Making Tax Digital for Income Tax: What You Need to Know Right Now

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?
MTD for Income Tax went live on 6 April 2026. Whether you are a sole trader, a landlord, or both, there is a real chance it changes the way you manage your tax going forward. The good news is that once you understand what is actually required, it is much less daunting than it sounds.

What Is Making Tax Digital for Income Tax?

Making Tax Digital (MTD) for Income Tax Self Assessment is HMRC's move to bring the tax system into the digital age. Instead of doing one annual self-assessment tax return, certain taxpayers now need to keep digital records throughout the year and send quarterly updates to HMRC.

Think of it less like filing your tax return four times a year, and more like keeping HMRC informed as you go.

Three things have changed:

1. You must keep digital records of your income and expenses throughout the year. A shoebox of receipts or a paper ledger will not be sufficient on its own.

2. You must use HMRC compatible software to store those records and submit your updates.

3. You must send quarterly summaries directly to HMRC through that software.

One thing that catches people out: these quarterly submissions are summaries of your income and expenses, not your final tax return. Your annual tax return still happens at the end of the year. MTD adds a layer of regular reporting on top of that.

Why it matters: Getting ahead of this now means you are not scrambling later. The businesses that set up good systems in 2026 will find the whole process much smoother from 2027 onwards.

Does This Actually Apply to Me?

Here is the key question, and the answer depends on your income.

• From 6 April 2026, MTD for Income Tax applies to you if your qualifying income exceeded £50,000 in the 2024/25 tax year. Qualifying income means your gross turnover from self-employment plus gross rental income, both counted together if you have both.

• From 6 April 2027, the threshold drops to £30,000.

• From 6 April 2028, it is expected to drop further to £20,000, meaning the majority of self-employed people in the UK will eventually be brought in.
  

Even if you are not in the first wave, understanding the system now puts you well ahead of the curve.

Why it matters: The thresholds are dropping quickly. What does not apply to you today may well apply in 12 months' time.

The Word "Gross" Matters More Than You Think

This is one of the most common points of confusion, so I want to be really clear about it.

The £50,000 threshold is based on your gross income. That means before expenses, before costs, before anything comes off. It is the total figure you would put in the turnover box on your self-assessment return.

Here is a real example. Say you are a contractor. Your turnover is £60,000 but after tools, travel, insurance, and other business costs, your profit is £32,000. You might feel like you are not earning that much. But HMRC looks at the £60,000. You are in, and MTD applies to you from this year.

If you are unsure which figure to check, look at box 9 on the self-employment pages of your 2024/25 tax return. That is your gross turnover.

Why it matters: A lot of people assume they are under the threshold because their profit is low. Always check the gross figure first.

What Are the Quarterly Deadlines?

If you are in the first wave, here are the dates to save right now:

• Q1 covers 6 April to 5 July 2026. Deadline: 7 August 2026

• Q2 covers 6 April to 5 October 2026. Deadline: 7 November 2026

• Q3 covers 6 April to 5 January 2027. Deadline: 7 February 2027

• Q4 covers 6 April to 5 April 2027. Deadline: 7 May 2027

One important thing to understand: each update is cumulative. Q2 does not just cover July to September. It covers April to September, year to date. Your software handles the totalling automatically, but it is useful to know this so the figures make sense when you look at them.

Why it matters: The first deadline of 7 August 2026 is closer than most people realise. Now is the time to get your software sorted.

What If I Have No Income One Quarter?

You still need to file. Even if you had zero income and zero expenses in a quarter, you are required to submit what is called a nil update. Missing a submission, even a blank one, counts against you.

In 2026/27 there is a soft landing period, meaning HMRC will not issue penalties for missed quarterly updates while everyone gets used to the new system. But from 2027/28, a points based penalty system kicks in. Miss enough updates and you will receive a fine.

Why it matters: Use this year to build the habit. Do not let the soft landing period become an excuse to leave everything until next year.

What If I Have More Than One Income Source?

If you have both self-employment income and rental income, you will need to submit separate quarterly updates for each income source. Two income sources means up to eight submissions per year.

This is exactly where having the right software, and the right accountant, makes a real difference. Trying to manage multiple income streams manually while keeping on top of quarterly deadlines is a recipe for stress and mistakes.

Why it matters: If this applies to you, it is worth having a conversation with your accountant sooner rather than later to make sure you have the right setup in place.

Choosing Your Reporting Periods

Before you submit your first quarterly update, you need to decide whether to use standard tax year periods (April to March) or calendar periods (January to December). Most people will go with standard periods because they align with the tax year and keep things straightforward.

The key thing to know is that you cannot change this within the same tax year once you have submitted. Make the decision consciously before that first Q1 deadline, not by accident.

If your business operates on a January to December cycle and calendar periods would suit you better, speak to your accountant before August.

Why it matters: This is a one time decision with no going back for that year. Getting it right from the start avoids unnecessary complications.

Which Software Do I Need?

HMRC maintains a list of compatible software on their website. Options include Xero, QuickBooks, FreeAgent, and several others depending on your situation.

The right choice depends on the size and complexity of your business, what you are already using, and what your accountant works with. If you would like a recommendation based on your specific situation, get in touch and I can point you in the right direction.

Why it matters: Not all software is equal. Choosing something that suits your workflow now will save you a lot of frustration further down the line.

Does My Annual Tax Return Still Happen?

Yes. The annual tax return does not disappear. At the end of the tax year you still complete a final declaration, confirming your figures for the year and calculating the tax due. Think of the quarterly updates as building blocks, and the final declaration as the finished picture.

The difference under MTD is that by the time you reach that final declaration, most of the data is already in place from your quarterly updates. For people with good systems, this should actually make the end of year process less stressful than before.

Honestly, This Year Is the Easy Year

HMRC has confirmed there will be no penalties for missing quarterly update deadlines in 2026/27. It is a transition year while people get comfortable with the new system.

But please do not let that create complacency. The businesses that use 2026/27 to get their software set up, their records in order, and their process running smoothly will find 2027/28 straightforward. The ones who wait will be scrambling.

What Should You Do Next?

Here is a simple checklist to get you started:

1. Check your 2024/25 gross income. Are you over £50,000?

2. Choose HMRC compatible software if you have not already done so.

3. Register for MTD through your HMRC online account, or ask your accountant to handle this for you.

4. Set up your digital records from 6 April 2026 onwards.

5. Decide on your reporting periods before your first submission.

6. Put 7 August 2026 in your diary. That is your first deadline.

Need a Hand?

I am here to help. Book a free, no obligation consultation and let's get you set up for success.

Whether you are trying to work out if MTD applies to you, choosing the right software, or simply want someone to take the whole thing off your plate, I would love to help. I work with sole traders, limited companies, and partnerships across the UK and am always happy to have an initial conversation about where you are at and what you need.

Here is how to get in touch:
Use the contact form below and I will get back to you within one working day.
Or find me on Instagram at @adanialslimited and DM me the word MTD to receive a free checklist to help you get started.

Api Vimalasri ACCA is a Chartered Certified Accountant and founder of A Danials Limited. This blog is for general information purposes only and does not constitute personal financial or tax advice. Please speak to a qualified accountant for advice specific to your circumstances.