Making Tax Digital for Income Tax: A Guide for Sole Traders and Landlords
Making Tax Digital is reshaping how self-employed people and property owners handle their tax obligations in the United Kingdom. From April 2026, affected individuals will be required to keep records electronically and report income through a structured digital process.
This guide gives you everything you need to understand, whether you file on your own or work with an adviser.
Read on for a clear overview of who is affected, what the new rules involve, and how to prepare for the coming tax year.
What is Making Tax Digital for Income Tax, and how does it work?
Making Tax Digital for Income Tax is a new way for sole traders and landlords to report their income using approved tools. Rather than filing a single annual return at the end of the fiscal year, affected individuals will send periodic summaries of their earnings throughout the year and then confirm the figures at year's end.
The programme builds on the existing framework, first introduced for businesses already filing digitally, though the income tax rules differ in several important respects.
This initiative is part of a broader government effort to make it easier for individuals to manage obligations in real time, reduce errors, and narrow the gap in the UK tax system.
If you are a sole trader earning above a certain level, or receiving rental earnings above the same level, the programme will apply to you from 2026 or later, depending on your total gross earnings.
The changes sit alongside the current self-assessment regime during a transitional period, so it is important to understand both sets of requirements. Further sections of this guide explain the specifics of the reporting cycle, the software you need, and where to find step-by-step guidance.
Do you need to use Making Tax Digital? Check if you need to comply with MTD rules.
The first question every sole trader and property owner should ask is whether they fall within scope. The obligation depends on your qualifying income, which is the gross amount earned from trading and rental activities before deducting any expenses.
Both sources are combined when measuring against the threshold. If you also receive rent, both figures are added together, so even people who assume they fall below the limit may find themselves included.
To find out what you need to do, review the figures from your 2024/25 return. The tax authority will not necessarily write to every affected person, so it is your responsibility to verify whether you are within scope.
If your annual income from self-employment is £30,000 and your rental earnings add another £25,000, the total exceeds £50,000, placing you in the first wave. Sole traders and landlords must prepare for income tax by 6 April of the relevant year.
If your combined gross earnings sit between £30,000 and £50,000, you join the programme from April 2027.
A further group with income above £20,000 follows in 2028. In each case, the relevant figure is based on the prior tax year.
You can also ask your accountant for guidance if you are uncertain about where you stand.
What if I think my total turnover will be between £30,000 and £50,000 – is there a timeline to help me get ready?
| 31 January 2027 | Deadline to submit a Self Assessment tax return for 2025 to 2026 |
| 6 April 2027 | When you must start keeping records using Making Tax Digital software |
| 7 August 2027 | Deadline to send HMRC your first quarterly update |
| 7 November 2027 | Deadline to send your second quarterly update |
| 31 January 2028 | Deadline to submit your Self Assessment tax return for 2026 to 2027 |
| 7 February 2028 | Deadline to send your third quarterly update |
| 7 May 2028 | Deadline to send your fourth quarterly update |
| 7 August 2028 | Deadline to send your first quarterly update of the 2028 to 2029 tax year |
| 7 November 2028 | Deadline to send your second quarterly update |
| 31 January 2029 | Deadline to submit your end-of-year tax return straight from Making Tax Digital software for 2027 to 2028 |
| 7 February 2029 | Deadline to send your third quarterly update |
| 7 May 2029 | Deadline to send your fourth quarterly update |
Source:
What counts as qualifying income under Making Tax Digital for income tax?
This is one of the most commonly misunderstood areas. Qualifying income refers to gross revenue, not taxable profit. You add up everything earned from trading and rental activities before subtracting costs or allowances.
Many people underestimate their position because they think of their net figure rather than the total amount received.
If you are self-employed and also receive rent, your combined earnings are what count. A sole trader earning £35,000 from freelance work alongside £20,000 in rent would have a total of £55,000, well above the initial limit.
Any amount included in your qualifying income counts towards the ceiling regardless of how many sources contribute. Jointly owned properties require each owner to calculate their share separately, with a 50/50 split as the default unless a different proportion has been declared.
Certain types of earnings are not included. Employment income paid through PAYE, dividends, and investment returns are not included in the calculation.
Only income from self-employment and property is relevant. If all your income comes from a salaried job, the Making Tax Digital for Income Tax does not currently apply to you.
However, even a small side business or a single rental could take you over the limit, so it is worth checking.
When do you need to sign up for MTD for income tax?
The rollout follows a phased timetable. Sole traders and property owners with gross earnings exceeding £50,000 must begin from April 2026. Those with earnings above £30,000 join from April 2027. A third group follows in 2028. In each case, the relevant figures come from the period two years prior to the start date. Traders and landlords must use the new system from their respective phases.
If you fall into the first wave, you will need to sign up and have your software in place well before the programme launches. The process of choosing tools, testing workflows, and authorising any agent takes time.
You need to sign up through the official channels, and your adviser must hold an Agent Services Account, which is distinct from the standard login used for the traditional filing system. Be ready for tax by 6 April 2026 at the latest.
For those who want to get ahead, the tax authority runs a voluntary pilot that lets eligible people sign up for making tax digital before it becomes compulsory.
This is a practical way to test the process and identify gaps without the pressure of a rigid timetable. Your adviser can check whether joining the pilot makes sense for your situation.
Which Making Tax Digital software do you need to use?
To comply, you need to use software that works with Making Tax Digital and connects to the tax authority's systems. Standard spreadsheets are not sufficient on their own; if you prefer them, you will need bridging tools to transmit data directly to HMRC.
Most people find it simpler to use a dedicated MTD software package that handles record-keeping and filing in one place. HMRC publishes a list of compatible software on GOV.UK, and it is updated regularly.
HM Revenue & Customs
GOV.UK guidance: Choose the right software for Making Tax Digital for Income Tax
When choosing the right software, consider cost, ease of use, and whether the package covers all your record-keeping and submission needs. Some options are free for straightforward cases, while others offer features like automated bank feeds and tax estimates.
If you already use a platform for your annual return, check whether the provider offers an MTD-compatible version. Using HMRC-recognised software from the start avoids problems down the line.
Your adviser can recommend a package based on your circumstances. Many practices already work with MTD-ready platforms, and they can configure your account so that data flows between you and your agent without friction.
Discussing options early helps both sides avoid last-minute disruption, especially since agents rely on tools connected through their own dedicated portal.
How do quarterly updates work under Making Tax Digital?
One of the largest practical changes is the requirement to submit quarterly updates. Instead of gathering records once a year for a single self-assessment tax return, you will send summaries of income and costs every three months.
These are not full returns; they are simplified snapshots showing your financial position during each quarter.
The dates follow the standard fiscal calendar. For the period from April to July, you'll need to send your summary by 7 August.
The second period, covering July to October, is due by 7 November.
The third runs from October to January, with a 7 February cut-off, and the fourth covers January to April, due by 7 May.
After all four periodic reports are filed, you complete an End of Period Statement confirming annual totals for each income source. Finally, a Final Declaration replaces the traditional annual return and captures all other earnings, including PAYE, dividends, and investments.
These periodic reports are designed to improve accuracy and reduce the risk of large unexpected bills at year's end. HMRC uses the information to provide tax estimates, giving you a clearer picture of your likely liability as the year progresses.
If you are a sole trader who already regularly tracks revenue and costs, the transition should be manageable. However, if you currently compile everything in January, you will need to change your habits significantly.
Do you need an accountant or bookkeeper to use Making Tax Digital?
The programme does not technically require professional support, but working with a specialist can make the process considerably easier. If you already rely on a tax adviser for your annual filing, they should be preparing for the transition on your behalf. Ask whether they hold an Agent Services Account and whether they have tested MTD software.
If you manage your own affairs, you can handle the programme independently, provided you are comfortable keeping digital records and sending updates through approved tools.
That said, many independent workers find that a dedicated record-keeper helps maintain records throughout the year, while a separate adviser reviews the figures and handles year-end statements.
For agents managing multiple portfolios, the goal is to ensure clients stay compliant while minimising disruption.
The tax authority has published resources and runs regular webinars to support taxpayers through the transition. These are useful even if you have professional help, as they give you a better understanding of the process.
If you currently have no support and your gross earnings place you within scope, now is a good time to consider engaging a professional well in advance of the changeover.
Who is exempt from making tax digital, and who does not need to join?
Not every independent worker or property owner needs to follow the new rules. If your gross earnings from trading and rental activities are below £20,000, you are not currently required to participate. Additionally, certain categories are excluded from the initial phases of Making Tax Digital.
Partnership structures, for instance, will be brought in at a later date, though the exact timetable has not yet been confirmed. Trusts, LLPs, and individuals whose only earnings come from PAYE employment are also outside the scope for now.
An exemption is available to individuals who cannot use digital tools due to age, disability, remote location, or other valid reasons. Landlords with qualifying income above the threshold and sole traders in similar positions are not automatically exempt simply because they find digital tools inconvenient.
If you believe you have a genuine case, contact the tax authority directly. Each situation is assessed on its own merits, and there is no blanket provision covering all circumstances. Even if you expect to receive an exemption, it is sensible to begin preparing in case the application is declined.
For those not yet required to participate, it is still worth keeping an eye on developments. The income limit is being lowered progressively, and a strong trading year could push you above it unexpectedly. Regularly reviewing your position will ensure you are not caught off guard when requirements expand.
How does HMRC handle penalties under Making Tax Digital?
The programme introduces a new points-based penalty system that differs from the fixed fines used under the current regime. Under this system, each late filing earns one point. Once you accumulate enough points, you receive a financial consequence.
Points can eventually be cleared if you maintain a consistent record of timely reporting over a set period. This approach is designed to distinguish between occasional lapses and persistent non-compliance.
For the first period under the new rules, a grace period applies. During this window, late periodic reports will not attract points. This concession is intended to give taxpayers and their advisers time to adjust to the new reporting cycle. However, the grace period does not cover every obligation.
Late Final Declarations will still result in consequences, and late payment of tax owed remains subject to the usual interest and surcharges.
It is important not to treat the grace period as a reason to delay. The purpose is to acknowledge that early difficulties are expected, not to excuse a complete failure to engage. If you are a sole trader affected by the initial deadline, aim to file on time from the outset.
Building good habits early reduces the risk of accumulating points once the concession ends, and it helps you follow the new rhythm naturally rather than under pressure.
Can you sign up for the Making Tax Digital voluntary pilot?
The tax authority operates a voluntary pilot that allows eligible people to test the process before it becomes mandatory. If you are a sole trader or a landlord and want to familiarise yourself in advance, this is a practical route.
You will keep digital records and send periodic summaries just as you would under the full programme, giving you a realistic preview of what to expect. You can help improve the GOV.UK portals by sharing feedback through the channels made available during the pilot.
The pilot is especially useful if you want to test your chosen tools or if your adviser wants to trial the workflow with a small number of cases before the broader rollout. It also helps identify record-keeping gaps that can be resolved well in advance.
To join, visit the online service pages on GOV.UK and follow the enrolment steps. Be aware that not all individuals are currently eligible, and the criteria may change as the programme expands.
Preparing through the pilot is one of the most effective ways to start on solid ground. Those who join this channel get a head start, and participants moving into the full programme later will benefit from the experience gained.
If you are unsure whether you qualify, your adviser can check and handle registration on your behalf.
Making tax digital FAQs on VAT, income tax, and your whole business
Does the programme replace self-assessment? Not entirely. The periodic reports and End of Period Statement are new, but the Final Declaration serves a similar function to the current tax return. You will still need to confirm your total income and liability each year.
During the transition in 2026, some taxpayers will have overlapping obligations under both systems, so pay close attention to the dates that apply to you.
Do I need to use Making Tax Digital if I only have VAT obligations? The VAT and income tax programmes are separate. Being registered for one does not automatically enrol you in the other.
You may need separate tools, or you must confirm that your current platform covers both areas. Speak with your adviser to clarify what applies in your case. Report your self-employment and property income through the correct channel for each obligation.
What if I cannot use digital tools? The tax authority recognises that some individuals face genuine barriers. If you cannot engage digitally due to disability, age, location, or another valid reason, you may need to apply for an exemption. Contact the relevant office to discuss your circumstances.
Webinars and telephone support are also available for those who need extra help during the transition. Each case is reviewed individually, and there is no automatic right to opt out simply because you prefer paper-based methods.
Key points to remember
- Making Tax Digital for Income Tax begins on 6 April 2026 for those with gross earnings above £50,000, with further groups joining from April 2027 and 2028.
- Your gross revenue from trading and rental activities, before deducting costs, determines whether you are within scope.
- You will need to use approved tools to maintain electronic records and to send periodic income summaries throughout the year.
- After your quarterly updates, you complete an End of Period Statement and a Final Declaration to finalise your position for the year.
- The tax authority will not necessarily contact you, so verify your status and prepare in good time.
- Your accountant should already be setting up an Agent Services Account and testing suitable tools ahead of the start date.
- A points-based system applies for late filings, with a grace period during the first year.
- An exemption is available for those who genuinely cannot use digital services, but you must apply directly.
- A voluntary pilot lets you test the process early, and joining it is one of the best ways to prepare.
- If your income is currently below the limit, monitor it regularly, as the ceiling is being lowered and a strong year could bring you into scope.
Frequently asked questions about Making Tax Digital for Income Tax
Why is the way I pay tax changing?
The government is modernising how people report their earnings. The aim is to close what is known as the tax gap, which is the difference between the amount of tax that should be collected and what actually comes in.
By moving to digital record-keeping and regular reporting throughout the year, errors should be reduced and individuals should have a much clearer picture of where they stand at any given point.
Making Tax Digital for Income Tax has been pushed back before. Is it definitely going ahead this time?
Yes, as things stand. The programme was originally announced several years ago and has been postponed more than once.
However, the government has publicly restated its commitment to delivering Making Tax Digital for Income Tax from April 2026, and HMRC is actively enrolling participants through the voluntary testing phase.
All current indications point to the timetable holding firm.
What if I earn money from both self-employment and property?
You will need to maintain separate records for each income source. Your periodic updates to HMRC will cover self-employment and property individually, and the figures will then feed into a single tax return at year end.
If the combined total from both sources exceeds the relevant qualifying income threshold, you fall within scope regardless of how much comes from each one.
GOV.UK: step-by-step guide to Making Tax Digital for Income Tax - how self-employment and property income reporting works in practice
Do limited companies have to use Making Tax Digital for Income Tax?
No. The programme applies to sole traders and landlords, not to limited companies.
That said, if your company is VAT registered, you may already be using Making Tax Digital for VAT, which operates as a separate programme with its own rules and software requirements.
Do partnerships have to use this?
Not yet. Partnerships will be brought into Making Tax Digital for Income Tax at a later date, but for now, partners continue filing through Self Assessment as usual.
The government has said it will set out the timetable for partnerships separately.
If you are a partner in a business and your personal total turnover from self-employment and property income exceeds the qualifying thresholds, you may still have individual obligations under the programme.
In that case, you would report your partnership income through your compatible software before submitting your tax return.
GOV.UK guidance on who must comply and when: Check your eligibility for Making Tax Digital for Income Tax
What happens if I miss a quarterly update or submission deadline?
HMRC is introducing a points-based penalty system designed to be more proportionate than fixed fines. Each time you miss a deadline for a quarterly update or your tax return, you receive one penalty point.
Once you accumulate enough points (the threshold is four points), a financial penalty of £200 is applied.
The number of points you can receive depends on how many submissions you are expected to send each year. For the first year of mandation (2026 to 2027), no penalty points will be applied for late quarterly updates, though penalties for late tax returns and late payment of tax still apply from the outset.
Points can be cleared over time if you maintain a consistent record of filing on time. If you are having difficulty paying on time, contacting HMRC promptly to discuss a payment plan can help you avoid late payment charges.
GOV.UK: HMRC penalty points system for Making Tax Digital for Income Tax - how late filing penalties work under the new regime
GOV.UK: Penalty rules for voluntary Making Tax Digital participants. What happens if self-assessment volunteers miss deadlines?
I already use software to submit my Self Assessment tax return. Can I keep using it?
Possibly, but it depends on whether your current provider supports the new reporting requirements.
You should check with them directly to confirm that the software will work with Making Tax Digital for Income Tax.
Some existing platforms are being updated to handle periodic filings, while others are not.
If your current software does not support the programme, you will need to switch to a package that does. HMRC maintains a searchable tool on GOV.UK where you can find recognised providers:
GOV.UK: Find HMRC-recognised Making Tax Digital software
How to choose Making Tax Digital compatible software — GOV.UK guidance on features and requirements to look for
Can I get an exemption from Making Tax Digital for Income Tax?
You can apply for an exemption if you believe you are digitally excluded, meaning it is not reasonably practicable for you to use compatible software to keep digital records or submit them.
Reasons that may qualify include situations where your age, a disability, a health condition, or your location prevents you from using a computer, tablet, or smartphone.
Membership of a religious society whose beliefs are incompatible with digital communications may also be grounds for exemption.
Each application is assessed individually, and there is no automatic entitlement. Even if you expect to be granted an exemption, it is worth preparing in case the application is not successful.
GOV.UK guide to digital exclusion grounds and how to apply: MTD for Income Tax exemption criteria
Do the quarterly updates really matter, or can I just sort everything out at year end?
HMRC expects you to take reasonable care with your digital records throughout the year.
Your quarterly updates should reflect the actual income and expenses for each period as accurately as possible.
Failing to maintain adequate records could result in a penalty, even if your year-end figures are eventually correct.
The updates are not full tax returns, but they are a formal obligation and should be treated accordingly.
What if I discover that I left something out of a quarterly update after sending it?
If you find an error or missing information in your records after a quarterly update has been submitted, you should correct the records in your software as soon as possible.
The updated figures will be picked up and included when you send your next quarterly update. There is no requirement to resubmit the earlier update.
Where can I build digital skills to get ready for this?
If you are not confident using software or managing records electronically, the National Careers Service offers free training resources, including courses that cover digital record-keeping and foundational computer skills.
You can learn at your own pace and in your own time.
GOV.UK: Free digital skills training from the National Careers Service. Build the foundation skills needed for Making Tax Digital
What if my software is not working properly?
Contact your software provider as soon as possible if you run into issues. Each product works slightly differently, and the provider will be best placed to help you troubleshoot.
If the problem is on HMRC's end, the provider should be able to tell you that too. Do not wait until a deadline is imminent before raising a technical issue.
What about the Construction Industry Scheme?
If you are a contractor registered under CIS, you will still need to send your monthly CIS returns to HMRC as normal.
Some software providers offer packages that handle both CIS reporting and Making Tax Digital filings, so it is worth asking about this when selecting your tools.
If you are a subcontractor, your CIS deductions will simply be included in your quarterly updates once the programme applies to you.
Some software will handle CIS deductions automatically.
GOV.UK overview of CIS for contractors and subcontractors. Construction Industry Scheme explained
How do I sign up for Making Tax Digital for Income Tax?
If you are a sole trader or landlord, you can sign up directly through the HMRC online service.
You will need your Government Gateway login credentials and your Self Assessment details.
If you use an agent, they can sign you up on your behalf through their own Agent Services Account.
Sign up your business for Making Tax Digital for Income Tax. HMRC registration for sole traders and landlords
Sign up a client for Making Tax Digital. Agent registration portal on GOV.UK
Making Tax Digital for Income Tax. Complete GOV.UK guidance collection for sole traders, landlords, and agents