Making Tax Digital for Income Tax is one of the most significant changes to the UK tax system in recent years. From April 2026, many sole traders and landlords will need to move away from the traditional annual Self-Assessment tax return and adopt digital record-keeping with quarterly submissions to HMRC.
This change is designed to modernise the tax system, improve accuracy, and eventually bring tax payments more in line with when income is earned — but it also means new responsibilities and new processes for taxpayers.
What Is Making Tax Digital for Income Tax?
MTD for Income Tax is a government initiative that requires eligible taxpayers to:
- Keep digital source records
- Use functional compatible software
- Submit quarterly updates of income and expenses
- Complete a digital end-of-year declaration
The aim is to improve bookkeeping accuracy, spread the administrative burden across the year, and give both taxpayers and HMRC a clearer picture of tax liabilities as the year progresses
When Does MTD for Income Tax Start?
The introduction of MTD for Income Tax is being phased in based on qualifying income:
| Start date | Qualifying income threshold |
|---|---|
| 6 April 2026 | Over £50,000 |
| 6 April 2027 | Over £30,000 |
| 6 April 2028 | Over £20,000 |
These thresholds are assessed using income from the relevant earlier tax year (for example, the 2024/25 tax year determines whether MTD applies from April 2026) .
What Counts as Qualifying Income?
Qualifying income for MTD includes:
- Self-employment income
- Property income, including foreign property
Important points to be aware of:
- Income sources are aggregated
- The threshold is based on turnover, not profit
- Property income is calculated per taxpayer
Example:
Sole trade income £27,000 + property income £25,000 = £52,000
MTD applies, even if profits are much lower
Once you enter the MTD system, you must generally remain within it for at least three years, unless you cease trading.
Digital Record Keeping Explained
Under MTD, records must be kept digitally using functional compatible software. This can be:
- A single accounting package (e.g. Xero), or
- A combination of software, apps, or spreadsheets linked digitally
What Are Digital Links?
A digital link is the electronic transfer of data between systems — manual copy-and-paste or re-keying is not permitted.
Digital records must include details of:
- Income and expenditure
- Each category required on the tax return
- Separate records for each sole trade business and/or property rental business
Quarterly Updates: How They Work
Instead of one annual submission, MTD requires quarterly updates to HMRC.
Key points:
- Updates are cumulative (year-to-date figures)
- Everyone must use calendar quarters, ending on the 5th of the month
- You can elect to end the period on the last day of the month instead
- Submission deadline: 7th of the month following the quarter end
- HMRC will provide a year-to-date tax estimate
- No late submission penalties apply in 2026/27, after which a new points-based system will apply
Quarterly updates do not finalise your tax bill — they are updates, not returns.
End of Year Declaration (Replacing the Tax Return)
The End of Year Declaration replaces the traditional Self-Assessment tax return.
- Must be submitted using MTD-compatible software
- Can be different software from that used for quarterly updates
- Other income, reliefs, and adjustments are added at this stage
- Deadline remains 31 January following the tax year
- Once signed up for MTD, the HMRC online Self-Assessment self-service system can no longer be used
Late submission of the new end of year declaration will also fall under the new points-based penalty system.
Digital Exclusion and Exemptions
Exemptions from MTD for digital exclusion are limited and difficult to obtain.
You are unlikely to qualify if you can use a smartphone.
Valid reasons may include:
- Age, disability, or health conditions preventing use of digital devices
- Religious beliefs incompatible with digital communication
- No internet access at home or business premises
If you are already digitally exempt for VAT, you must write to HMRC to confirm nothing has changed. New exemptions require contacting HMRC by phone or letter.
How We Can Support You
We offer a range of MTD for Income Tax services, depending on how involved you want to be.
Setup Services
- Software Setup:
We set up Xero and ensure you’re trained and ready. - MTD Registration:
We sign you up for MTD with HMRC and make sure you have an Online account
Ongoing Services
- Full Bookkeeping:
We manage all the bookkeeping and submit quarterly updates using Xero. - End of Year Declaration:
We check the quarterly updates are accurate and add in other sources of income, reliefs, and adjustments before submission to HMRC
Our Practical Recommendations
To make MTD as smooth as possible:
- Use a dedicated bank account for all business transactions
- Get your software setup – We recommend the Xero Simple subscription
- Sign up for MTD with HMRC asap – you can do this online
Final Thoughts
MTD for Income Tax represents a fundamental change in how income tax is reported. While it introduces more frequent reporting, it also provides greater visibility, improved accuracy, and the opportunity to manage tax proactively throughout the year.
With the right preparation — and the right support — the transition doesn’t have to be daunting.
If you have questions or want to discuss your options, please contact us.
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