Making Tax Digital for Income Tax: What UK Sole Traders and Landlords Need to Know Before 2026

Making Tax Digital for Income Tax is poised to transform how income and expenses are reported to HMRC, starting 6 April 2026. This initiative will usher in a new era of digital record-keeping and more frequent updates, gradually replacing the current annual Self-Assessment tax return system.

This comprehensive guide provides UK sole traders and landlords with all necessary information regarding MTD for income, ensuring readiness to meet the new requirements and potentially leverage them beneficially.

This change isn’t just another regulatory hurdle; it’s a genuine opportunity to streamline your financial processes, avoid last-minute tax rushes, and gain a clearer view of your earnings. However, it also brings its own set of challenges, particularly for anyone not comfortable with digital tools.
Understanding what lies ahead and preparing in advance is essential. Here’s everything you need to know before the 2026 deadline.

 

What is Making Tax Digital for Income Tax and Why It Matters

Making Tax Digital for Income Tax is HMRC’s plan to modernise the UK tax system. In simple terms, it’s about moving tax reporting from a once-a-year paper-based process to a more frequent, digital approach.

Making Tax Digital for Income Tax will require qualifying individuals to use Making Tax Digital-compatible software

1.  Individuals are required to keep digital records and
2.  Send summaries of income and expenses to HMRC every three months
3. Filing tax return annually

Making Tax Digital for Income Tax matters because it is designed to:

1. Make tax simpler, more efficient, and
2. Reduce errors by using automated tools

Imagine less frantic scrambling at the end of the tax year, and instead, a more organised, ongoing system where you have a clearer picture of your finances throughout the year. HMRC believes this shift will also lead to fewer mistakes in tax calculations, ultimately benefiting both taxpayers and the tax system as a whole.

 

Who Needs to Get Ready for Making Tax Digital 

Sole traders and landlords are currently impacted by Making Tax Digital for Income Tax, with qualifying income over a certain threshold. Individuals will only need to sign up for the service if you meet all three of the following conditions:

• You are an individual registered for self assessment
• You receive income from both UK and foreign property, and self-employment income declared in your UK Self Assessment tax return.
• Your qualifying income exceed a certain thresholds in a tax year

For now, Making Tax Digital for Income Tax does not apply to employment (PAYE), a partnership, limited companies, trusts, or estates.

It’s important to understand qualifying income. Qualifying income refers to your gross income from self-employment and/or property before you deduct any expenses or allowances. 

Example 

If you’re a freelance designer earning £55,000 in a year, and also own a rental property bringing in £10,000 in gross rent, your combined qualifying income is £65,000. This is the amount HMRC will assess

 

When to Sign Up for Making Tax Digital for Income Tax

While Making Tax Digital for Income Tax goes live on April 6, 2026, the exact timetable for when you’ll need to sign up for the service will be rolled out in phases. This phased approach is based on different annual income thresholds.

Qualifying individuals must start using the service according to the following phased introduction:

• From 6 April 2026: If your combined qualifying income from self-employment and/or property exceeds £50,000.
• From 6 April 2027: If your combined qualifying income from self-employment and/or property exceeds £30,000 in the 2025/2026 tax year
• From April 2028: HMRC plans to extend this to those with combined qualifying income exceeding £20,000 in the 2026/2027 tax year

HMRC will assess this based on the income you report in your 2024/25 tax return (which is due by 31 January 2026). If your income for that year is over £50,000, you’ll be in the first wave.

Example: 

So, if you’re currently earning £60,000 as a sole trader, you’ll need to be ready by April 2026. If you’re a landlord earning a gross rental income of £35,000, your deadline is April 2027. It’s crucial to check your income from recent tax years to see which phase you fall into. HMRC often sends letters to those they identify as being within scope based on their filed returns.

 

Exemptions For Making Tax Digital For Income Tax: Who Doesn’t Need to Comply?

When the application for Making Tax Digital for Income Tax process opens, you can apply for an exemption from using Making Tax Digital for Income Tax, if  you are genuinely unable to use digital tools for reasons such as:

• Age,
• Disability,
• Remote location without internet access, or
• Religious beliefs,

You won’t need to apply for an exemption if you are automatically considered exempt. And won’t need to apply if you are a:

• Trustee
• Individuals Without a National Insurance Number
• Non-resident companies
• An individual appointed to manage a deceased person’s estate.

Even if you’re exempt, you still need to report your income to HMRC on a Self Assessment tax return as usual.”

 

 

Steps to Prepare & Comply with Making Tax Digital For Income Tax

Preparing early for HMRC’s Making Tax Digital can help you avoid unnecessary stress, complications, and potential penalties down the line. It’s about transitioning to a more modern, digital approach to managing your income tax.

• Check Your Income: It is crucial that you confirm if you meet the upcoming thresholds.
• Get MTD-Compatible Software: choose software for digital record-keeping and direct submissions to HMRC. it must be compatible with MTD for Income Tax
• Sign Up & Authorise Software: Register for Making Tax Digital For Income Tax via HMRC’s portal (using your Government Gateway ID) and then authorise your software to connect.
• Go Digital with Records: Start moving all your income and expense records into your chosen digital software to ensure your digital record are secured
• Understand New Reporting: Familiarise yourself with the new cycle:
  • Quarterly Updates: Send income/expense summaries every three months.
  • End of Period Statement (EOPS): It’s important for individuals to carry out year-end adjustments and submit any necessary claims in time.
  • Final Declaration: Endeavour to review and confirm your total tax liability for the year before submission.
• Consult an Expert: To ensure full compliance and avoid mistakes about how to compute your tax, consulting an accountant or tax advisor can ensure a smooth transition and compliance.

 

Presenting Quarterly Reporting

Sole traders and landlords are expected to present quarterly updates regardless of whether you received any income or incurred any expenses during the last quarterly update period. It is mandatory to send the quarterly updates to HMRC through compatible software. The software will tell you when and how to send them.
Each submission lets you view an estimated tax bill in your software or HMRC account, helping you budget ahead with real-time insight.

To prepare:

• Set calendar reminders for the end of each quarter and submission deadlines
• Start organising your records on a quarterly basis
• Ensure your software lets you preview your tax bill so you can set aside enough money. 
• Outsource to your accountant. 

 

Your quarterly update periods and filing deadlines

In Making Tax Digital for Income Tax Self Assessment, quarterly updates follow a standard update calendar for most users, but there can be variations depending on circumstances.

Standard update periods
For the vast majority of sole traders and landlords, the quarterly update periods are fixed and follow the standard tax year, which runs from 6 April to 5 April the next year.

The table below outlines the update periods and submission deadlines that apply.

	Period Covered	Deadline to Submit
First quarterly update	6 April to 5 July	7 August
Second quarterly update	6 April to 5 October	7 November
Third quarterly update	6 April to 5 January	7 February
Fourth quarterly update	6 April to 5 April	7 May

 

Calendar update period

If you have a different accounting period (e.g. 1 January to 31 December instead of 6 April to 5 April), you may not use the standard update calendar. In such cases:

• You still submit quarterly updates, but the reporting dates are aligned with your chosen accounting period.
• You must ensure your MTD-compatible software can handle custom update dates.
• HMRC may allow flexibility, especially for businesses that already use a different accounting year.

	Period Covered	Deadline to Submit
First quarterly update	1 April to 30 June	7 August
Second quarterly update	1 April to 30 September	7 November
Third quarterly update	1 April to 31 December	7 February
Fourth quarterly update	1 April to 31 March	7 May

 

Beyond Compliance: The Benefits of Making Tax Digital For Income Tax

While Making Tax Digital for Income Tax requires some upfront effort, it brings significant advantages beyond just compliance:

• Improved Accuracy, Fewer Mistakes: By keeping digital records and using software, you drastically reduce the chance of manual errors. The software can often flag potential issues or suggest correct categorisations, leading to more accurate tax calculations. This means less likelihood of penalties and more peace of mind.
• Real-Time Financial Insights and Better Cashflow Monitoring: With quarterly updates, you’ll have a much clearer and more up-to-date picture of your income, expenses, and potential tax liability throughout the year.

Real-world example: David, a sole trader running a small carpentry business, used to only know his true profit after his accountant prepared his annual tax return. With MTD, he sees his income and expenses digitally reconciled every month. This means he can react quickly if spending is too high or if income dips, allowing him to manage his cash flow much more effectively and make informed decisions about purchasing materials or taking on new projects. He can even see an estimate of his tax bill building up, helping him put money aside.

• Streamlined Compliance, Less Year-End Stress: While more frequent, each quarterly update is simpler than a full tax return. The goal is to spread the workload throughout the year. Instead of a frantic rush to gather a year’s worth of paperwork in January, you’ll be routinely managing your records, making the final declaration a much smoother process.
• Reduced Paperwork and Better Organisation: Embracing digital means less reliance on physical receipts and paper documents. Everything is stored securely in your software, leading to less clutter, easier retrieval of information, and reduced risk of losing important records.
• Enhanced Collaboration with Accountants: If you work with an accountant, MTD-compatible software facilitates real-time collaboration. Your accountant can access your live data, offering more timely advice, spotting potential issues early, and providing proactive tax planning support.

If your business deals with international trade, understanding UK VAT registration might also be part of your digital tax journey, as MTD has already changed how VAT is reported.

 

Adjusting your business record throughout the year

To ensure your records are accurate and your tax position is correct, you’ll need to review and adjust your business income throughout the year — especially at year-end.

Why Adjustments Are Important

Adjustments allow you to:

• Correct mistakes or missing entries from previous updates
• Add late invoices or receipts that weren’t included earlier
• Apply capital allowances, business expense claims, or reliefs
• Record any accounting adjustments, such as prepayments or depreciation

Common Adjustments Include:

• Correcting input errors (e.g. duplicate income entries or forgotten expenses)
• Adding income received late in the year
• Adjusting for goods taken for personal use
• Applying mileage, use-of-home, or simplified expense claims
• Accounting for refunds or credit notes issued after a quarter has been submitted

Although you can review records at any time, most adjustments are made:

• At the end of each quarter (optional but good practice)
• At the end of the tax year, during your End of Period Statement (EOPS) submission

Don’t Forget: Adjustments Are Your Responsibility

Even if you’re using software, you are still responsible for ensuring:

• All figures are accurate and complete
• Income is correctly reported for each quarter
• Adjustments are properly documented and applied at year-end

What Counts as Digital Records?

Digital records include things like:

• The date you made or received money or paid an expense
• The amount of the transaction
• What was the transaction for
• VAT details (if you’re VAT registered)
• For property businesses, details of your rental income and what you can claim as expenses

All these details must go into your MTD-compatible software. This software will then send these updates straight to HMRC.

 

Final Steps: Reporting Full Income and Filing Your MTD Tax Return

Once you’ve completed your quarterly updates and made any necessary adjustments to your income and expenses, the next step is to finalise your Income Tax position for the year. This stage ensures HMRC has a full and accurate picture of all your taxable income—not just from self-employment or property, but from any other sources as well.

You’ll be required to report any additional income, such as:

• Earnings from employment
• Pension income
• Bank interest or savings
• Dividends from investments
• Any other taxable income sources

After declaring these details, you must submit your final tax return using your MTD-compatible software. This final submission replaces the traditional Self Assessment return and must be submitted by 31 January following the end of the relevant tax year.

Once your return is submitted, HMRC will calculate your final Self Assessment tax bill based on all the information provided. It’s important to note that while MTD changes how you record and report your income, it doesn’t change the way you pay your tax or the payment deadlines. You’ll still be expected to pay any tax owed by 31 January, as usual, to avoid penalties or interest charges.

This final stage is crucial for staying compliant under MTD for Income Tax and ensuring that your tax affairs are fully up to date.

Thanks for reading

We hope you found this post informative and helpful. If you have any questions about Making Tax Digital. Explore 121 Company Formation to discover how we can support your tax and business needs and simplify your journey to digital compliance 

HMRC offers a wide range of resources, including videos and webinars, to help individuals, landlords, and agents understand their obligations under Making Tax Digital.

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