Making Tax Digital (MTD) is a government initiative being introduced to make self-assessment income tax reporting and administration simpler and more effective. It doesn’t just apply to landlords, so if you have another business or you are an electrician and are classed as a sole trader, it is likely to apply to you too.
Rather than only submitting one end-of-year tax return, sole traders and landlords who fall under the scope of MTD will have to submit online reports of their income and expenditure to HMRC every quarter. These quarterly updates are not tax returns; they are simply summaries of how your business is progressing through the year.
You’ll need to submit these updates via MTD compatible software, on which you will log income, expenses and receipts digitally as you go along. After every submission, the system will generate an estimate of your end-of-year tax bill, to help you plan ahead.
The deadline for filing and paying your annual return will not change - it will still be 31st January – and the software can pull all the information from your quarterly updates.
Does this apply to me?
If you have a total annual income of more than £50,000 from self-employment and property, you will need to comply with MTD for the coming tax year that begins on 6th April.
Making Tax Digital Checklist
Make sure you’re ready to begin MTD on 6th April:
- Is my qualifying income above £50,000?
Add together your income from self-employment and property in the last tax year.
Income from other sources, e.g. pension, dividends and PAYE employment is not included.
- Choose a supplier of MTD compatible software
There are a number of different HMRC-approved software providers, with free and paid-for options. These include: Xero, QuickBooks, FreeAgent and QuickFile. If you already use bookkeeping software or spreadsheets, ‘bridging software’ is available that will ensure it works with the new system.
You can use an all-in-one system or a combination of systems, depending on the level of automation versus manual entry you prefer. The .GOV website has information on types of software and also an online tool to help you choose the most suitable solution.
- Sign up to MTD
To sign up, you must already be registered for Self Assessment and have submitted a tax return in the last two years. You can sign up here, using your existing Self Assessment user ID and password.
- Be prepared to allocate time to admin – e.g. once a week
The new system will require you to stay up to date with recording income and expenditure and filing receipts digitally on a quarterly basis. So, if you’ve been used to leaving your tax return until the last minute, you’ll need to get used to making regular digital entries.
Making Tax Digital FAQs
What’s the latest I can set up MTD for the 2026/7 tax year?
You should start keeping record using MTD for Income Tax software from 6th April 2026. The deadline for sending your first quarterly update is 7th August.
I earned just below £50,000 last tax year, but what if I earn over £50,000 this tax year?
HMRC will work out your qualifying income from the previous year’s tax return. This means you will only need to start using MTD the year after you have hit the threshold.
If I have a PAYE job, but I also earn money from letting out property, do I have to do the quarterly updates using MTD?
This depends on your rental income only, because PAYE income is already reported to HM Revenue & Customs by your employer. You will only need to follow MTD from April 2026 and submit 3-month updates if your gross rental income (before expenses) is over £50,000 per year.
From April 2027, this threshold drops to £30,000 rental income, so some landlords will then need to start quarterly updates. If your rental income is less than £30,000 you will simply continue to report the rental income through a Self Assessment tax return once per year.
If I earn less than £50,000 from self-employment, but I also earn money from letting out property, do I have to do the quarterly updates using MTD?
From April 2026, you must follow Making Tax Digital rules if the total gross income (turnover) from your self-employment, and/or property letting is more than £50,000 per year.
If your combined income is £30,000–£50,000 you won’t need to do it until April 2027, when the threshold drops to £30,000. If your combined income is below £30,000, currently you do not have to use Making Tax Digital. You will continue using the normal Self Assessment tax return once per year instead.
How much is the software?
There are basic options that are free, such as QuickFile, then you can expect to pay around £10-£20 a month for bookkeeping software with more features such as automated bank feeds and live profit and loss reports.
(source: https://creative.accountants/technology-software/best-mtd-software/)
What happens if I make a mistake in a quarterly update?
You can simply correct it in the software and it will be reflected in the next update you send.
Are there penalties for late submission of quarterly updates?
HMRC will not apply penalties for the first year (2026/7). After that, a points-based penalty system will come into effect for: missing quarterly updates, submitting a late Final Declaration (annual submission) and failing to keep digital records. Points will accumulate over time and may lead to financial penalties.
I currently earn under £50,000 – will I have to use MTD in the future?
If you earn more than £30,000 a year, you will have to comply from 6th April 2027. You can also sign up voluntarily now for the current tax year to make sure you’re familiar with the system before you’re legally required to use it.
Those earning above £20,000 will have to comply by 6th April 2028.
