The UK tax landscape is changing in 2026 and many sole traders and landlords will face new digital reporting obligations. If your business earned over £50,000 in qualifying income during the 2024-2025 tax year, you’ll need to adapt to a different way of managing your tax affairs.
Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) is HMRC’s initiative to modernise the UK tax system. It replaces the traditional annual tax return with quarterly digital updates through compatible software.
This shift requires consistent record-keeping and a clear understanding of the new deadlines. For businesses used to paper-based systems or annual filing, the transition demands preparation and planning.
This guide covers:
- Who must comply with MTD for Income Tax from April 2026
- The key requirements for digital record-keeping and quarterly reporting
- How to choose compatible software and prepare your business
- Important deadlines and future threshold changes
- Practical steps to ensure compliance
Who Needs to Follow Making Tax Digital (MTD) Rules in 2026?
Knowing whether the mandate applies to your business is the first step in preparing for MTD for Income Tax. The Making Tax Digital threshold and specific business structures determine your obligations, with different start dates planned for the coming years.
Mandatory Compliance from 6 April 2026
You must comply with MTD for Income Tax if you’re a sole trader, self-employed individual, or landlord with combined qualifying gross income exceeding £50,000 for the 2024-2025 tax year, according to HMRC guidance.
Qualifying income includes:
- Total business income (turnover) from self-employment
- Gross rental income from property letting
Excluded income sources:
- PAYE employment wages
- Pensions
- Dividends
- Interest from savings
If you operate as both a sole trader and a landlord, HMRC combines your business turnover and gross rental income to determine if you meet the threshold. Limited companies paying Corporation Tax are not included in this mandate, nor are partnerships in the initial 2026 phase.
Making Tax Digital partnerships will be included in later phases, though the Government has not yet confirmed specific timelines.
Future MTD Deadlines
The threshold will lower in subsequent years, bringing more businesses into the MTD for Income Tax system. Understanding these Making Tax Digital deadlines helps you plan ahead:
| Start Date | Income Threshold | Based on Tax Year |
|---|---|---|
| 6 April 2026 | Over £50,000 | 2024-2025 |
| April 2027 | Over £30,000 | 2025-2026 |
| April 2028 | Over £20,000 | 2026-2027 |
These phased Making Tax Digital deadlines mean that even if you’re not affected in 2026, your business may need to comply in 2027 or 2028 as thresholds reduce, as outlined in the Government’s Making Tax Digital roadmap.
Voluntary Sign-Up for Businesses Below the Threshold
Even if your income falls below the mandatory thresholds, you can voluntarily opt into Making Tax Digital for Income Tax. This allows you to benefit from digital record-keeping and reporting tools before you’re required to use them.
Voluntary participation can help you prepare for future compliance and may improve your financial management processes.
Businesses considering voluntary sign-up should weigh the benefits of earlier adoption against the time and cost of implementing new software and processes.
Key Requirements for Digital Record-Keeping
MTD for Income Tax introduces three key obligations. These differ significantly from traditional annual tax returns and require ongoing digital reporting throughout the year.
Each requirement plays a specific role in the new digital reporting system and understanding them helps you prepare your business effectively.
Digital Record-Keeping
You must create and maintain digital records of all business income and expenses using MTD-compatible software. Paper-based records are not compliant, nor is manually re-entering data from spreadsheets into HMRC’s online portal.
The software must store records digitally and connect to HMRC systems through secure digital links. Simple spreadsheets alone won’t meet the requirements unless they’re part of HMRC-approved software with proper digital connectivity.
This shift to digital accounting represents a fundamental change in how small businesses manage their financial records.
Bridging Software for Spreadsheet Users: If you currently manage your accounts using spreadsheets, bridging software can help you transition to MTD compliance.
Bridging software connects your existing spreadsheets to HMRC’s systems, allowing you to continue working in a familiar format while meeting digital reporting requirements.
This can be particularly useful during the transition period as you adapt to new processes.
Quarterly Updates
Instead of annual reporting, you’ll submit summary updates of your income and expenses every three months.
The standard quarterly periods align with the tax year, though some software allows you to opt for calendar quarters if that suits your business better.
Standard HMRC Quarterly Deadlines:
- Quarter 1 (6 April – 5 July): Submission deadline 5 August
- Quarter 2 (6 July – 5 October): Submission deadline 5 November
- Quarter 3 (6 October – 5 January): Submission deadline 5 February
- Quarter 4 (6 January – 5 April): Submission deadline 5 May
These quarterly submissions provide HMRC with a running total of your business activity throughout the year. However, they’re not final tax calculations you’ll still complete a final declaration after the tax year ends.
End of Period Statement and Final Declaration
After the tax year concludes on 5 April, you must submit an End of Period Statement (EOPS) and final declaration by 31 January of the following year. This final step allows you to:
- Make accounting adjustments
- Include any non-qualifying income sources
- Finalise your tax position for the year
- Claim any reliefs or allowances
The 31 January deadline remains consistent with the current Self-Assessment system, maintaining the familiar annual submission date for final declarations.
MTD Pilot Participation
HMRC has run pilot schemes to help businesses test Making Tax Digital processes before the mandatory implementation date.
These pilot programmes allow early adopters to familiarise themselves with the new system, identify potential issues and provide feedback to HMRC.
While the main pilot phases have concluded, participating in any available trial periods or early adoption programmes can give your business a valuable head start and help smooth your transition to MTD compliance.
How to Prepare for Making Tax Digital?
Preparation should begin well before your mandatory start date to avoid last-minute complications.
The following steps help ensure your business is ready for the transition, from checking your eligibility to selecting the right tools and support.
Early preparation supports small business compliance and reduces the stress of last-minute changes.
Check Your Income
Review your combined gross income from self-employment and property for the 2024-2025 tax year. Add your business turnover (before expenses) to your gross rental income to determine if you exceed the £50,000 threshold.
The Government provides an eligibility checking tool to help you confirm whether the mandate applies to your situation.
Choose Compatible Software
HMRC does not provide its own software for MTD for Income Tax, so you’ll need to select a commercial product. The Government’s official software compatibility list includes both free and paid solutions that meet HMRC’s technical standards.
When selecting software, consider:
- Functionality: Does it handle your specific business structure (sole trader, landlord, or both)?
- Integration: Can it connect to your existing accounting systems or bank feeds?
- Support: What level of customer support and training is available?
- Cost: What are the ongoing subscription or licensing fees?
Many accounting software providers now offer MTD-compatible products designed for small businesses and landlords. When evaluating options, ensure the product explicitly states compatibility with Income Tax Self Assessment some software covers MTD for VAT but not Income Tax.
Look for solutions that offer bookkeeping automation to save time on routine data entry tasks.
The British Business Bank provides guidance on selecting appropriate digital tools for small businesses preparing for MTD compliance.
Sign Up for MTD for Income Tax
You must register for MTD for Income Tax through the Government’s official registration portal before your mandatory start date. The sign-up process links your existing Self Assessment record to the new digital system.
Allow sufficient time for registration do not wait until April 2026 to begin this process. Early registration gives you time to test your software and resolve any technical issues.
Consider Professional Tax Services
An accountant or tax agent can manage the registration, digital record-keeping and quarterly submissions on your behalf. Professional tax services may be particularly valuable if:
For business owners who work with accountants, professional support can simplify the process and already use compatible software for their clients. They can guide you through the entire transition process and handle ongoing compliance.
Which Software Can I Use for Making Tax Digital?
Selecting the right software is essential for smooth MTD compliance. MTD-compatible software ranges from basic bookkeeping tools to comprehensive accounting platforms and your choice depends on your business complexity and budget.
Free software options exist for businesses with straightforward tax affairs, while paid solutions typically offer more features, better integration and enhanced support. All HMRC-approved software must meet specific technical standards for data security and digital reporting.
The Government’s website provides a comprehensive list of Making Tax Digital compatible software, including products specifically designed for sole traders, landlords, or both.
Some platforms also support VAT Making Tax Digital software if you need combined functionality for managing both Income Tax and VAT obligations.
What Happens if My Business Doesn’t Comply with MTD?
Understanding the consequences of non-compliance helps you prioritise your preparation efforts. HMRC will implement Making Tax Digital penalties for non-compliance with Making Tax Digital requirements and these penalties can affect both your finances and business reputation.
The penalty structure includes:
- Late submission penalties for missed quarterly updates
- Penalties for inaccurate information
- Interest charges on late tax payments
Specific penalty amounts haven’t been finalised for all scenarios, but HMRC has indicated they’ll apply a proportionate approach, particularly in the early phases of implementation. However, deliberate non-compliance or repeated failures will attract stronger HMRC penalties and enforcement action.
Beyond financial penalties, non-compliance creates additional administrative burden, potential HMRC investigations and reputational risks for your business.
What are the Benefits of Making Tax Digital for Businesses?
While the transition requires effort, Making Tax Digital for businesses offers several advantages for small business tax management. These benefits can improve your overall financial operations and reduce the stress of tax compliance.
- More accurate record-keeping: Digital systems reduce manual errors and provide real-time visibility of your business finances throughout the year rather than reconstructing records annually.
- Better cash flow planning: Quarterly updates help you track your tax liability progressively, avoiding year-end surprises and enabling more effective financial planning.
- Reduced compliance risk: Automated reporting through approved software minimises the risk of mistakes that could trigger HMRC penalties or investigations.
- Improved business productivity: Digital accounting automation and bookkeeping automation save time on routine tasks and allow you to focus on business operations rather than tax administration. This digital transformation in finance helps small businesses operate more efficiently and competitively, as highlighted in Government guidance on digital business tools.
Are There Exemptions to Making Tax Digital?
Some businesses and individuals may qualify for exemptions based on specific circumstances. Making Tax Digital exemptions exist for situations where digital compliance would create genuine hardship or impossibility.
You may be exempt if:
- You’re digitally excluded due to age, disability, location, or religious beliefs
- Your business operates in a remote area without internet access
- You have a disability that prevents you from using digital tools
If you believe you qualify for an exemption, you’ll need to apply to HMRC with supporting evidence, following the Government’s exemption application process. Exemptions are assessed individually rather than automatically granted.
Businesses below the income thresholds are not required to join MTD for Income Tax but may voluntarily opt in if they wish to benefit from digital record-keeping and reporting.
How Does MTD Impact Landlords?
Landlords face specific considerations under Making Tax Digital rules. If your gross rental income exceeds £50,000 for the 2024-2025 tax year (when combined with any self-employment income), you must comply with MTD for Income Tax from 6 April 2026.
This applies whether you own one property or multiple properties and whether you let residential or commercial properties. The digital record-keeping requirements mean you’ll need to track all rental income and allowable expenses through MTD-compatible software and submit quarterly updates throughout the year.
Many landlords currently manage their property finances using spreadsheets or paper records. The transition to MTD for landlords requires adopting software that can handle property-specific transactions and connect directly to HMRC systems.
How Does MTD Affect Accountants and Tax Agents?
Accountants and tax agents play an important role in helping businesses transition to Making Tax Digital. Professional advisers can act as authorised agents for their clients, managing the entire MTD process from registration through to quarterly submissions and final declarations.
Many accountancy practices already use MTD-compatible software and can extend their services to include digital record-keeping and automated reporting for clients. This approach allows business owners to focus on their operations while ensuring full HMRC compliance through their accountant’s expertise.
If you work with an accountant, discuss MTD for Income Tax with them early to understand how they’ll support your transition and what additional services or costs may be involved. The Government provides specific guidance for agents managing client accounts under MTD.
Conclusion
Making Tax Digital for Income Tax becomes mandatory from 6 April 2026 for sole traders and landlords with qualifying income over £50,000. If you’re affected, start preparing now by checking your income threshold using HMRC’s eligibility tool, choosing MTD-compatible software and registering with HMRC.
With lower thresholds coming in 2027 and 2028, even businesses not immediately affected should begin planning. Understanding the penalty structure for late submissions and payments for non-compliance can help motivate timely preparation.
Whether you choose to manage MTD compliance independently or work with a qualified accountant, early action will ensure a smooth transition to this new digital tax system.
Frequently Asked Questions
What is Making Tax Digital (MTD)?
Making Tax Digital is HMRC’s programme to modernise tax administration through digital record-keeping and reporting, reducing errors and improving efficiency in the UK tax system.
When does Making Tax Digital start for Income Tax?
MTD for Income Tax becomes mandatory from 6 April 2026 for sole traders and landlords with qualifying income over £50,000 for the 2024-2025 tax year.
How do I prepare for MTD for Income Tax?
Check your income against the threshold, choose MTD-compatible software, sign up through the Government portal and consider working with an accountant for implementation support.
How does MTD impact landlords?
Landlords with gross rental income over £50,000 (combined with any self-employment income) must keep digital records and submit quarterly updates from April 2026.
How often do I need to submit tax updates under MTD?
You must submit quarterly updates (every three months) plus an End of Period Statement and final declaration by 31 January after the tax year ends.
Will Making Tax Digital apply to Corporation Tax?
Making Tax Digital for Corporation Tax has been discussed but is not part of the current MTD for Income Tax implementation affecting sole traders and landlords.
How does MTD affect accountants and tax agents?
Accountants can act as agents for clients, managing registration, quarterly submissions and final declarations using their own MTD-compatible software on behalf of businesses.
What is MTD for Income Tax?
MTD for ITSA requires self-employed individuals and landlords to maintain digital records and report income and expenses quarterly through approved software instead of annual paper returns.
What is the penalty structure under MTD?
HMRC will impose penalties for late submissions, inaccurate information and late payments, with amounts varying based on the severity and frequency of non-compliance.
When does Making Tax Digital start?
The first phase starts 6 April 2026 for income over £50,000, followed by April 2027 (over £30,000) and April 2028 (over £20,000).
Are there exemptions to Making Tax Digital?
Exemptions exist for digital exclusion due to age, disability, location, or religious beliefs, but require application to HMRC with supporting evidence.
Why is Making Tax Digital important for small businesses?
MTD improves accuracy, enables better cash flow planning, reduces compliance risk and modernises financial management for UK small businesses adapting to digital efficiency.
What is making tax digital for self-assessment?
Making tax digital for self-assessment is the system requiring self-employed individuals and landlords to keep digital records and submit quarterly updates instead of one annual tax return.
Parul is a dedicated writer and expert in the accounting industry, known for her insightful and well researched content. Her writing covers a wide range of topics, including tax regulations, financial reporting standards, and best practices for compliance. She is committed to producing content that not only informs but also empowers readers to make informed decisions.
