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

Last updated: 23 July 2026

7 min read

Making Tax Digital for Income Tax is live. If your combined self-employment and property income was over £50,000 on your 2024/25 tax return, you have been legally required to keep digital records since 6 April 2026 — and your first quarterly update is due by 7 August 2026, just two weeks away. This guide covers who is in, what a quarterly update actually contains, the software you need, the penalties, and exactly what to do if you are not ready.

What is Making Tax Digital for Income Tax?

MTD for Income Tax replaces the traditional annual Self Assessment process with ongoing digital record-keeping and quarterly reporting. Instead of summarising a year’s income and expenses in one go each January, you maintain digital records throughout the year and send HMRC four updates — one per quarter.

At the end of the year you submit a final declaration, which effectively replaces the Self Assessment return, confirming your income and making year-end adjustments. It is the biggest change to how self-employed people interact with HMRC since Self Assessment arrived in 1996 — and unlike previous MTD dates, this one was not postponed.

Who has to follow MTD for Income Tax, and from when?

The rollout is phased by qualifying income — your combined gross income from self-employment and property, before expenses:

If your gross self-employment and property income on your 2024/25 return exceeded £50,000, you are in the regime now. Partnerships are not yet included, and limited companies are out of scope entirely — corporation tax runs on a separate system. Exemptions exist for the digitally excluded (no broadband, age, disability or religious grounds), but you must apply to HMRC and be granted one — it is not automatic.

When is the first quarterly update due?

7 August 2026. That is the deadline for the update covering 6 April to 5 July 2026, and it is the first hard deadline of the new regime. The full year looks like this:

Each update is cumulative for the year to date, so a mistake in one quarter can simply be corrected in the next. After the four updates, your final declaration for 2026/27 is due by 31 January 2028 — the familiar date. All the deadlines sit in our 2026/27 tax calendar.

What does a quarterly update actually contain?

Less than most people fear. Each update is a summary of income and expenses for the period — HMRC describes it as light touch:

• Total turnover or rental income
• Total allowable expenses, split into broad categories (or a single figure if your turnover is under £90,000)

You are not calculating tax at this stage, and the updates are not tax payments — your bill is still finalised once a year, and the payment dates of 31 January and 31 July have not changed.

The catch is in the record-keeping. HMRC expects digital records maintained through the year, not reconstructed at quarter end from a pile of bank statements. If you claim allowable expenses — and you should — those need to be logged digitally as you go.

What software do you need for MTD?

You cannot submit quarterly updates through your HMRC online account — you need compatible software. There are two routes:

All-in-one accounting software handles both record-keeping and submissions. QuickBooks, Xero, FreeAgent and Sage all qualify, among others. If you are choosing for the first time, our comparison of Xero vs QuickBooks vs FreeAgent will save you an afternoon of research.

Spreadsheets plus bridging software is legal but clunky: the bridge must map your spreadsheet to HMRC’s fields, and manual errors flow straight through. A spreadsheet you re-key into another system does not comply.

For most people above £50,000, proper software is the sensible choice. The cost is modest, tax-deductible, and quickly repaid in time saved. If you would rather not touch the books at all, our bookkeeping service keeps clients MTD-compliant as standard.

What are the penalties for missing an MTD deadline?

Late submissions run on a points system: one point per missed deadline, and at four points you get a £200 penalty. Points expire after 24 months of staying under the threshold; after a penalty, you need a clean 12-month run to reset.

There is a transitional concession: HMRC has confirmed that no penalty points will be charged on the first four quarterly updates for those mandated from April 2026. That easement does not extend to the year-end return, and late payment penalties are separate and very real — 3% of tax outstanding at day 15, another 3% at day 30, then 10% a year on top. In short: the quarterly grace period is a soft landing, not a reason to ignore the system.

How does MTD work in practice? A worked example

Consider Sarah, a freelance graphic designer in Manchester earning £65,000 a year with no rental income. Her qualifying income is above £50,000, so she has been in MTD since 6 April 2026.

Sarah moved to FreeAgent earlier this year. Each invoice and expense is logged as it happens. At the end of each quarter she reviews the figures, her accountant sanity-checks them, and the update goes to HMRC:

• Q1 (April–July 2026): income £16,000, expenses £2,400 — submitted by 7 August 2026
• Q2 (July–October 2026): income £17,500, expenses £2,100 — submitted by 7 November 2026
• Q3 (October 2026–January 2027): income £14,000, expenses £3,200 — submitted by 7 February 2027
• Q4 (January–April 2027): income £17,500, expenses £1,900 — submitted by 7 May 2027

In autumn 2027, Sarah and her accountant finalise the year — capital allowances and other adjustments — and file the final declaration by 31 January 2028. The quarterly rhythm has given her a far clearer picture of her business through the year, rather than a surprise every January.

What should you do this week if you are not ready?

With the 7 August deadline a fortnight away, here is the triage order:

1. Confirm you are in scope — check the gross self-employment and property income on your 2024/25 return against the £50,000 line.
2. Get software in place — even a quick setup now beats a missed first quarter. Most products can import bank transactions for April–July retrospectively.
3. Sign up for MTD through HMRC’s online service — you need your Government Gateway login and UTR. If you use an accountant, they can do this for you.
4. Submit Q1 by 7 August — remember it only needs period totals, and errors can be corrected in the next cumulative update.

If your income is £30,000–£50,000, your start date is April 2027 — nine months away. Setting up software now, rather than scrambling next spring, is by far the better route.

Frequently asked questions

Need a hand with Making Tax Digital?

We set up software, handle the sign-up, and review every quarterly update before it goes to HMRC — all on fixed fees, sole traders from £35 a month and limited companies from £50 a month. If the 7 August deadline is making you nervous, a short call now beats a scramble next week.

Book a free, no-obligation call or ring 0161 531 0959 and we will get you compliant quickly.

This article is general information, not personal tax advice. Rules correct at July 2026 — for advice on your own situation, please get in touch.

Written by Yoni Finke FCCA

Founder of YF Accounting — a fixed-fee, fully digital accountancy practice in Manchester serving SMEs, sole traders and landlords across the UK. One point of contact, unlimited support, no surprise bills.

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This article is part of our Self Assessment guide. See the full topic for related reads.