Everything UK sole traders, landlords and limited companies need to know about Making Tax Digital (MTD). Who's affected, when it starts, what it costs, and how to comply. Written by chartered accountants.
Making Tax Digital is the biggest change to UK income tax since Self Assessment was introduced in 1996. It is already live for VAT, it went live for Income Tax on 6 April 2026, and within the next two years almost every UK sole trader and landlord will be inside it.
This guide explains what Making Tax Digital actually is, who it affects, what changes in practice, and what you need to do about it. It is aimed at small businesses and individuals trying to make sense of HMRC's announcements without being either patronised or buried in jargon.
Quick answerMaking Tax Digital (MTD) is HMRC's programme to move UK tax reporting to a fully digital system. From 6 April 2026 it applies to UK sole traders and landlords with qualifying gross income over £50,000. The threshold drops to £30,000 in April 2027 and £20,000 in April 2028. If you are in scope, you must keep digital records and send HMRC four quarterly updates plus a Final Declaration each tax year.
Making Tax Digital, usually shortened to MTD, is a long-running HMRC initiative to digitise the way UK businesses and individuals report their tax affairs. It has been rolled out in stages since 2019 and is being rolled out further until at least 2028.
The core idea is simple. Instead of a single annual tax return where you total everything up at the end of the year, MTD requires you to:
In practice MTD is less about a new tax and more about a new method of bookkeeping and reporting. The amount of tax you pay does not change. The deadlines for paying that tax do not change either. What changes is how you keep records and how often you tell HMRC about them.
It helps to separate MTD into the three different parts that HMRC has rolled out, because the rules and timelines differ for each.
MTD for VAT applied first to VAT-registered businesses with taxable turnover above £85,000 in April 2019. From April 2022 it was extended to all VAT-registered businesses, including those who had registered voluntarily.
If you are VAT-registered today, you are already inside MTD. Your quarterly VAT returns are filed through MTD-compatible software using a digital link to HMRC's systems. There is nothing more for you to do on the VAT side.
MTD for Income Tax, often called MTD ITSA (Income Tax Self Assessment), is the biggest part of the programme and the one that affects the most people. It went live on 6 April 2026.
It applies to UK sole traders and landlords with qualifying gross income above set thresholds. The thresholds and start dates have changed several times during planning, but the final settled rules are:
| Tax year | Income threshold | Affected | |---|---|---| | 2026/27 | Qualifying gross income over £50,000 in 2024/25 | Live from 6 April 2026 | | 2027/28 | Qualifying gross income over £30,000 in 2025/26 | Live from 6 April 2027 | | 2028/29 | Qualifying gross income over £20,000 in 2026/27 | Live from 6 April 2028 |
Most of the rest of this guide focuses on MTD for Income Tax, because that is what most readers will be asking about.
MTD for Corporation Tax was originally proposed for April 2026 but has been pushed back indefinitely. As of May 2026 there is no firm start date and HMRC has confirmed it will not happen before April 2030. If you run a UK limited company, you do not need to worry about MTD for Corporation Tax yet, though you should keep your bookkeeping in a state that would make compliance straightforward when the date is announced.
If you are a UK sole trader or landlord, here is the test for whether MTD applies to you from 6 April 2026.
You are inside MTD ITSA from 6 April 2026 if all of these are true:
If you are not sure, you can run our free MTD eligibility check which gives you a clear yes or no in two questions.
This trips a lot of people up. Qualifying income is gross, not net. It is the total amount you received before expenses, not the profit you ended up with.
Imagine a sole trader who turned over £52,000 in 2024/25, with £25,000 of expenses. Their taxable profit was £27,000. They are still inside MTD from April 2026 because their qualifying gross income (£52,000) exceeds the threshold, even though their taxable profit is well below it.
Imagine a landlord with two rental properties bringing in £40,000 of rent before costs, plus £15,000 from a freelance side business. Their qualifying gross income is £55,000 combined. They are in scope.
Qualifying income includes:
It does not include:
A common confusion: if you have a £45,000 salary on PAYE and a £20,000 side business, you are not in MTD scope. The PAYE income does not count toward the threshold, and £20,000 of self-employment income alone is below the £50,000 floor.
The headline change is that you stop filing one annual Self Assessment for your self-employment and property income, and instead file five times a year for that income.
Once a year, by 31 January, you would log into HMRC's online portal (or use software) and file a Self Assessment tax return (SA100) summarising your income, expenses and tax liability for the previous tax year.
Each tax year (6 April to 5 April), you file:
You also need to keep your records digitally, using MTD-compatible software, throughout the year. Paper records and standalone spreadsheets without bridging software are no longer permitted for in-scope income.
For the standard tax year (6 April to 5 April), the quarterly periods and their submission deadlines are:
| Quarter | Period | Submission deadline | |---|---|---| | Q1 | 6 April to 5 July | 7 August | | Q2 | 6 July to 5 October | 7 November | | Q3 | 6 October to 5 January | 7 February | | Q4 | 6 January to 5 April | 7 May | | Final Declaration | Full tax year | 31 January following year-end |
So for the 2026/27 tax year, the deadlines are 7 August 2026, 7 November 2026, 7 February 2027, 7 May 2027, and the Final Declaration by 31 January 2028.
You can elect to use calendar quarter periods (ending 31 March, 30 June, 30 September and 31 December) instead of the standard MTD periods. This is often simpler if your accounting year already runs on calendar quarters.
If you have read older guidance you might have seen mentions of an End of Period Statement, or EOPS, as part of MTD. EOPS has been removed from the final MTD design. From April 2026 onwards there are only four quarterly updates and one Final Declaration. Ignore older guides that reference EOPS as a separate filing.
No. This is the single most common worry we hear from clients and it is unfounded. Quarterly updates are reporting only, not payment.
Your tax payment schedule under MTD is identical to the existing Self Assessment one:
If your previous year's Self Assessment liability was under £1,000, you do not pay payments on account at all and your only payment date is the 31 January balancing payment.
HMRC's intent with quarterly reporting is to give you and them ongoing visibility into your tax position, so there are fewer January surprises. It is not a stealth tax acceleration.
MTD requires your records to be kept in software that HMRC has formally approved as MTD-compatible. HMRC maintains a published list of approved providers. The main options for UK small businesses are:
Spreadsheets are still permitted in limited circumstances, but only via bridging software that links the spreadsheet to HMRC's MTD systems. In practice, very few clients find this simpler than just moving to FreeAgent or Xero, and bridging software typically costs almost as much as a proper accounting package.
If you already use software for VAT or for bookkeeping, check whether it is on HMRC's approved list. Most major UK providers either already support MTD ITSA or have stated public commitments to add it.
HMRC operates a points-based penalty system for MTD ITSA.
Each late quarterly update earns you a single penalty point. Once you reach four points within a rolling 24-month window, a £200 fixed penalty is triggered. Each subsequent late submission while at four points adds another £200.
HMRC has confirmed a soft-landing period for the 2026/27 tax year, during which no penalty points will be issued for late quarterly updates. This gives the first cohort of MTD ITSA taxpayers time to adjust. From April 2027 onwards, the penalty system applies normally.
Late filing of the Final Declaration follows the same penalty rules as Self Assessment used to:
Late payment of tax due triggers separate penalties: 3% of the unpaid tax at 15 days late, another 3% at 30 days late, then 10% per annum daily interest charge thereafter. Interest is currently around 7.75% per annum.
A few myths it is worth getting out of the way.
"MTD means I have to pay more tax." No. MTD does not change the amount of tax you owe or how it is calculated. It only changes how often you report.
"MTD applies to everyone with self-employed income." No. Only those above the qualifying income threshold are in scope. As of April 2026 that is £50,000 of gross self-employment plus property income.
"I can carry on using paper or simple spreadsheets." No. From April 2026, in-scope taxpayers must keep digital records using MTD-compatible software or bridging software.
"It's just a quarterly Self Assessment." Not quite. Quarterly updates are simpler than Self Assessment, with less detail required. They are summary submissions of income and expenses by category. The full reconciliation happens at the Final Declaration.
"My accountant can sort it out at year-end like before." Theoretically possible but expensive. The whole design of MTD is to spread the work across the year. If you keep records digitally month by month, year-end is straightforward. If you wait until 31 January, you and your accountant will have to reconstruct a year's worth of records in days, plus pay quarterly-update penalties on top.
You can authorise an accountant to act as your MTD agent. The accountant then files quarterly updates and the Final Declaration on your behalf, while you stay responsible for keeping records up to date (or you can pay them to do that too).
To authorise an accountant for MTD ITSA, you sign a digital agent authorisation. Your accountant initiates this through HMRC's Agent Services Account and you confirm it via your own HMRC online account. The whole process usually takes under ten minutes.
If you currently have an accountant who files your Self Assessment for you, talk to them about their MTD readiness now if you have not already. Some smaller practices are still catching up.
If your 2024/25 gross self-employment and property income exceeded £50,000, you are in MTD ITSA scope right now. Here is the practical preparation list:
If your income is currently below £50,000 but you are growing toward it, here is the smart move:
Even if your gross income is above the threshold, there are a few situations where MTD ITSA either does not apply or is deferred:
If you think you might qualify for an exemption, contact HMRC directly. The process involves submitting a written application and providing supporting evidence.
The current direction of travel suggests:
The strategic message: digital, monthly bookkeeping is no longer a "nice to have" for UK small businesses. It is the direction the entire tax system is moving in, and the businesses that adapt first will find it less painful than those who wait.
Making Tax Digital is HMRC's programme to move UK tax reporting to a fully digital system. The most important part for small businesses, MTD for Income Tax, went live on 6 April 2026 for those with qualifying gross income above £50,000.
If you are in scope you need to keep digital records, file four quarterly updates and an annual Final Declaration, and use HMRC-approved software. The tax you pay does not change. The deadlines for paying that tax do not change. Only how you report changes.
If MTD applies to you and you are not yet set up, the practical priorities are: confirm scope, choose software, migrate records, authorise an accountant if you use one, and diarise the deadlines.
We make MTD straightforward for our clients. If you would like a chartered accountant to handle everything from agent authorisation to filing the quarterly updates, our MTD service is £35 per month, all-in. Or start with our free MTD eligibility check if you just want to know where you stand.
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