Making Tax Digital for Income Tax:
A Practical Guide for Sole Traders
MTD for Income Tax is now live. Find out who needs to use it, what counts as qualifying income, how quarterly updates work and what you need to do to stay compliant.
What is Making Tax Digital for Income Tax?
Making Tax Digital for Income Tax is a new way for sole traders and landlords to manage their Self Assessment obligations. Instead of keeping records separately and reporting everything to HMRC once a year, MTD requires you to keep digital records and use compatible software throughout the tax year.
If MTD applies to you, your software is used to keep your self-employment or property income and expense records, send quarterly updates to HMRC and, after the end of the tax year, submit your tax return.
The important point: MTD does not mean paying tax four times a year. Quarterly updates are summaries of your digital records, they are not separate tax returns.
Who needs to use MTD for Income Tax?
MTD for Income Tax is being introduced gradually. When you need to start depends on your qualifying income from self-employment and property, based on an earlier Self Assessment tax return.
From 6 April 2026
Based on qualifying income reported for the 2024/25 tax year.
From 6 April 2027
Based on qualifying income reported for the 2025/26 tax year.
From 6 April 2028
Based on qualifying income reported for the 2026/27 tax year.
What does “qualifying income” mean?
Qualifying income is your total gross income from self-employment and property before expenses and tax. If you have more than one self-employed business, or you also receive property income, the relevant income is combined when HMRC works out whether you meet the MTD threshold.
Example: £38,000 self-employment income + £14,000 property income = £52,000 qualifying income.
What is not included? Income from employment (PAYE), dividends and pensions does not count towards your MTD qualifying income. The threshold is based on qualifying income from self-employment and property.
Remember, the threshold is based on gross income before expenses, not your profit.
What do you actually need to do under MTD?
If MTD for Income Tax applies to you, there are four main parts to the process. The biggest change is that your records need to be kept digitally throughout the year, rather than being brought together only when your annual tax return is due.
Keep digital records
Keep digital records of your self-employment or property income and expenses using compatible software.
Use MTD-compatible software
Your digital records and quarterly updates need to be managed through software that works with Making Tax Digital for Income Tax.
Send quarterly updates
Send summaries of your income and expenses to HMRC every three months through your software. These updates are not separate tax returns.
Submit your tax return
After the end of the tax year, you still need to finalise your income and expenses and submit your tax return using compatible software.
When are quarterly updates due?
Under MTD for Income Tax, you need to send HMRC a summary of your income and expenses every three months. For most people using the standard quarterly periods, the deadlines fall on the same four dates each year.
Period covered
Deadline
7 August
7 November
7 February
7 May
Good to know: Quarterly updates are cumulative. Each update covers the period from the start of the tax year up to the end of that quarter, so mistakes in an earlier update can be corrected in a later one.
What happens if you miss a quarterly update?
For the 2026/27 tax year, HMRC will not issue penalty points for late quarterly updates. However, you still need to send all of your quarterly updates before you can submit your tax return.
From the 2027/28 tax year onwards, late quarterly updates will fall within the points-based penalty system. You will receive one penalty point for each missed quarterly deadline. If you reach 4 points, you will receive a £200 penalty. Further missed submission deadlines while you remain at the threshold can result in additional £200 penalties.
2026/27 TRANSITION YEAR
No penalty points for late quarterly updates, but the updates still need to be submitted before your tax return can be filed.
Can I still use spreadsheets for MTD?
Yes! Using a spreadsheet does not automatically mean you cannot comply with MTD for Income Tax. However, a spreadsheet on its own cannot send the required information to HMRC.
Your digital records need to be connected to MTD-compatible software that can submit the required updates and tax return information to HMRC. Depending on the software you use, this may be done through accounting software or compatible bridging software.
In practice: If you currently keep your records in Excel, you may not necessarily need to abandon spreadsheets completely. What matters is that your records and the software used to submit information to HMRC meet the MTD requirements and are digitally linked.
Who may be exempt from MTD for Income Tax?
Not everyone who meets the qualifying income threshold will necessarily have to use MTD for Income Tax. Some people are automatically exempt, while others may be able to apply to HMRC for an exemption.
- People who are digitally excluded, for example because of age, disability, location or another reason that makes it unreasonable or impractical to use digital tools;
- Practising members of a religious society or order whose beliefs are incompatible with using electronic communications or keeping electronic records;
- Some people who fall within specific categories that HMRC treats as automatically exempt.
An exemption is not simply a preference not to use accounting software. HMRC considers your individual circumstances when deciding whether digital exclusion applies.
How to prepare for MTD for Income Tax
If MTD applies to you, or you are likely to fall within one of the upcoming thresholds, it is worth getting your record keeping and software organised before your mandatory start date. You do not need to make everything complicated, but you do need a system that works consistently throughout the year.
1. Check when MTD applies to you
Use your qualifying income to establish your mandatory start date. Remember that the thresholds are based on gross qualifying income, not profit.
2. Choose your accounting software
Make sure the software you use is compatible with MTD for Income Tax and can support the way you run your business. Compatible software needs to support digital records, quarterly updates and submission of your tax return. GOV.UK
3. Get your bookkeeping up to date
MTD works much more smoothly when income and expenses are recorded regularly rather than reconstructed months later from bank statements and receipts.
4. Separate business and personal transactions where possible
A separate business bank account is not an MTD requirement for a sole trader, but keeping transactions organised can make digital bookkeeping considerably easier.
5. Start keeping digital records consistently
Your MTD records need to include information such as the amount, date and relevant income or expense category. HMRC also says supporting documents such as invoices and bank statements still need to be retained as they normally would for Self Assessment. GOV.UK
You do not have to manage MTD alone: An accountant can help you set up the right process, maintain your digital records and deal with the required submissions to HMRC on your behalf.
Frequently asked questions
1. Does MTD mean I have to pay tax four times a year?
No. Quarterly updates do not create four separate tax payment deadlines. They are summaries of your digital income and expense records. Your Self Assessment tax return and tax payment deadline remain 31 January following the end of the relevant tax year.
2. Do I still need to submit a Self Assessment tax return?
Yes. MTD does not remove the annual tax return. Once you are within MTD, you use compatible software to finalise your information and submit your tax return to HMRC.
3. Do I need to register for MTD myself?
If you are required to use MTD, you need to be signed up. Your accountant or agent can sign you up on your behalf. For 2026/27, HMRC has also started automatically signing up some people who should be within MTD but have not signed themselves up, based on information HMRC already holds.
4. Can my accountant manage MTD for me?
Yes. An authorised agent can help manage your MTD obligations, including digital records and quarterly updates. You will still need to provide your accountant with your business information and records regularly.
5. What if my income is below £50,000?
The £50,000 threshold applies to the first phase from April 2026. MTD is being extended to qualifying income over £30,000 from 6 April 2027 and over £20,000 from 6 April 2028. So being below £50,000 does not necessarily mean MTD will not apply to you in the future.
Need help with Making Tax Digital?
Whether MTD already applies to you or you are preparing for an upcoming threshold, I can help you get the right system in place and manage the ongoing requirements without making the process more complicated than it needs to be.
Space Accounting offers MTD support for sole traders, including digital record keeping, quarterly updates and Self Assessment support.
Last updated: September 2026
