Finance & Tax

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

MTD for Income Tax launched on 6 April 2026. If you’re a sole trader or landlord with qualifying income above £50,000, it applies to you now. If your income is between £30,000 and £50,000, it applies from April 2027. Here’s what changes, what doesn’t, and what you need to do.

Last updated: April 2026 · 10 minute read

£50,000 Qualifying income threshold from 6 April 2026 — dropping to £30,000 in April 2027 and £20,000 in April 2028

7 Aug 2026 First quarterly deadline — covering 6 April to 5 July 2026

31 Jan 2028 Final declaration deadline for 2026/27 — this is not covered by the first-year penalty grace period

What is Making Tax Digital for Income Tax?

MTD for Income Tax is the government’s programme to move self-assessment tax reporting from an annual return to a system of quarterly digital updates, made throughout the year using compatible software.

It doesn’t change when you pay tax — your payment date remains 31 January following the end of the tax year. What changes is how often you report your income and expenses to HMRC, and how you do it.

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The annual tax return isn’t abolished — it’s replaced by a final declaration You still file something by 31 January after each tax year. The difference is that by that point, HMRC already has four quarterly updates of your income and expenses. The final declaration confirms your full-year position and claims any reliefs or allowances.

Who needs to comply, and when?

Phase	Who’s affected	From
Phase 1	Sole traders and landlords with qualifying income above £50,000	6 April 2026
Phase 2	Sole traders and landlords with qualifying income above £30,000	6 April 2027
Phase 3	Sole traders and landlords with qualifying income above £20,000	6 April 2028
Partnerships	Not yet confirmed	Date to be announced

Limited companies are not in scope. MTD for Income Tax applies only to individuals. Corporation Tax returns and VAT returns are separate obligations.

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HMRC should have written to you — but signing up is your responsibility If your 2024/25 self-assessment return showed qualifying income above £50,000, HMRC should have written to you. But if you think you’re in scope and haven’t heard from them, you are responsible for signing up. Check your status at gov.uk/guidance/check-if-youre-eligible-for-making-tax-digital-for-income-tax.

What actually changes

What stays the same	What changes
Tax payment dates — you still pay by 31 January (and 31 July for payments on account)	Quarterly updates replace the single annual submission of income and expenses
The underlying tax rules — same income and expenses that were allowable before remain allowable	Digital records are mandatory — paper records and standalone spreadsheets are no longer acceptable
Your accountant can still handle submissions on your behalf	MTD-compatible software is required — HMRC’s online portal and paper forms can no longer be used
The final 31 January deadline	The annual self-assessment return is replaced by a final declaration after your fourth quarterly update

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Quarterly updates are not four tax returns They’re summaries of your income and expenses for the period — no tax calculations, no adjustments, no reliefs to claim. Think of them as four progress reports. The tax is still worked out at year end through the final declaration.

The quarterly update deadlines

Quarter	Period covered	Submission 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
Final declaration	Full year 2026/27	31 January 2028

You can elect to use calendar quarters instead — periods ending 30 June, 30 September, 31 December, and 31 March. The submission deadlines remain the same regardless of which quarter basis you use. If you have multiple businesses or both self-employment and property income, you submit separate quarterly updates for each.

No penalties in the first year — but don’t rely on it

For 2026/27 only, HMRC has confirmed that late submission penalty points will not apply to quarterly updates. This is a grace period while taxpayers and software providers adjust to the new system.

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Two things the grace period does NOT cover The final declaration for 2026/27 — due 31 January 2028 — carries the usual penalties. And from 2027/28, a points-based system applies: each missed quarterly update earns a penalty point, and a £200 financial penalty is triggered when four points accumulate within two years. The grace period is a genuine relief for year one — not a reason to treat quarterly submissions as optional.

What you need to do right now

If your qualifying income exceeded £50,000 in 2024/25

Through your software provider or at gov.uk. HMRC should have written to you, but check your status regardless. Signing up is your responsibility — HMRC won’t do it for you.

Choose MTD-compatible software

If you already use accounting software, check whether it’s MTD-compatible for Income Tax (not just for VAT — these are separate). See the software section below.

Start keeping digital records from 6 April 2026

Even if your first submission isn’t until August, your records for the period need to be digital from the start of the tax year.

Submit your first quarterly update by 7 August 2026

Covering 6 April to 5 July 2026. This is your first real deadline under the new system.

Tell your accountant

Make sure they know you’re in scope and that your software allows them agent access. Many accountants are offering MTD management as a service — check whether this is included in your current fee.

If your qualifying income is between £30,000 and £50,000

You have until April 2027 — but that’s twelve months, not twelve years. Starting digital record-keeping now and choosing your software before the deadline is far easier than rushing at the last minute.

What counts as qualifying income — and what doesn’t

Included in qualifying income	Not included
Gross self-employment income from all trades (combined)	Employment income (salary, wages)
Gross UK property income	Dividends and investment income
Gross overseas property income	Savings interest
	Pension income
	Capital gains

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Mixed income can put you below the threshold A sole trader earning £35,000 from their business and £20,000 as a PAYE employee has qualifying income of only £35,000 — below the £50,000 threshold for 2026 — even though their total income is £55,000. Employment income doesn’t count toward the qualifying income calculation.

MTD-compatible software

You must use software from HMRC’s approved list. The main options for sole traders and landlords:

Software	Best for	Notes
Xero	Most sole traders; strong bank feed integration	MTD-compatible for both VAT and Income Tax
QuickBooks	Sole traders who want a good mobile app	Popular and widely supported by accountants
FreeAgent	Freelancers and small businesses	Free for business account holders at some banks (NatWest, RBS, Mettle)
Sage	More complex businesses with stock or multiple revenue streams	Full accounting suite; MTD-compatible
Coconut	Sole traders wanting a simpler, lower-cost option	Connects to your bank and categorises transactions automatically
Untied	Self-assessment and MTD-focused; designed for individuals	Tax-first approach; simpler interface than full accounting software
Bridging software	Those who prefer to keep records in a spreadsheet	Connects your spreadsheet to HMRC’s systems; HMRC-compliant but adds a step

HMRC’s full approved software list is at gov.uk/guidance/find-software-thats-compatible-with-making-tax-digital-for-income-tax.

Practical tips for quarterly reporting

Use bank feed integration. Most accounting software connects to your business bank account and imports transactions automatically. If you don’t have a dedicated business account, opening one makes this significantly easier.
Categorise transactions as you go. Spending 20 minutes a week keeping your records current is far less painful than reconciling three months of transactions the night before a deadline.
Errors go in the next update. If you miss an expense or make an error in a quarterly update, include it in the next quarter — you don’t need to amend the previous submission. HMRC’s system accumulates year-to-date figures.
Consider cash basis reporting. If your qualifying income is below the VAT registration threshold (£90,000), you can report on a cash basis — recording income when received and expenses when paid rather than when invoiced. This simplifies the process significantly for most service businesses.
Keep your software updated. Providers are rolling out MTD for Income Tax features throughout 2026, and early versions may not have the full feature set.

Useful resources

HMRC MTD eligibility checker — check whether and when MTD applies to you at gov.uk/guidance/check-if-youre-eligible-for-making-tax-digital-for-income-tax
HMRC approved software list — find MTD-compatible software at gov.uk/guidance/find-software-thats-compatible-with-making-tax-digital-for-income-tax
HMRC MTD campaign site — plain-English guidance from HMRC at makingtaxdigital.campaign.gov.uk
Your accountant — the best single resource for getting this right. An accountant familiar with MTD can set up your software, manage agent access, and submit on your behalf.

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Right Hand Man covers everything from Making Tax Digital and VAT to hiring your first employee, business insurance, and writing a business plan. Browse our guides or get in touch if you have a question.