Making Tax Digital for Income Tax: who must join and when

Making Tax Digital for Income Tax is a new way for sole traders and individual landlords to report their income to HMRC. Instead of one tax return a year, you keep digital records through the year and send HMRC a summary of your income and expenses every three months, followed by a final year-end return. It became a legal requirement from April 2026 for sole traders and landlords with qualifying income over £50,000, and HMRC has said customers in scope should check now that they are signed up¹.

The rules reach much further over the next two years. They extend to people with qualifying income over £30,000 from April 2027, and over £20,000 from April 2028¹. HMRC described the April 2026 launch as the most significant change to how many customers interact with the tax system in 30 years, and more than 350,000 sole traders and landlords had already signed up by July 2026².

What does not change is just as important. The way your income tax (and National Insurance, if it applies) is calculated stays the same, and so do your payment dates: you are not asked to pay tax every three months³. What changes is how and how often you report.

What Making Tax Digital for Income Tax changes

Making Tax Digital (MTD) for Income Tax is a new and more regular way of sending tax information to HMRC⁷. In practice it means three things: you use software to keep digital records of your income and expenses as they arise, you send HMRC a summary every three months (a quarterly update), and you complete your annual tax return through the same software rather than through the Self Assessment system you may be used to⁸.

The wider programme is not new. MTD was originally launched in 2019 for VAT-registered businesses with a turnover of more than £85,000, and was extended in 2022 to all VAT-registered businesses⁹. Income Tax is the next stage, and it is far bigger in terms of the people affected: HMRC estimated around 780,000 self-assessment customers would be affected by the April 2026 start, with a further 970,000 people expected to make the switch when the threshold falls⁹. By July 2026, HMRC data showed 864,000 individuals and landlords should have registered, but fewer than half had done so¹⁰.

For those in scope, Self Assessment tax returns will no longer be used³. The year-end return you file through your software replaces them, and it cannot be completed using HMRC's ordinary online Self Assessment service¹¹. Two things stay firmly the same, though. First, the way income tax and National Insurance contributions are calculated does not change under Making Tax Digital³. Second, the payment dates do not change and you are not required to make payments any more often than before¹². After each quarterly update you will see an estimate of your tax bill, which helps with planning, but the estimates are only based on the information in your updates¹².

You can also choose to join voluntarily before your mandatory start date, which some people do to get used to the software early³.

Who must join: thresholds of £50,000, then £30,000, then £20,000

Whether you must join depends on your qualifying income, which means your gross income from self-employment and property, not your profit. The thresholds are being lowered in stages:

The date you join is set by an earlier tax year's figures. If your 2024/25 tax return showed qualifying income of more than £50,000, you needed to follow the rules from 6 April 2026¹⁴. If your 2025/26 return shows more than £30,000, you must use it from 6 April 2027; if your 2026/27 return shows more than £20,000, from 6 April 2028⁴. HMRC reviews your Self Assessment tax return and checks your qualifying income each tax year, and writes to you if your income is above the relevant threshold⁴. HMRC will write to you if you are affected, to let you know when it is your turn to switch⁵.

The scale is worth noting. HMRC estimated around 780,000 people were affected by the April 2026 start, and a further 970,000 are expected to join when the threshold drops to £30,000 in April 2027⁹. There are currently no plans to bring in MTD reporting requirements for people earning less than £20,000 a year, who continue under Self Assessment⁵.

How qualifying income is worked out

Only income from self-employment and property is counted when deciding whether you need to join the scheme. Dividends, employment income, pensions, savings interest and capital gains are all excluded⁸. This catches people out in both directions: someone with a £60,000 salary and a small rental loss-making flat may be outside the rules, while someone with no other income but £55,000 of rental receipts is inside them.

The figure you look at is gross income, meaning your sales or turnover, not your profits or losses¹⁵. A loss-making business can therefore still be in scope. If you are self-employed and also receive property income, the annual gross income figure applies to your total gross income from both sources combined¹⁵. Self-employed income for these purposes means sole-trade income only, not income from a business partnership¹⁵.

If you start a new self-employment or rental income source, the timing works from your first tax return showing the relevant gross income figure: you follow the new rules from the 6 April after the 31 January filing deadline for that return, or from 1 April after that deadline if you make your accounts up to 31 March each year¹⁴. If your first year of trading or letting is not a full tax year, your gross income must be annualised, meaning scaled up to give a figure for a 12-month period, to see whether you cross the threshold¹⁴.

You must also file one tax return under the current Self Assessment system before joining Making Tax Digital. If you started trading in 2025/26 and make your accounts up to 5 April, you will not have to join until 6 April 2027 at the earliest¹⁴.

Who is exempt or outside the rules

Several groups are outside Making Tax Digital altogether, and the exemptions apply on a year-by-year basis⁵:

• trustees and personal representatives
• individuals without a National Insurance number
• non-resident companies
• Lloyd's underwriters
• ministers of religion
• those receiving certain allowances, such as the blind person's allowance
• foster carers with only foster income⁵

There is also a digital exclusion for people who cannot reasonably comply with the requirements, for example because of age, disability or a medical condition, no reliable internet access, or religious beliefs that prohibit using electronic devices⁵. You can apply for an exemption if you live in a remote area with poor broadband access or struggle to use electronic communications due to age or disability, by calling or writing to HMRC¹⁶. People who are exempt must continue to report their income and gains through a Self Assessment tax return⁴. The dedicated page on the digital exclusion exemption covers how to apply.

Some groups are exempt for 2026/27 only, which is essentially a one-year deferral, with the rules expected to apply to them from April 2027. These include those who completed the SA107 (Trusts) pages, foster carers and shared lives carers with other qualifying income, and averaging claimants using the SA103 pages¹⁷.

Partnerships are not yet in scope, but are expected to be: HMRC has said Making Tax Digital for Income Tax will also be required for business partnerships in the future, although exact dates have not been given⁶. Limited companies are outside it entirely, since they pay Corporation Tax rather than Income Tax through Self Assessment. If you are resident or domiciled outside the UK, you only need to follow the rules for your UK self-employment and property income⁴.

Quarterly updates and the year-end tax return

Once you are in Making Tax Digital, you keep digital records of your income and expenses and submit updates to HMRC every three months, with a final declaration due by 31 January following the end of the tax year⁵. Each quarterly update is due exactly one month and two days after the end of the three-month period it covers⁸:

The first quarterly update, covering income and expenses for the first three months of the tax year, was due by 7 August 2026 for those who joined at the start¹. After each update, users can see an estimate of their tax bill, helping them to plan ahead¹.

You submit four quarterly updates per income source per tax year. If you have both property income and a self-employment trade, that means eight updates in total³. All your UK property income is treated as one rental business, so you submit one combined quarterly update for all of it, while foreign property income has to be reported separately¹¹. Each self-employment trade needs its own separate digital records and its own quarterly updates¹⁵.

The quarterly updates are summaries, not tax demands. The calculations provided each quarter are only estimates based on the information included in your updates¹². The payment dates will not change, and you are not required to make payments any more often¹². A final report is still needed by 31 January, and that date is also when the first payments on account instalment is due, with the second due by 31 July⁹. Income tax payments are not affected by Making Tax Digital, so the usual Self Assessment payment dates continue²¹.

The year-end return replaces your Self Assessment tax return and is filed through your compatible software¹¹. You cannot file it until you agree all the information entered in the software²². If you are not exempt from Making Tax Digital, you will not be able to file your end of year tax return on paper; the tax return must be submitted using compatible software²³. One process changes: claims to reduce payments on account can no longer be made on the end of year tax return and must be done separately via your personal tax account²³.

If you make a mistake, you correct the digital records, and later updates reflect the corrected figures. If the mistake is in quarter 4, either the fourth quarterly update must be re-submitted after the amendment, or it is corrected as part of the end of year adjustments¹¹. Separately, under reforms to in-year payments, if you know your tax will be significantly higher or lower than forecast, you will be able to make your forecasts and in-year tax payments more accurate by contacting HMRC using an online form²⁴.

Keeping digital records: software and spreadsheets

To comply, you need to use registered MTD-compatible software to record and report your income and expenses through the year and to complete your tax return²⁵. HMRC does not provide its own software for taxpayers to use, and it will not be providing any online services to help you file your tax return information, so you must choose a commercial product³. HMRC publishes a list of compatible software so you can check a package before committing to it¹⁶.

The records themselves are simple. As a minimum, you must keep the amount of each item of income or expense, the date income was received or expenses were paid (assuming you use the cash basis), and the category of income or expense, matching the self-employment and property pages of the current Self Assessment return¹¹. You are not required to create digital records in real time, so you can batch your bookkeeping, as long as the records exist digitally when you come to send an update¹¹.

Spreadsheets are allowed, but on their own they are not enough. Spreadsheets used for bookkeeping must be linked to HMRC using bridging software, to meet the legal requirement for a digital link under MTD⁸. In other words, you can keep doing the bookkeeping in a spreadsheet, but you need a compatible product to transmit the quarterly updates¹¹.

Two simplifications can reduce the record-keeping burden. If you know you will definitely have expenses of £1,000 or less for the entire tax year, you may decide not to keep digital records for expenses and instead claim the £1,000 trading allowance; the page on the trading allowance versus claiming expenses compares the two. If your gross income for each self-employment is below the VAT registration threshold, you can choose to report consolidated expenses (three-line accounts)¹⁵.

You do not need to hire an accountant to comply with MTD⁸, and equally you do not need to use a tax adviser or an accountant to report under Making Tax Digital³. Whether to use one is a choice based on how complicated your affairs are and how confident you feel with the software. HMRC has reported that keeping digital records brings an average saving of 26 to 40 hours on administrative tasks a year for businesses under Making Tax Digital for VAT².

How to sign up

You sign up online at GOV.UK, and you will need your Government Gateway login details¹⁴. Before you start, two conditions apply: you must be registered for Self Assessment, and you must have submitted a tax return in the last two years⁴.

The process, in order:

1. Gather your Government Gateway credentials, your business dates, your Making Tax Digital start year and your sole trader details⁵.
2. Sign up through the HMRC online sign-up service⁵.
3. Complete the sign-up process for each income source individually: if you have more than one trade, or a mix of trade and property income, each source must be registered separately⁵.
4. Look for the on-screen confirmation. You will not receive an email, but HMRC will write to you with confirmation¹⁴.
5. Choose software from HMRC's list of compatible products and connect it to your Making Tax Digital account¹⁶.

The sign-up process asks for a choice of tax year: those who must follow the rules from April 2027 sign up for the 2027/28 tax year, and those joining early voluntarily sign up for the 2026/27 tax year¹⁴. There is no penalty for not signing up by 6 April 2026, but record keeping under the new system begins from that date¹⁴. From September 2026, if HMRC is aware that someone should have signed up for the 2026 to 2027 tax year and has not, HMRC will enrol them automatically⁶. Customers signed up to Making Tax Digital for Income Tax still need to submit their Self Assessment tax return and pay any tax owed by 31 January 2027²⁰.

Penalties: points for late updates, then £200

Late submission penalties under Making Tax Digital are points-based, so you do not get a financial penalty if you are late once or twice⁷. A point is added each time a deadline is missed, and once a certain number of points is reached, a £200 financial penalty is charged and the taxpayer notified²⁶. You then face a further £200 penalty each time you miss a submission deadline while at your threshold⁶.

The points threshold depends on how often you have to submit. For annual filers, two missed deadlines within two years lead to a £200 fine⁵. While the temporary measure applies, covering those volunteering or required during the 2026 to 2027 tax year, the penalty threshold is two points⁶. Points accrue separately for those who use MTD for VAT and income tax, so if you pass the threshold for both, two fines of £200 each are possible⁹.

Late payment carries its own penalties. For the 2025/26 and 2026/27 tax years, a first late payment penalty of 3% of the tax owed applies between 16 and 30 days overdue, with no penalty if it is your first year of Making Tax Digital for Income Tax. At 31 days or more, it is 3% of what was outstanding at day 15 plus 3% of what was still outstanding at day 30, and a second penalty is calculated at a daily rate of 10% per year on the outstanding balance from day 31⁶. The dedicated page on Making Tax Digital penalty points and late payment penalties sets these out in full, and if a penalty is charged, reasonable excuse may be grounds for an appeal.

Leaving Making Tax Digital when income falls

You cannot choose to stop using Making Tax Digital, even temporarily²³. This matters for people whose income dips, for example after an accident that leaves them temporarily unable to work. If you expect to be unable to work for a period, HMRC may grant a temporary exemption depending on how long that period is; if an exemption is unlikely to be granted, you need to file quarterly updates with nil income and expenses amounts until you are working again²³.

The only ways out, for people with ongoing self-employment or property income, are if your gross income from those sources has been below the relevant threshold for three consecutive tax years, or if you are or become exempt²³. If your qualifying income falls below the threshold in one tax year, you must still follow the Making Tax Digital rules for that year and the next, and can opt out only once the income has stayed below the threshold for three consecutive tax years²⁷.

HMRC does the checking for you: it uses the data from the fourth quarterly update of the third tax year, together with the Making Tax Digital tax returns submitted for the two previous tax years, to confirm qualifying income has been below the threshold for three consecutive tax years²⁷. Until then, the quarterly updates and digital records continue, even in a year with little or no income.