What Is Making Tax Digital for Income Tax? The Plain-English Explanation

Making Tax Digital for Income Tax - usually shortened to MTD for Income Tax or MTD ITSA - is a change to how self-employed people and landlords report their income to HMRC. Instead of filing a single Self Assessment tax return at the end of each year, you'll need to send HMRC digital updates every quarter using compatible software.

It becomes mandatory from 6 April 2026 for anyone with self-employment or property income over £50,000. From April 2027, the threshold drops to £30,000.

If you're reading this and thinking "I just have a small business" or "I only rent out one flat" - yes, this almost certainly applies to you. Here's everything you need to know.

Who does MTD for Income Tax affect?

You'll need to comply with MTD for Income Tax from April 2026 if you are a sole trader, a landlord, or both, and your total qualifying income is over £50,000 per year. Qualifying income means your gross income (turnover) from self-employment and/or property - not your profit, and not your total taxable income from all sources.

For example, if you run a freelance consultancy turning over £40,000 and also receive £15,000 in rental income, your qualifying income is £55,000. You'd be in scope from April 2026.

If you earn between £30,000 and £50,000, you'll be brought into MTD from April 2027. HMRC has indicated the threshold may eventually drop to £20,000, but no date has been set for that.

What actually changes?

Right now, you probably keep records during the year (in a spreadsheet, a shoebox of receipts, or accounting software) and then file one Self Assessment return after 5 April. The deadline for that is 31 January the following year - giving you nearly 10 months.

Under MTD, three things change:

1. Digital record keeping. Your records must be kept digitally. A spreadsheet counts - you don't need accounting software for this part. But a paper ledger or notebook no longer meets the requirements.

2. Quarterly updates. Instead of one annual return, you send four updates during the year. These are summaries of your income and expenses for each quarter. They don't have to be exact to the penny - they're estimates that you can adjust later.

3. End-of-year final declaration. After the end of the tax year, you submit a final declaration that confirms your figures. This replaces the Self Assessment tax return. The deadline for this is 31 January, same as before.

What are the quarterly deadlines?

The tax year runs from 6 April to 5 April, split into four quarters. (See our complete deadline guide for more detail.) (See our complete deadline guide for more detail.) Each quarterly update is due roughly one month after the quarter ends.

Quarter	Period Covered	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
Final declaration	Full year	31 January following year

The first deadline for the 2026-27 tax year is 7 August 2026.

What do I actually submit each quarter?

Each quarterly update is a summary of your income and expenses for the year so far. This is an important detail - updates are cumulative, meaning each one includes all previous quarters' figures. Your Q2 update covers Q1 and Q2 combined. Your Q4 update covers the full year.

For self-employment income, you'll report your turnover and your expenses. If your turnover is under £90,000, you can submit a single consolidated expenses figure rather than breaking costs down into individual categories.

For property income, you'll report your rental income and allowable expenses. The same consolidated expenses option applies.

These quarterly updates are not a tax return. You're not calculating your tax liability at this stage - you're just sharing your numbers with HMRC so they can provide you with an estimated tax calculation.

What software do I need?

You need software that's recognised by HMRC as compatible with MTD for Income Tax. There are two main types:

Full accounting software handles your record-keeping, invoicing, bank feeds, and MTD submissions all in one platform. Examples include Xero, QuickBooks, and Sage. These typically cost £12-£25 per month.

Bridging software (full guide here) connects your existing records (like a spreadsheet) to HMRC's systems. You keep doing your bookkeeping however you already do it - the software just handles the quarterly submission. Bridging software is usually much cheaper, from around £20-£50 per year.

If you already track your income and expenses in a spreadsheet, bridging software is almost certainly the right choice. There's no need to migrate to a full accounting platform just to comply with MTD.

HMRC maintains an official list of compatible software on GOV.UK. Any software on that list has been tested and approved to submit data through HMRC's APIs.

What about the "digital link" requirement?

HMRC requires a "digital link" between your records and the software that submits to HMRC. This sounds complicated, but it just means the data must flow digitally - you can't manually retype numbers from your spreadsheet into the submission software.

Uploading a CSV or Excel file to your bridging software satisfies this requirement. So does copying and pasting from a spreadsheet. What you can't do is look at a number on paper and type it into a different system.

What happens if I don't comply?

HMRC is introducing a points-based penalty system. You receive a penalty point each time you submit a quarterly update late. Once you accumulate a certain number of points (typically four points for quarterly obligations), you receive a £200 penalty. Each subsequent late submission after that threshold also triggers a £200 penalty.

Points expire after a period of consistent on-time filing - generally 24 months of meeting all deadlines.

Remember, though: the soft landing in the first year (2026-27) means you won't get penalty points for late quarterly updates. This grace period is specifically designed to give people time to adjust.

Can I still use an accountant?

Absolutely. MTD doesn't change the relationship with your accountant. They can submit quarterly updates on your behalf using agent software, and many accountants are already set up for this.

If you do your own bookkeeping and your accountant only handles the annual return, the main change is that they (or you) will now need to submit quarterly updates instead of just one return at the end of the year.

What should I do right now?

If you're a sole trader or landlord earning over £50,000, here's what to do before April 2026:

Check your records are digital. If you're already using a spreadsheet, you're fine. If you're still using paper records, now is the time to move to a spreadsheet.

Choose your software. Browse the HMRC-compatible software list on GOV.UK. Our price comparison of every MTD option can help you decide. Our price comparison of every MTD option can help you decide. Decide whether you want a full accounting platform or bridging software. If your bookkeeping is straightforward and you're happy with spreadsheets, bridging software is simpler and cheaper.

Get set up before April. Don't wait until August when the first deadline hits. Connect your software, do a test run, and make sure you understand the process while there's no time pressure.

This article was last updated in March 2026. Tax rules can change - always check GOV.UK for the latest information, or speak to a qualified accountant if you're unsure about your specific circumstances.