What is Making Tax Digital for Income Tax?

What MTD for Income Tax is

Making Tax Digital (MTD) is HMRC's long-running programme to move tax reporting online and in real time. It already applies to VAT. The next major stage, MTD for Income Tax Self Assessment, extends the same approach to many sole traders and landlords.

In practice it means two things. First, you keep your business records digitally rather than on paper or in a spreadsheet alone. Second, you send HMRC quarterly updates of your income and expenses through compatible software, in addition to a final declaration after the year end. It is a shift from one annual return to a running, in-year picture of your figures.

Who's affected and when

MTD for Income Tax is being introduced in phases, based on your qualifying income, broadly your gross income from self-employment and property before expenses. It applies to sole traders and landlords, not to income taxed through PAYE.

• From 6 April 2026, sole traders and landlords with qualifying income over £50,000 are brought into MTD for Income Tax.
• From April 2027, the threshold is planned to fall to qualifying income over £30,000.
• From April 2028, a further planned phase is set to bring in those with qualifying income over £20,000.

Because the threshold is based on gross income rather than profit, some people are surprised to find they are in scope. If your combined self-employment and rental income is near one of these levels, it is worth checking which phase catches you and from when.

Quarterly updates

The most visible change is the move from a single annual return to quarterly reporting. Under MTD for Income Tax you will typically:

• Send HMRC a quarterly update summarising your business income and expenses for each period, using compatible software.
• Make a final declaration after the tax year, which replaces the old Self Assessment return and is where reliefs, allowances and any other income are brought together to finalise your tax.

The quarterly updates are summaries rather than full tax calculations, and they are not the moment your tax is finalised. That still happens after the year end. But they do mean your records need to be current throughout the year, not pulled together in a rush each January. For many people that is actually a benefit, because it gives a clearer in-year view of how the business is doing.

Digital records and software

MTD requires records to be kept digitally and submissions to be made through MTD-compatible software. You cannot simply type figures into the HMRC website as before. In practice this means one of two setups:

Cloud accounting software

Tools such as those used for cloud accounting record your transactions digitally and submit the updates directly. For most sole traders and landlords this is the simplest route, and it brings the side benefit of live, reconciled figures through the year.

Bridging software

If you prefer to keep records in a spreadsheet, bridging software can connect it to HMRC so the digital link is maintained. This can suit people with established spreadsheet systems, though a proper cloud tool is usually easier in the long run.

Whichever you choose, the key requirement is an unbroken digital link from your records to your submission: figures should flow through digitally rather than being re-keyed by hand. Getting the software right early avoids a scramble as your start date approaches.

How to prepare

The businesses that find MTD easiest are the ones that prepare ahead of their start date rather than at it. A sensible run-up looks like this:

• Check when you are in scope based on your qualifying income and the current thresholds.
• Move to digital record keeping if you are not already, ideally well before your start date so the habit is established.
• Choose compatible software and set it up with your bank feeds and categories.
• Get your bookkeeping current so quarterly updates are a quick confirmation rather than a catch-up.
• Agree a routine for who records what, and when each quarterly update is due.

Good bookkeeping is the foundation of all of this. If your records are already kept digitally and reconciled regularly, MTD is largely a change of reporting rhythm rather than a new burden.

Getting help

MTD for Income Tax is a genuine change in how affected sole traders and landlords keep records and report, and the phased thresholds mean it will reach a lot of people over the next few years. The transition is far smoother with the right software in place and bookkeeping kept current.

We help clients get ready, confirming when they are in scope, choosing and setting up compatible software, keeping the bookkeeping current and handling the quarterly updates and final declaration. If you are a sole trader or landlord wondering how MTD affects you, request a consultation and we will give you a clear plan.