Last Updated: April 2026
Making Tax Digital for Income Tax is mandatory from April 2026 for sole traders and landlords earning over £50,000. It replaces the annual Self Assessment return with quarterly digital reporting and requires you to keep records in compatible software throughout the year. If you are above the threshold, you need to be set up and reporting quarterly right now.
What is Making Tax Digital for Income Tax?
Making Tax Digital (MTD) is HMRC's programme to digitise the UK tax system. The first phase, MTD for VAT, has been in place since 2019. The second phase, MTD for Income Tax Self Assessment (MTD for ITSA), began on 6 April 2026 and changes how sole traders and landlords report their income to HMRC.
Under the old system, you filed one Self Assessment return by 31 January each year covering the previous tax year. Under MTD for Income Tax, that annual process is replaced with year-round digital reporting: you keep digital records in compatible software, submit a summary of your income and expenses to HMRC every quarter, and then confirm everything with a final declaration at year end.
The core shift is from annual to continuous. Instead of scrambling to gather 12 months of records in January, you maintain a running picture of your finances throughout the year.
Does Making Tax Digital UK apply to your business?
MTD for Income Tax applies to you if all three of the following are true:
- You are a sole trader or landlord registered for Self Assessment.
- You receive self-employment income, rental income, or both.
- Your qualifying income exceeds the relevant threshold for your tax year.
"Qualifying income" means your combined self-employment and rental income before expenses. It does not include employment income from a PAYE job. So if you earn £45,000 from a salaried job and £20,000 from freelance work, only the £20,000 counts toward the threshold.
The mandatory thresholds roll out in three phases:
Tax Year | Qualifying Income Threshold | Mandatory From |
|---|---|---|
2024–25 | Over £50,000 | 6 April 2026 |
2025–26 | Over £30,000 | 6 April 2027 |
2026–27 | Over £20,000 | 6 April 2028 |
Partnerships are not included in the current rollout. HMRC has indicated they will be brought into MTD in a future phase, but no date has been confirmed.
Exemptions
HMRC does allow exemptions where complying digitally is genuinely not feasible. Grounds for exemption include disability or health conditions that make digital working impractical, age-related difficulty, religious objections to using electronic communications, and lack of reliable internet access in rural areas. Exemptions must be applied for through HMRC and are reviewed on a case-by-case basis. Being exempt from MTD does not mean you are exempt from filing a Self Assessment return; it simply means you can continue filing by other means.
What does MTD for Income Tax require you to do?
MTD for ITSA has four components: digital records, quarterly updates, an end-of-period statement, and a final declaration. Here is what each one involves.
1. Keep digital records
You must record every item of business income and every allowable expense in MTD-compatible software as it happens, not at year end.
The records do not need to be complicated. At minimum, each entry needs a date, a description or category, and an amount. What they must not be is a paper ledger, a spreadsheet without a live connection to your accounting software, or a shoebox of receipts reviewed once a year. The digital record is the primary record under MTD.
This is the area where most businesses need the most preparation. If your current process involves printing bank statements, collecting paper receipts, or reconciling everything in a spreadsheet each January, you will need to change your workflow before your mandation date.
2. Submit quarterly updates
Four times a year, you submit a summary of your income and expenses to HMRC through your MTD software. These are cumulative year-to-date figures, not four separate tax returns. The deadline for each quarter is the 7th of the month following the quarter end.
For the 2026/27 tax year, the quarterly deadlines are:
Quarter | Period | Deadline |
|---|---|---|
Q1 | 6 April – 5 July 2026 | 7 August 2026 |
Q2 | 6 July – 5 October 2026 | 7 November 2026 |
Q3 | 6 October 2026 – 5 January 2027 | 7 February 2027 |
Q4 | 6 January – 5 April 2027 | 7 May 2027 |
Quarterly updates are not audited or reviewed by HMRC at the time of submission. They are used to build a running picture of your tax liability throughout the year. If you miss a deadline, HMRC issues a penalty point. Reach four penalty points within two years and a £200 financial penalty applies.
Important for year one: HMRC has confirmed a soft landing for 2026/27. No penalty points will be issued for late quarterly updates during the first four quarters. This gives businesses time to adjust to the new cadence without financial risk. From 2027/28, the full penalty regime applies.
3. Complete an end-of-period statement
At the end of the tax year, you confirm your income and expense figures and make any necessary adjustments through your software. This is where you add capital allowances, claim losses carried forward, and make other period adjustments that cannot be captured in the regular quarterly summaries.
4. Submit your final declaration
The final declaration replaces the old Self Assessment tax return. It pulls together your MTD income sources alongside any other income (investments, employment income, etc.) and gives you your overall tax liability for the year. It is submitted by 31 January, just as the old tax return was.
What software do you need for Making Tax Digital?
You need HMRC-recognised MTD software to keep your digital records and submit your quarterly updates. Xero and QuickBooks Online are the most widely used HMRC-recognised options for UK small businesses and accountants. HMRC maintains a full list of recognised software at gov.uk.
Both platforms allow you to: maintain digital records of income and expenses, connect to HMRC's API and submit quarterly updates directly, complete the end-of-period statement, and submit the final declaration.
HMRC does not endorse or approve specific products. "HMRC-recognised" means the software has been tested against HMRC's technical requirements and can connect to the MTD API. It is not a quality rating.
How receipt and document records fit into the MTD workflow
The digital record-keeping requirement is where day-to-day operations meet MTD compliance. For every business expense, you need a digital record that captures the date, amount, and category. That means your receipts, invoices, and supplier bills need to be digitised and categorised, not just filed.
The most common failure point is the gap between a paper receipt or a PDF in your inbox and your accounting software. A receipt sitting in a folder on your desktop, or a supplier invoice buried in email, is not a digital record in the MTD sense until it has been captured and logged in your accounting software with the right fields populated.
Tools that connect to your inbox, extract financial data from receipts and invoices, and post it to Xero or QuickBooks can close this gap automatically. The workflow becomes: document arrives in your email, data is extracted and categorised, it lands in your accounting software as a digital record, and your quarterly update reflects the correct figures when the deadline comes. No year-end scramble, no manual entry.
Receiptor AI, for example, connects to any email inbox, extracts receipts and invoices automatically, categorises them against your chart of accounts, and posts them to Xero or QuickBooks. Receiptor AI handles the record-keeping layer: capture, categorisation, and export. The quarterly updates and final declaration are then submitted through Xero or QuickBooks. You can see Receiptor AI's Xero integration on the Xero App Store UK.
What accountants need to know about helping clients prepare
Many of the people searching for MTD guidance right now are accountants and bookkeepers doing it on behalf of clients. Here is what matters most at this stage.
Audit your client list for threshold proximity. The Phase 1 threshold is £50,000 from April 2026. But clients currently earning between £35,000 and £50,000 may cross the threshold before their April 2027 mandation date. Build your migration pipeline now, not in January 2027.
Set up your HMRC Agent Services Account. Agents managing MTD on behalf of clients need to be authorised through HMRC's agent services infrastructure before they can submit quarterly updates on a client's behalf. This is separate from the authorisation you may already have for Self Assessment.
Migrate clients to digital record keeping before their mandation date. The quarterly submission itself is quick if the records are clean. The time-consuming part is getting clients off paper and spreadsheets and into compatible software with the right categories in place. For clients already above £50,000, that conversation should have happened already. The earlier you start, the smoother the first quarterly deadline will be.
The 2026/27 soft landing is for your clients, not for you. HMRC has confirmed no penalty points for late quarterly updates in year one. Use that time to bed in the new workflows for clients who are on the threshold, not as a reason to delay preparation for clients who are clearly in scope.
When MTD for Income Tax does not apply
MTD for Income Tax does not apply to limited companies, employees with no self-employment or rental income, or partnerships. It also does not apply to anyone whose qualifying income is below the relevant threshold for their tax year.
If you are borderline on the threshold, the income figure that determines mandation is your qualifying income for the previous tax year. HMRC will write to you when you are in scope, but it is your responsibility to check whether you qualify. Use HMRC's eligibility checker at gov.uk/guidance/check-if-youre-eligible-for-making-tax-digital-for-income-tax rather than waiting for a letter.
