Tax returns are becoming more digital, and if you are a sole trader or landlord, the way you manage your Income Tax could soon look very different. Making Tax Digital for Income Tax is being introduced in stages, bringing new requirements for keeping digital records and submitting tax information to HMRC.
For many self-employed individuals and landlords, this means preparing before the new rules apply rather than leaving everything until the last minute. Understanding when you may be affected, checking your qualifying income, choosing suitable software and keeping accurate digital records can make the transition much easier. With the right preparation, you can stay organised and avoid unnecessary stress when the new reporting requirements come into effect.
What Is Making Tax Digital For Income Tax?
Making Tax digital (MTD) is HMRC’s digital system for managing Income Tax obligations for eligible sole traders and landlords.
Under the new system, qualifying taxpayers will need to use compatible software to:
- Keep digital records of relevant income and expenses
- Send quarterly updates to HMRC
- Review their tax position throughout the year
- Submit their tax return through compatible software
- Pay any tax due in the usual way
Quarterly updates are summaries of income and expenses rather than complete tax returns. The information is gathered from your digital records and sent to HMRC. Each quarterly update covers the period from the start of the tax year to the end of that update period .
The system is being introduced gradually according to qualifying income. This means not every sole trader or landlord will enter the system at the same time.
When Does Making Tax Digital For Income Tax Start?
The implementation of Making Tax Digital for Income Tax is being phased in based on qualifying income.
The current MTD for Income Tax timetable is:
Tax year used to determine eligibility | Qualifying income | MTD start date |
2024/25 | More than £50,000 | 6 April 2026 |
2025/26 | More than £30,000 | 6 April 2027 |
2026/27 | More than £20,000 | 6 April 2028 |
This means taxpayers who had qualifying income above £50,000 in 2024/25 may already need to follow MTD rules from 6 April 2026.
If you are approaching the threshold, it is sensible to prepare early rather than waiting until HMRC requires you to comply.
How to Prepare for Making Tax Digital For Income Tax
Preparing early can make the transition much easier. Consider the following steps.
1. Check Whether You Will Be Affected
Start by reviewing your previous Self Assessment tax returns and calculate your qualifying income.
Remember that the relevant threshold depends on the tax year and the staged introduction of MTD.
If you are unsure whether your income places you within the rules, professional advice can help you establish your position.
2. Choose Compatible Accounting Software
If you are required to use MTD for Income Tax, you must use functional compatible software to keep your digital records, send quarterly updates and submit your tax return
Your software should be capable of creating and storing digital records, sending quarterly updates and submitting your tax return.
Do not simply choose software because it is popular or inexpensive. Consider whether it is suitable for the way you operate your business.
For example, a landlord with several properties may need different functionality from a consultant who has hundreds of business transactions each month.
3. Start Keeping Digital Records
Don’t wait until your first quarterly update is due before changing your record-keeping habits.
Your digital records should accurately reflect relevant income and expenses. Records can include information such as:
- Sales and business income
- Stock or goods purchased for resale
- Business travel
- Office costs
- Professional expenses
- Property income
- Property-related expenses
You should also continue to retain supporting documents, such as invoices and bank statements, where required.
4. Separate Business and Personal Transactions
If you currently mix business and personal transactions in the same bank account, now could be a good time to improve your bookkeeping process.
Keeping business transactions organised can make it easier to identify income, categorise expenses and reconcile your records.
For example, a self-employed graphic designer could use a dedicated business account for client payments and business software subscriptions. This can make monthly bookkeeping considerably simpler.
5. Understand Quarterly Updates
Quarterly updates are a major change for taxpayers who are used to reporting their figures through one annual Self Assessment process.
Your compatible software will use your digital records to create totals for income and expenses for each reporting period.
The updates are not tax returns, but accuracy is still important. Keeping your records up to date throughout the year can reduce the risk of errors and make each reporting period easier to manage.
Who Needs to Use Making Tax Digital for Income Tax?
- Sole traders: If you are self-employed and your qualifying income is above the relevant threshold, you may need to use Making Tax Digital for Income Tax.
- Landlords: Individuals receiving property income may need to follow MTD rules if their qualifying income exceeds the relevant threshold.
- Both self-employment and property income: If you have income from both sources, HMRC looks at the combined gross income when determining whether you meet the threshold.
- Below the threshold: If your qualifying income is below the relevant threshold, you do not currently need to use MTD based on that threshold. However, your position may change if your income increases.
- Multiple income sources: Self-employment and property income are considered when calculating qualifying income. Other sources, such as savings and dividends, are not included in this qualifying-income calculation.
What Is Qualifying Income For Making Tax Digital?
One of the most important questions for sole traders and landlords is: what is qualifying income for making tax digital?
For MTD purposes, qualifying income is generally based on gross income from relevant self-employment and property activities before allowable expenses and tax, subject to specific exclusions.
For example, imagine a sole trader has:
- £42,000 from a consultancy business
- £12,000 from UK property income
Their combined qualifying income would be £54,000. Although their taxable profit may be considerably lower after allowable expenses, their qualifying income could place them within the relevant MTD threshold.
This distinction is important because eligibility is based on qualifying income rather than simply the profit you have left after expenses.
If you have several sources of self-employment or property income, you should consider how these affect your overall position.
2026/27 Making Tax Digital for Income Tax Deadlines
For taxpayers already within Making Tax Digital for Income Tax, quarterly updates must be submitted to HMRC by the relevant deadlines. Knowing these dates can help you keep digital records up to date and avoid last-minute reporting.
2026/27 MTD requirement | Deadline |
First quarterly update | 7 August 2026 |
Second quarterly update | 7 November 2026 |
Third quarterly update | 7 February 2027 |
Fourth quarterly update | 7 May 2027 |
HMRC requires quarterly updates to be submitted after each reporting period.
Already using Making Tax Digital?
The next quarterly update deadline for the 2026/27 tax year is 7 November 2026. Make sure your digital records are up to date and your quarterly figures are ready before the deadline.
2026/27 Penalty Rules for Making Tax Digital
If you are using Making Tax Digital for Income Tax during the 2026/27 tax year, there is an important transitional penalty rule to be aware of. HMRC will not apply penalty points for late quarterly updates during 2026/27.
However, this does not mean that quarterly updates can be ignored. You must still keep your financial records digitally and submit all required quarterly updates. HMRC requires these updates to be submitted before you can submit your Self Assessment tax return.
Making Tax Digital For Income Tax Self Assessment: What Changes?
Many people search for making tax digital for income tax self assessment because they want to understand whether the new system replaces Self Assessment entirely.
MTD does not simply mean completing your existing Self Assessment return online. Instead, eligible taxpayers will have additional digital record-keeping and reporting obligations.
You will generally need to:
- Maintain digital records of relevant income and expenses.
- Use compatible software.
- Send quarterly updates to HMRC.
- Review and finalise your information at the end of the tax year.
- Submit your tax return using compatible software.
- Pay the tax you owe by the relevant deadline.
Your quarterly updates provide HMRC with a more regular view of your business or property income and expenses.
Example: Preparing a Sole Trader For MTD
Consider Sarah, a freelance marketing consultant.
Sarah earns £55,000 in gross business income and has £15,000 of allowable business expenses. Under the relevant threshold rules, her qualifying income is based on her gross income rather than her profit after expenses.
Instead of waiting until the end of the year, Sarah could:
- Choose MTD-compatible accounting software
- Connect her business bank account where appropriate
- Record income and expenses digitally
- Review transactions regularly
- Keep supporting invoices and receipts
- Monitor her quarterly reporting requirements
- Work with an accountant to check her records
This approach gives Sarah greater visibility over her financial position and reduces the pressure of preparing everything at the last minute.
How 3E's Accountants Can Help You Get MTD Ready
Preparing for Making Tax Digital for Income Tax can be easier with the right support. 3E’s Accountants can help you understand your requirements, organise your records and manage your ongoing reporting obligations.
Our MTD preparation service can include:
- Reviewing your qualifying income
- Determining when MTD applies to you
- Reviewing your current bookkeeping system
- Helping you choose suitable MTD-compatible software
- Setting up and maintaining digital records
- Reviewing your quarterly income and expense information
- Preparing and submitting quarterly updates
- Preparing your year-end Income Tax return
- Providing ongoing accounting and tax support
Whether you are a sole trader, landlord or have multiple sources of qualifying income, our team can help you prepare for the transition and manage your MTD requirements with greater confidence.
Conclusion
Making Tax Digital is an important change for eligible sole traders and landlords, making preparation essential for a smooth transition. By checking your qualifying income, choosing suitable software and keeping accurate digital records, you can stay organised and meet your reporting responsibilities with confidence.
Whether you need to prepare now or expect to be affected by a future MTD phase, taking action early can help you avoid last-minute complications. Our expert team can guide you through the process, from understanding your MTD obligations to managing digital records and tax reporting.
Get in touch with 3E’s Accountants today to prepare for Making Tax Digital and make the transition with confidence.
Frequently Asked Questions
When is the next MTD quarterly update deadline?
For the 2026/27 tax year, the next quarterly update deadline is 7 November 2026. You should keep your digital records up to date and submit the required information by the relevant deadline.
What happens if I miss an MTD quarterly update?
There are no penalties for missing quarterly update deadlines during the 2026/27 tax year. However, you are still required to keep digital records and submit your quarterly updates. Other penalties, such as those relating to a late tax return, may still apply.
Do landlords need to use Making Tax Digital?
Landlords may need to use MTD for Income Tax if their qualifying property income meets the relevant threshold. The rules are being introduced in stages, so you should check your qualifying income and start date.
Do I need MTD-compatible accounting software?
Yes. If MTD applies to you, you will generally need to use compatible software to keep digital records and send your quarterly updates to HMRC.
Does MTD apply to multiple properties?
Yes. If you have income from multiple properties, your qualifying property income is considered when determining whether MTD applies to you. You may need to keep digital records and report the required information for your property business.
Can my accountant submit MTD updates for me?
Yes. You can authorise your accountant or tax adviser to manage your MTD obligations and submit quarterly updates on your behalf. You remain responsible for providing accurate and complete information to your accountant.
