The next phase of Making Tax Digital is rapidly approaching for sole traders and landlords who need to report money they get from self-employment and property. The new system, Making Tax Digital for Income Tax (MTD IT for short), will start to replace the existing Self Assessment process from April 2026 for some taxpayers.

What is Making Tax Digital (MTD)?

MTD is a tax administration strategy brought in by the government to make tax more efficient. With this change, individuals and businesses will be required to:

• Keep digital records
• Use MTD-compliant software to submit information every quarter

It’s intended to bring the tax system much closer to real-time, whilst giving you an estimate of your tax bill after each submission. The first stage, MTD VAT, has already rolled out – with all VAT-registered businesses now keeping digital records, as well as using MTD software to send their VAT returns.

What are the advantages of MTD?

One of the main purposes of Making Tax Digital is to help individuals and businesses get their taxes right. Businesses across the UK lose out on millions of pounds because completing confusing tax return forms means there’s a high chance of making mistakes. You can amend your tax return if you need to, but the move to digital record keeping sets out to help you:

• Keep records more accurately, and reduce the risk of errors
• See (and therefore manage) your cash flow more easily
• Monitor how much tax you owe, so you can put the right amount to one side
• Frequently review your financial position, helping you to make more reliable business decisions
• Spot any mistakes more quickly
• Store receipts more easily by snapping a quick photo, so you’re more likely to claim tax relief on any allowable expenses

What is Making Tax Digital for Income Tax?

MTD IT is the forthcoming phase of the Making Tax Digital schedule, which will take over from the current Self Assessment system. To comply, you’ll:

• Create digital records for all your business transactions
• Use special software to send quarterly updates of your business’ income and expenses on a quarterly basis
• Submit a Final Declaration (which replaces the current Self Assessment tax return)

You can find more out about MTD-compatible software and how to submit quarterly updates on the GOV website.

When will MTD IT start?

You’ll need to follow the rules for MTD Income Tax if your qualifying income hits the threshold. Work out the total amount of qualifying income you get as a sole trader and/or from property. If the total amount is more than:

• £50,000 during the 2024/25 tax year – follow the rules from April 2026
• £30,000 during the 2025/26 tax year – follow the MTD IT rules from April 2027
• £20,000 during the 2026/27 tax year – follow the rules from April 2028

What income qualifies for MTD Income Tax?

If you’re both a landlord and a sole trader, the threshold will apply to the income you make from both.

So, if you earn £40,000 from self-employment and £25,000 from property in a single tax year, your total qualifying income is £65,000 and you’ll need to follow the rules for MTD.

Working out your qualifying income for MTD Income Tax

HMRC will use the figures from your previous year’s tax return to assess your qualifying income. For example, to decide if MTD IT applies to you from April 2026, they will use your Self Assessment tax return for 2024/25 (6th April 2024 - 5th April 2025) which you must submit by 31st January 2026. Only the income relating to sole trader activities and property will count towards your qualifying income.

Your Self Assessment tax return might include other sources of income, such as dividends, or Capital Gains, but these won’t be included in the calculation for qualifying income as far as MTD Income Tax is concerned.

If you find yourself below this threshold, you can continue to send Self Assessment tax returns as normal until any other changes are made.

That said, some businesses are already signing up for MTD IT, and you can check if you’re able to volunteer through your software provider.

What about partnerships?

At the moment, there is no confirmed date for partnerships and MTD IT, but it’s expected that they will eventually need to report their finances in this way.

Is anyone exempt from MTD IT?

You can apply for an exemption against using Making Tax Digital for Income Tax if:

• Due to your age, disability, or location, it’s not practical to keep digital records or submit them
• Your beliefs are incompatible with keeping electronic communications or keeping electronic records due to being a practicing member of a religious society

How do I prepare myself for MTD IT?

There are some steps you can take now to help you prepare, such as checking when you need to register, and starting to use accounting software. We go into more detail below.

Check if you need to register

You might not need to register for MTD rules straight away, so it’s well worth taking a moment to figure out if MTD IT applies to you, or is likely to once the registration period rolls around.

Check the total amount of income you receive as a sole trader (adding together the total turnover if you have multiple sole trader businesses) or money you earn as a landlord. If that total exceeds £50,000 then you’ll need to register for MTD from April 2026. The registration threshold reduces to £30,000 from April 2027.

Adjust your accounting periods if you have more than one business

To make submitting your quarterly updates more efficient, ensure your accounting periods align so you can do it all at once. This can be trickier than it sounds, so discuss the best way to do this with your accountant!

Go digital as soon as possible

It’s much better to start now than be bogged down with heaps of admin! Look for cloud accounting software (like our very own Pandle!) that’s fully compliant with Making Tax Digital.

In the meantime, cloud-based software allows you to automate a lot of your bookkeeping processes, so it will make your life easier. If you have an accountant, chat with them about the software they’d recommend and what they’re going to do to help you through this process – you won’t be in this alone!

Check when to send MTD Income Tax updates

You’ll send updates throughout the year, declaring your income and expenses for each update period. The standard update periods follow the tax year (6th April – 5th April) but you can choose to send calendar updates which end on the last day of the month. It’s very important you speak to your accountant if you decide to choose this option!

The deadline to send an update to HMRC is the 7th day of the month after that update period ends. After you submit the first update of the year, each subsequent update will include the new update period as well as everything from the year so far. Sso don’t be alarmed when the dates in the table below look like they don’t follow on from each other!
 

 
The deadline to submit a Self Assessment tax return is several months after the end of the time period it covers – you have much less time with MTD Income Tax reporting!

 
Need an accountant to prep you for Making Tax Digital? We’ve got you covered! Call our expert team on 020 3355 4047 or get an instant quote online.