Making Tax Digital (MTD) for Income Tax is now compulsory for some sole traders and landlords. It replaces annual record-keeping with a system that requires you to maintain digital records, send quarterly updates to HMRC, and submit your tax return using compatible software.
The rules are being introduced gradually, beginning with those whose combined gross income from self-employment and property exceeded £50,000 in the 2024 to 2025 tax year. This threshold is set to be lowered to £30,000 in April 2027 and £20,000 in April 2028, bringing more sole traders and landlords into the scope of MTD.
This guide explains when the MTD deadline applies to you, how qualifying income is calculated, the reports you need to submit and which software can help you comply.
What does qualifying income mean?
Qualifying income is your total gross income from self-employment and property before expenses are deducted. It’s based on the figures reported in your previous Self Assessment tax return and is sometimes referred to as your turnover.
If you have more than one sole trader business or receive both self-employment and property income, the total of these amounts is considered your qualifying income.
For example, if you earn £35,000 from your business and receive £20,000 in rental income, your qualifying income would be £55,000.
Qualifying income does not include:
- Employment income taxed through PAYE
- Dividends, including dividends taken from your own limited company
- State or private pension income
- Your share of profits from a partnership
- Most other income that isn’t derived from self-employment or property
Your share of the gross income from a jointly owned property generally counts. UK tax residents must also include qualifying income from overseas property. HMRC will review the information in your tax return, but you are responsible for checking whether you have exceeded the relevant threshold.
MTD start dates by income
The date you’re required to start using MTD depends on your income during the most recent tax year. Here are the income thresholds:
- From 6 April 2026: If your qualifying income was over £50,000 in the 2024 to 2025 tax year
- From 6 April 2027: If your qualifying income was over £30,000 in the 2025 to 2026 tax year
- From 6 April 2028: If your qualifying income was over £20,000 in the 2026 to 2027 tax year
What are the key MTD reporting deadlines once I’m mandated?
Once you are in scope for MTD, you must keep digital records, send four quarterly updates and submit your annual tax return using compatible software.
The quarterly updates are summaries of your income and expenses and do not replace your annual tax return.
If you use standard tax-year quarters, you must file your quarterly updates by:
- 7 August 2026: deadline for Quarter 1 (6 April to 5 July)
- 7 November 2026: deadline for Quarter 2 (6 July to 5 October)
- 7 February 2027: deadline for Quarter 3 (6 October to 5 January)
- 7 May 2027: deadline for Quarter 4 (6 January to 5 April)
Your tax return for the 2026 to 2027 tax year must be submitted by 31 January 2028. You must still submit your 2025 to 2026 Self Assessment return in the usual way by 31 January 2027.
Are there any MTD exemptions?
Not every sole trader or landlord must use Making Tax Digital. You are automatically exempt if your qualifying income is £20,000 or less. Those with qualifying income above £20,000 but below the threshold for the relevant year will not need to join until that lower threshold takes effect.
Partnerships are also currently outside the scope of MTD for Income Tax, although the government plans to bring them into the system at a later date.
Other automatic or temporary exemptions apply in certain circumstances, including to some trustees, personal representatives, Lloyd’s underwriters and taxpayers claiming particular allowances or reliefs.
You can apply to HMRC for an exemption if you are digitally excluded.
That means your age, health, disability or religious beliefs make it unreasonable for you to use compatible software. Being unfamiliar with accounting software or finding it expensive will not, by itself, qualify you for an exemption.
HMRC has a full list of MTD for Income Tax exemptions.
MTD penalty delay
HMRC will not apply penalty points for late quarterly updates during the 2026 to 2027 tax year. However, you must still keep digital records and send all four updates before submitting your tax return.
This ‘soft landing’ period doesn’t remove the tax-return deadline or protect you from late-payment penalties. For subsequent tax years, missed submission deadlines will be covered by HMRC’s points-based penalty system.
MTD software providers
Sage
Sage is a cloud-based accounting tool for small businesses that’s listed by HMRC as compatible with Making Tax Digital.
It has a free, MTD-ready plan for non-VAT-registered sole traders that includes 25 auto-categorised transactions, Self Assessment support and income and expense management. The premium plan includes receipt capture, unlimited transaction categorisation and the option to connect multiple bank accounts.
Plans and pricing (excluding VAT):
- Sole Trader Free – £0 per month
- Sole Trader – £7 per month
Intro offer: 90% off for 6 months.
Xero
Xero has a range of MTD-ready plans available for VAT and non-VAT-registered businesses. Every plan allows you to send a limited number of quotes and invoices, auto-reconcile transactions (optional on entry-level plans), capture receipts and meet your MTD for Income Tax requirements. Higher tiers unlock greater allowances for quotes and invoices, document capture, cash flow forecasting and more.
Plans and pricing (excluding VAT):
- Simple – £7 per month
- Ignite – £16 per month
- Grow – £37 per month
- Comprehensive – £50 per month
- Ultimate – £65 per month
Intro offer: 90% off for 6 months.
Tide
Tide’s HMRC-recognised accounting software is built right into your bank account.
It comes with an MTD toolkit that allows you to generate your Self Assessment based on tax estimates, put cash aside in a dedicated tax account, and file returns to HMRC via the Tide app. It also automatically categorises up to 90% of your transactions and automates quarterly tax updates.
There are three ways to access Tide’s MTD tools:
- Connect your business bank account – Tide’s MTD features are available for free to sole traders with a Tide business account. Customers of third-party bank accounts can also connect via open banking.
- Connect your accounting software – you can connect your Tide account to your existing accounting software.
- Tide accounting subscription – Tide’s accounting plans range from £19.99 to £24.99 plus VAT for limited companies and £13.99 to £17.99 plus VAT for sole traders.
Frequently asked questions
Does Making Tax Digital apply to limited companies?
No. Making Tax Digital for Income Tax currently applies to individuals receiving qualifying income as sole traders or landlords.
It does not apply to income earned through a limited company, although companies may have separate digital reporting obligations for VAT and other taxes.
Do landlords have to use Making Tax Digital?
Landlords may need to use MTD if their gross property income, combined with any sole-trader income, exceeds the relevant threshold. This includes UK and overseas property income, although some types of income and certain taxpayers may be exempt.
Does Making Tax Digital replace Self Assessment?
MTD does not remove the requirement to complete an annual tax return. Instead, it changes how sole traders and landlords keep records and report their figures. Once enrolled, you must use compatible software to send quarterly updates and complete your annual tax return.
What records must I keep digitally?
You must keep digital records of your self-employment and property income and expenses.
Each record should generally include the amount, the date the income was received or the expense incurred, and the relevant income or expense category. Receipts and invoices can still be retained in paper form, provided the required information is recorded digitally.
What happens if I have more than one business?
You must maintain separate digital records and send separate quarterly updates for each sole-trader business. You also need to report property income separately from self-employment income. For example, someone working as both an electrician and a driving instructor would submit updates for each business.
Can my accountant manage Making Tax Digital for me?
Yes.
An accountant or tax agent can sign you up, manage your digital records, send quarterly updates and complete your annual return on your behalf. You should speak to them before selecting software to make sure it is compatible with the systems they use.
What happens if my income falls below the MTD threshold?
You won’t be automatically exempt from MTD if your income falls below the threshold. Once you’ve been mandated, your qualifying income generally needs to remain below the applicable threshold for three consecutive tax years before you can choose to opt out.
Disclaimer: This story is auto-aggregated by a computer program and has not been created or edited by finopulse.
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