Making Tax Digital for Income Tax: The Rules That Are Now Live for Sole Traders and Landlords
Making Tax Digital for Income Tax Self Assessment is no longer a future project: from 6 April 2026 sole traders and landlords with qualifying income above £50,000 must keep digital records and file quarterly. This explainer sets out the phased thresholds, what qualifying income actually means, the four-updates-plus-final-declaration rhythm, the software requirement, the penalty regime and the deferrals that still apply.
What Making Tax Digital for Income Tax actually is
Making Tax Digital for Income Tax Self Assessment, usually shortened to MTD for ITSA, is a change to how self-employed people and landlords report income to HMRC. It does not change the tax you owe, the rates that apply or your reliefs. What it changes is the mechanics: instead of pulling numbers together once a year for a Self Assessment return, those within scope must keep their business and property records in digital form, use software that connects to HMRC, send a summary of income and expenses every quarter, and then confirm the full picture in a single year-end submission. It is best understood as a shift from annual reporting to continuous reporting, and from spreadsheets and shoeboxes to a maintained digital record. The obligation sits on the individual taxpayer, not on any business entity, and it runs alongside the existing Self Assessment system rather than sitting on top of it.
Who must comply, when, and who is deferred
The rollout is phased by income. From 6 April 2026 the regime is mandatory for individuals whose qualifying income is above £50,000, so this first cohort is already inside the rules as you read this. From 6 April 2027 the threshold drops to income above £30,000, and from 6 April 2028 it falls again to income of £20,000 or more. HMRC has indicated that £20,000 is the floor for now, with the position of the very smallest traders kept under review rather than pulled straight in. Crucially, HMRC decides whether you are caught by looking at the most recent Self Assessment return you have filed before each start date, so the April 2026 test looks back to the 2024/25 return you filed by 31 January 2026. Partnerships are deferred indefinitely: a partnership itself does not report under MTD, and a partner's share of partnership profit is left out of their personal qualifying income figure. Individuals who are genuinely digitally excluded, for reasons of age, disability, location or religious belief, can apply for exemption, and trusts and estates remain outside the regime for the time being.
Qualifying income: the figure that triggers everything
The single most misread part of this regime is the meaning of qualifying income, because it is not profit. Qualifying income is your combined gross income, before deducting any expenses, from self-employment and from property, taken together across all your trades and all your lettings. A landlord with three flats and a small consultancy sideline adds the rents and the consultancy turnover to test the threshold, and does so on the top-line receipts rather than the profit that remains after mortgage interest, agent fees or business costs. Employment income taxed through PAYE, dividends, bank interest, pension income, partnership profit shares and capital gains are all excluded from the qualifying-income test. As an illustrative example, a landlord with £46,000 of gross rent and £6,000 of freelance receipts has qualifying income of £52,000 and is therefore within the £50,000 phase, even if their taxable profit after costs is modest. The practical warning is that people who think of themselves as low-profit or part-time can still be firmly inside the rules on a gross-receipts basis.
Quarterly updates and the final declaration
Within the regime you send four quarterly updates for each tax year, each one a cumulative summary of income and expenses from your digital records for that business or property source. The standard quarters end on 5 July, 5 October, 5 January and 5 April, with submission deadlines falling on the 7th of the following month, so 7 August, 7 November, 7 February and 7 May; a calendar-quarter election is available if you prefer month-end cut-offs. These updates are estimates in the sense that no accounting adjustments, reliefs or claims need to be finalised at each stage. The year is then closed off by a single final declaration, which replaces the old Self Assessment return and folds in any other income, allowances and adjustments to arrive at the final tax position. The final declaration is due by 31 January following the end of the tax year, unchanged from the current Self Assessment deadline, so for the 2026/27 tax year it falls on 31 January 2028. The intermediate End of Period Statement that featured in earlier drafts of the regime has been removed.
Digital records and compatible software
MTD is a digital-records obligation as much as a filing one. Those within scope must keep their business and property records digitally and use software that is functional and compatible with HMRC's systems, meaning it can both preserve the required records and transmit the quarterly updates and final declaration through HMRC's interface. A plain spreadsheet on its own does not meet the standard, but a spreadsheet linked to HMRC through recognised bridging software can, provided the data flows without manual re-keying that breaks the digital chain. HMRC does not supply the software itself; a market of compatible packages exists, some paid and some offering free or low-cost options aimed at the smallest traders and landlords. The practical point is that the record-keeping method has to be chosen and bedded in before the first quarter begins, because retrofitting a digital trail onto paper records mid-year is where most of the avoidable cost and error arises.
The penalty regime
MTD for ITSA brings a reformed, two-part penalty regime. Late submission is handled through a points-based system: each quarterly update filed late earns one penalty point, and once a quarterly filer accumulates four points a £200 penalty is charged, with a further £200 for every subsequent late submission while at the threshold. Points are not permanent and can be worked off through a period of compliance. Late payment of tax is charged separately on a percentage basis rather than points: a first late-payment penalty of 3% of the tax still outstanding at day 15 applies, with a further 3% of what remains outstanding at day 30, and a second penalty then accrues daily at an annualised rate of 10% from day 31 until the balance is cleared. HMRC has built in first-year easements for those mandated from April 2026: no late-submission points are issued for the quarterly updates of the 2026/27 transitional year, and the usual late-payment grace period is extended so that the first penalty does not begin to bite until payment is more than 30 days overdue. These easements are temporary and do not extend to the final declaration.
I am a sole trader or landlord above the threshold. What should I do now?
If your most recent return shows self-employment and property receipts above £50,000 combined, you are already mandated, so the priority is to establish a compliant digital record and choose compatible software before the current quarter closes rather than at the first deadline. Confirm the gross qualifying-income figure across every trade and every let property, because this is where people either wrongly assume they are out on a profit basis or miss a second small source that tips them over. Decide whether standard or calendar quarters suit your bookkeeping, register or confirm your position through your software or agent, and separate the income that is inside MTD from income such as dividends and employment that is not. If you are near a future threshold, £30,000 for April 2027 or £20,000 for April 2028, treat this as advance notice and move once rather than twice. Anyone who believes they qualify for the digitally excluded exemption should apply rather than simply not filing. This is precisely the kind of rolling regulatory change that rewards continuous review over an annual scramble, which is the discipline we apply across the tax landscape year-round rather than at each deadline.
Does MTD change the tax I pay, and does it affect my limited company?
MTD does not change your tax liability, your payment dates or the reliefs and allowances available to you; it changes the frequency and format of reporting, not the arithmetic of the bill, and your payments on account and balancing payment continue on the existing Self Assessment timetable. If you trade through a limited company, MTD for Income Tax does not apply to the company itself, because company profits are reported through the Corporation Tax system, which is on a separate digital timetable. It can, however, still reach you personally: if alongside the company you have self-employment or personal property income in your own name above the relevant threshold, that personal income is tested for MTD in the ordinary way. Company directors whose only income is salary and dividends from the company have no qualifying income for these purposes and are not brought in by MTD for ITSA, though they remain within Self Assessment where a return is otherwise required.
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This article is general information only and does not constitute tax advice. Figures and dates are current as at the date of writing; any worked example is illustrative. Always consult a qualified adviser before acting.