Introduction
Many self-employed individuals and landlords are asking what Making Tax Digital for Income Tax will mean in practice. With phased implementation beginning on 6 April 2026, understanding who is affected and how reporting will change is essential to avoid disruption and ensure we remain compliant.
Should we be preparing for Making Tax Digital for Income Tax in 2026?
Yes, if our gross income from self-employment and/or property exceeds £50,000, we fall within scope from 6 April 2026. The key word is gross: the threshold is based on income before expenses, not profit, and HMRC assesses this using the relevant previous Self Assessment tax return.
Even if we are below that level today, future phases are already set. From 6 April 2027, the threshold reduces to over £30,000, and from 6 April 2028, it reduces further to over £20,000. Preparation should begin well before the relevant start date to ensure systems and processes are ready.
What is Making Tax Digital for Income Tax and how does it change Self Assessment?
Making Tax Digital (MTD) for Income Tax changes how we report business and property income to HMRC. Instead of relying only on a single annual Self Assessment return, we must keep digital records and send quarterly updates using compatible software, followed by end-of-year finalisation.
HMRC’s official guidance explains the overall framework and who must prepare.
How is MTD different from the current Self Assessment system?
Under the current system, we submit one annual tax return after the end of the tax year. Under MTD:
- We maintain digital records throughout the year
- We submit four quarterly summaries of income and expenses
- We complete an end-of-period statement
- We submit a final declaration confirming all taxable income
The annual finalisation remains, but quarterly reporting becomes part of the process.
Will we still submit a final tax return?
Yes. After submitting quarterly updates, we must still complete year-end finalisation through compatible software. This confirms allowances, reliefs and other income sources, with the normal 31 January filing deadline continuing to apply.
Who must comply with MTD for Income Tax from April 2026?
From 6 April 2026, MTD for Income Tax applies to self-employed individuals and landlords with qualifying income over £50,000.
Qualifying income includes total gross income from:
- Sole trade businesses
- UK property income
- Overseas property income
These figures are combined when determining whether we exceed the threshold.
What counts as qualifying income?
Qualifying income is calculated before deducting expenses. For example, if a sole trader has turnover of £55,000 and expenses of £20,000, they are within scope because gross income exceeds £50,000.
Similarly, if a landlord earns £35,000 in rental income and £20,000 from self-employment, the combined £55,000 brings them into scope.
What happens in later phases?
The rollout is phased:
| Start date | Qualifying income threshold | Who is affected |
| 6 April 2026 | Over £50,000 | Self-employed & landlords |
| 6 April 2027 | Over £30,000 | Expanded group |
| 6 April 2028 | Over £20,000 | Further expansion |
This means many businesses currently outside scope will fall within MTD over the next few years.
How will quarterly updates actually work in practice?
Under MTD, we must send four quarterly updates summarising income and allowable expenses. These updates report totals for the period rather than final tax calculations. Adjustments are made after the final quarterly update and at year end.
After the fourth quarter, we complete:
- An end-of-period statement to finalise business income
- A final declaration confirming overall taxable income
HMRC’s guidance on signing up explains how and when businesses must register once within scope.
What information must be submitted each quarter?
Each quarterly update includes totals for:
- Income received
- Allowable business expenses
The figures may be provisional during the year, with final adjustments completed at year end.
Do quarterly updates mean we pay tax quarterly?
No. As of February 2026, MTD does not change Income Tax payment dates. We still pay tax by:
- 31 January (balancing payment and first payment on account)
- 31 July (second payment on account, where applicable)
MTD changes reporting frequency, not payment timing.
What software and digital records will we need?
Paper records alone do not meet MTD requirements. We must keep digital records and use HMRC-compatible software to submit quarterly updates and complete year-end finalisation.
Digital records must include:
- The date of income and expenses
- The amount
- The category of transaction
Can spreadsheets still be used?
Yes, spreadsheets can still be used, provided they are digitally linked to compatible bridging software that submits directly to HMRC. Manual copying and pasting between systems does not meet digital link requirements.
What if we already use cloud accounting software?
Many cloud accounting platforms are implementing MTD functionality. However, we may need to:
- Review how transactions are categorised
- Improve bookkeeping frequency
- Ensure digital records meet HMRC standards
For businesses needing support with system setup and compliance processes, we integrate MTD requirements into our corporate tax and compliance services.
What are the compliance risks and penalties under MTD?
MTD operates within HMRC’s points-based penalty system for late submissions. However, there is an important transitional easement.
For taxpayers mandated from 6 April 2026, HMRC has confirmed that penalty points will not be applied for late quarterly updates during the first 12 months of mandation. Late tax returns and other obligations remain within the penalty regime.
How does the points-based penalty system work?
Under the system:
- A penalty point is normally issued for each missed submission
- Once a points threshold is reached, a financial penalty applies
- Continued non-compliance can lead to further penalties
The first-year easement applies only to quarterly updates, not to year-end returns.
Could poor record keeping increase risk?
Yes. Inaccurate or incomplete digital records increase the likelihood of errors, amendments and potential HMRC enquiries. Strong bookkeeping processes significantly reduce compliance risk.
How will MTD affect cash flow and business decision-making?
Although tax payment dates remain unchanged, more frequent reporting increases visibility over business performance.
For many businesses, this can lead to:
- Earlier identification of tax liabilities
- Better budgeting and forecasting
- More consistent financial discipline
Will quarterly reporting improve financial awareness?
Yes. Submitting data every quarter encourages us to review income and expenses regularly rather than waiting until the end of the year.
Does MTD increase administrative costs?
There may be additional costs from:
- Software subscriptions
- Professional support
- Time spent maintaining digital records
However, improved systems often offset inefficiencies and reduce year-end stress.
What practical steps should we take now to prepare?
Preparation should begin before our mandatory start date to avoid disruption.
We recommend:
- Confirming whether our gross income exceeds the threshold
- Reviewing bookkeeping systems and digital record keeping
- Selecting compatible software
- Testing processes before the first quarterly submission
Should we review our income levels now?
Yes. Reviewing gross income for the most recent tax year helps determine when MTD will apply and avoids unexpected compliance obligations.
Do we need to sign up immediately?
Sign-up is required once we fall within scope and are ready to use compatible software. Early voluntary participation may be possible in some circumstances.
For tailored guidance on MTD readiness and ongoing compliance, we review obligations as part of our personal tax and Self Assessment services.
How should we approach MTD strategically rather than reactively?
We believe MTD should be seen as an opportunity to strengthen financial systems rather than simply a compliance obligation.
Strategic preparation means:
- Aligning bookkeeping processes with business growth
- Using quarterly data to inform pricing and cost control
- Reviewing tax planning opportunities earlier in the year
Rather than reacting to deadlines, we can use MTD to build more structured financial management.
Conclusion
Making Tax Digital for Income Tax represents a significant operational change from 6 April 2026 for self-employed individuals and landlords with qualifying income over £50,000. With thresholds reducing in 2027 and 2028, many more businesses will follow.
Early preparation reduces compliance risk, supports better record keeping, and allows us to integrate MTD into wider financial planning rather than treating it as a last-minute requirement. If you would like us to review your position and help you prepare confidently for MTD, we would be pleased to support you.
Frequently asked questions
Will partnerships be included in April 2026?
No. As of February 2026, general partnerships are not included in the April 2026 mandation for MTD for Income Tax.
What happens if our income drops below £50,000 after we are mandated?
HMRC assesses eligibility based on previous tax returns. We must remain compliant unless formally notified otherwise.
Are jointly owned rental properties affected?
Yes. Each individual owner is assessed separately based on their own qualifying income.
Can we use an agent to manage MTD submissions?
Yes. We can authorise an accountant or tax adviser to manage quarterly updates and final declarations on our behalf.Will MTD apply to limited companies?
No. Limited companies are subject to Corporation Tax rules and are not within the scope of MTD for Income Tax.