What is Making Tax Digital for Income Tax?
Making Tax Digital for Income Tax is HMRC's digital reporting system for qualifying sole traders and landlords.
Instead of relying only on an annual set of records immediately before completing Self Assessment, people within MTD need to use compatible software to maintain digital business records and send summaries of income and expenses to HMRC during the tax year.
If you are within MTD for Income Tax, you keep digital self-employment or property records in compatible software, submit quarterly updates and then complete your annual tax return through the software.
Who must use Making Tax Digital in 2026/27?
For the 2026/27 tax year, the first mandatory MTD group consists of qualifying individuals who:
- Are registered for Self Assessment.
- Receive income from self-employment as a sole trader, property, or both.
- Had total qualifying income of more than £50,000 for 2024/25.
- Are not covered by an applicable exemption.
HMRC looks at qualifying gross self-employment and property income before deducting business expenses.
What are the Making Tax Digital income thresholds?
| Qualifying income | Relevant prior tax year | MTD start date |
|---|---|---|
| More than £50,000 | 2024/25 | 6 April 2026 |
| More than £30,000 | 2025/26 | 6 April 2027 |
| More than £20,000 | 2026/27 | 6 April 2028 |
Being under £50,000 now does not necessarily mean MTD will never apply
The mandatory threshold falls to more than £30,000 from April 2027 and more than £20,000 from April 2028, so businesses below the first threshold should continue checking their qualifying income.
What is qualifying income for MTD?
Qualifying income is broadly the total gross income from your self-employment and property businesses before expenses.
If you have more than one relevant source, the amounts are generally combined.
£27,000 self-employment + £25,000 property income
The combined qualifying income is £52,000. For the relevant threshold test, HMRC considers the combined qualifying self-employment and property income rather than testing each source separately.
Which income does not normally count towards the MTD threshold?
HMRC does not include every source of personal income in the qualifying-income calculation.
Examples that do not normally count include:
Employment income
Salary or wages taxed through PAYE do not form part of the qualifying self-employment and property income test.
Pension income
State Pension and private pension income do not count towards the MTD qualifying-income threshold.
Dividend income
Dividends, including dividends from your own company, are not included in this qualifying-income calculation.
Partnership profit share
An individual's share of partnership profit does not currently count as qualifying MTD income for this threshold.
Do you need special software for Making Tax Digital?
Yes. HMRC requires software that is compatible with Making Tax Digital for Income Tax.
HMRC does not itself provide the commercial bookkeeping software. You need software capable of meeting the relevant MTD requirements.
Depending on the product, this might be:
- A bookkeeping or accounting platform.
- Software designed specifically for sole traders.
- A compatible spreadsheet setup used with appropriate bridging software, where the arrangement satisfies the digital requirements.
Being able to create invoices or spreadsheets electronically does not by itself mean a product can submit the required MTD information to HMRC.
What digital records must you keep?
HMRC requires MTD digital records of relevant self-employment and property income and expenses.
For each relevant transaction, the digital record generally needs information including:
- The amount.
- The relevant date.
- The income or expense category.
These digital records form the basis of the quarterly summaries created by the software.
See our Self-Employed Record Keeping Guide for the wider HMRC record-retention rules.
What are MTD quarterly updates?
Quarterly updates are summaries of income and expenses generated from your digital records.
You are providing summary business information during the year. Your final annual tax position is still dealt with through the tax return.
For a sole trader, the quarterly update can contain totals within HMRC's business categories, including areas such as:
- Turnover and other business income.
- Cost of goods.
- Staff costs.
- Vehicle and travel costs.
- Rent, rates, power and insurance.
- Repairs and maintenance.
- Phone and office costs.
- Advertising.
- Finance charges.
- Accountancy and professional fees.
- Other business expenses.
What are the MTD quarterly deadlines for 2026/27?
For someone using HMRC's standard update periods for the first mandatory MTD year, the timetable is:
| Update | Deadline |
|---|---|
| First quarterly update | 7 August 2026 |
| Second quarterly update | 7 November 2026 |
| Third quarterly update | 7 February 2027 |
| Fourth quarterly update | 7 May 2027 |
| Annual tax return & tax payment | 31 January 2028 |
The first MTD quarterly deadline has already passed
The first mandatory update for 2026/27 was due by 7 August 2026. If you were required to use MTD and have not dealt with that update, check your position promptly rather than waiting until the next quarter.
Do quarterly updates replace Self Assessment?
Quarterly updates do not replace the annual tax return. You still need to finalise your tax position and submit the return through compatible software by the applicable 31 January deadline.
At the end of the year you may need to:
- Check and correct business figures.
- Make relevant tax adjustments.
- Claim allowances or reliefs.
- Add other taxable income or gains.
- Review information already held by HMRC.
- Submit the final tax return.
Our Self-Employed Self Assessment Guide explains the wider annual return process.
What if you have more than one business?
Your qualifying income can be based on the combined income from relevant self-employment and property sources.
Once within MTD, HMRC requires quarterly information for each relevant sole-trader business and property business that you have.
Someone with £30,000 from one sole-trader business and £25,000 from property can exceed the threshold even though neither activity exceeds £50,000 by itself.
Can you be exempt from Making Tax Digital?
Yes. HMRC recognises several circumstances where an individual may be exempt.
One important category is digital exclusion. Whether this applies depends on the individual's circumstances rather than simply a preference not to use accounting software.
Some exemptions apply automatically; others require an application to HMRC.
You still have to report taxable income
If HMRC accepts that you are exempt from MTD, you continue to report your income and gains through Self Assessment under the applicable non-MTD process.
Are there penalties for late MTD quarterly updates?
MTD has a points-based late-submission penalty regime, but HMRC has introduced a specific transition for the first mandatory year.
HMRC has said no penalty points will be issued for late quarterly updates during the first year of mandatory MTD for Income Tax.
This does not mean filing and payment deadlines generally can be ignored. Existing consequences can still apply to late annual tax returns and late tax payments.
From the second MTD year onwards, HMRC says missed quarterly deadlines can generate penalty points. Once the applicable threshold is reached, a fixed financial penalty can become due.
How should a self-employed business prepare for MTD?
Check your qualifying income
Review the relevant prior-year Self Assessment return and combine qualifying self-employment and property income.
Choose compatible software
Make sure your bookkeeping system can meet HMRC's MTD for Income Tax requirements.
Keep records digitally
Record relevant income and expenses in the software rather than reconstructing everything at the end of the year.
Track quarterly deadlines
Make the update cycle part of your regular bookkeeping routine so each quarterly summary can be sent on time.
Reviewed & Updated
18 August 2026
2026/27
GO TAX REFUNDS
HM Revenue & Customs / GOV.UK
Making Tax Digital rules are being introduced in stages and can change as HMRC updates the service. Whether MTD applies depends on qualifying income, the type of income received and any relevant exemption.
Making Tax Digital FAQs
Who has to use MTD for Income Tax in 2026/27?
The first mandatory group includes qualifying individuals registered for Self Assessment with self-employment or property income whose qualifying income for 2024/25 was more than £50,000, unless an exemption applies.
Is the £50,000 threshold based on profit?
No. Qualifying income is based broadly on gross self-employment and property income before deducting expenses.
Does PAYE income count towards the MTD threshold?
No. Employment income does not normally form part of the qualifying self-employment and property income calculation for MTD.
Do I need accounting software?
You need software that is compatible with Making Tax Digital for Income Tax and can meet HMRC's digital-record and submission requirements.
Are quarterly updates full tax returns?
No. They are summaries of relevant income and expenses. You still complete an annual tax return.
What are the MTD deadlines for 2026/27?
For standard update periods, the four quarterly deadlines are 7 August 2026, 7 November 2026, 7 February 2027 and 7 May 2027. The annual return and normal tax payment are due by 31 January 2028.
Can I be exempt from MTD?
Yes. HMRC provides exemptions in certain circumstances, including some cases of digital exclusion. Some exemptions are automatic and others must be applied for.
Are partnerships included in MTD in 2026?
The current mandatory rollout applies to qualifying individuals such as sole traders and landlords. HMRC says the timetable for partnerships will be set out later.
HMRC & GOV.UK Sources
This guide is reviewed against current HMRC guidance on Making Tax Digital for Income Tax.
Need help getting ready for MTD?
Go Tax Refunds can help review your qualifying income, bookkeeping process and digital records and support you with your Making Tax Digital obligations.
Making Tax Digital Support