Digital, only your individual share of property income counts toward the threshold—not the total rental income from the property.
Q. When do I need to submit quarterly updates under MTD?
You must submit updates based on these periods:
- 6 April – 5 July (due 7 August)
- 6 July – 5 October (due 7 November)
- 6 October – 5 January (due 7 February)
- 6 January – 5 April (due 7 May)
Q. How does HMRC decide if I need to join MTD?
HMRC uses your most recent Self Assessment tax return (currently 2024/25) to determine whether your qualifying income exceeds the MTD threshold.
Q. Can I be exempt from Making Tax Digital?
Yes. You may qualify for exemption if digital reporting is not practical due to:
- Age
- Disability
- Lack of internet access
- Religious reasons
You must apply to HMRC for approval.
For more on UK tax obligations, personal finance, and how HMRC changes affect everyday finances, visit Pure Magazine.
