Making Tax Digital for Income Tax: What You Actually Need to Know

I am Api, a Chartered Certified Accountant helping sole traders, limited companies, and small business owners across the UK navigate tax with confidence. This one is important, so let's break it down properly.

Have you heard about Making Tax Digital and wondered whether it applies to you?

If you are a sole trader, landlord, or you have self-employment income alongside other earnings, this is for you. MTD for Income Tax Self Assessment (MTD for ITSA) is a significant change to how HMRC collects tax information — and it is already rolling out.

What Is MTD for Income Tax?

Making Tax Digital for Income Tax is HMRC's shift away from the annual self-assessment tax return to a more regular, digital reporting system.

Instead of submitting one return per year, you will need to:

• Keep digital records of your income and expenses throughout the year
• Use HMRC-recognised software (such as Xero) to do so
• Send quarterly summaries of that information directly to HMRC

It is not optional. Once you meet the threshold, you are in.

Does It Apply to Me?

The rollout is based on your gross self-employment and/or property income:

• From April 2026 — if your gross income exceeds £50,000
• From April 2027 — if your gross income exceeds £30,000
• From April 2028 — if your gross income exceeds £20,000

These thresholds apply to total qualifying income from self-employment and property combined. If you have both, they are added together.

The Word "Gross" Matters

This is one of the most common points of confusion I see. The £50,000 (and future £30,000 and £20,000) threshold is based on your gross income — that is your total turnover before any expenses are deducted.

It is not your profit. If your business brings in £55,000 but your costs bring your profit down to £20,000, you still meet the threshold.

Quarterly Deadlines

Under MTD for ITSA, the tax year is split into four quarters. Each quarter has a submission deadline:

These are the standard period dates. If you opt to use calendar quarter periods (more on that below), the dates shift slightly.

What If I Have No Income in a Quarter?

You still need to submit. If there is nothing to report, you submit a nil return. HMRC wants to see activity — or the absence of it — every quarter.

One important note for the 2026/27 tax year: HMRC has confirmed a soft landing period, which means no penalties will be charged for late quarterly submissions during that first year. But the obligation to submit still exists, and it is better to get into good habits from the start.

What If I Have Multiple Income Sources?

If you have more than one self-employment business, you need to submit separate quarterly updates for each. The same applies if you have both self-employment income and property income — those are treated as separate income sources and reported separately.

Choosing Your Reporting Periods

You have two options:

• Standard tax year periods — aligned to 6 April to 5 April (or the 5th of the relevant month)
• Calendar quarter periods — aligned to 31 March / 30 June / 30 September / 31 December

You make this choice when you sign up for MTD, and you cannot change it mid-year. Think about which aligns better with how you already track your finances before you sign up.

Which Software Do I Need?

You need HMRC-recognised software that is compatible with MTD for ITSA. The main options used by my clients are:

• Xero — my preferred platform, and one I am a certified partner for
• QuickBooks
• FreeAgent

If you are already using one of these, you may be closer to ready than you think. If you are still using spreadsheets or paper records, now is the time to move.

Does the Annual Tax Return Still Happen?

Yes — sort of. The quarterly submissions replace the old annual return, but you still need to submit a final declaration (previously known as the tax return) after the end of each tax year. This is where you confirm the figures, add any other income (such as dividends or employment income), and finalise your tax liability.

Honestly, This Year Is the Easy Year

For 2026/27, HMRC has confirmed a soft landing period. That means even if you miss a quarterly deadline, you will not be penalised. This grace period is specifically designed to give people time to get used to the system.

That said, I would not treat it as a reason to delay. Every quarter you practice submitting, the easier it gets. And if you are not on compatible software yet, getting that sorted now — rather than in a rush next April — will save you a lot of stress.

Your MTD Checklist

Before April 2026, make sure you have:

• Checked whether your gross income meets the threshold
• Signed up (or confirmed you do not yet need to) with HMRC
• Chosen MTD-compatible software
• Set up your chart of accounts and categories in that software
• Understood your quarterly deadlines
• Spoken to your accountant about your reporting period choice

I am here to help. Book a free, no obligation consultation and we can go through exactly what MTD means for your situation, get you set up on Xero if needed, and make sure you are ready before the deadline lands.

Book a free consultation

Api Vimalasri ACCA is a Chartered Certified Accountant and founder of A Danials Limited. This blog is general information only, not personal tax advice — speak to a qualified accountant about your own circumstances.