Making Tax Digital for Income Tax: Who Must Join, When, and How to Prepare

Making Tax Digital for Income Tax (often shortened to MTD ITSA) replaces the annual Self Assessment return with digital record keeping, four quarterly updates sent through software, and a final declaration. It started on 6 April 2026 for sole traders and landlords with qualifying income over £50,000, extends to those over £30,000 from April 2027 and to those over £20,000 from April 2028. If you are in scope, the first quarterly update for 2026/27 was due by 7 August 2026. This guide explains the rules, the deadlines and what to do if you are not yet set up.

What Making Tax Digital for Income Tax is

MTD is HMRC's programme to move tax reporting into software. VAT went first, in 2019 and 2022. Income Tax is the second phase. Under it, you keep your business and property records digitally, your software sends HMRC a summary of income and expenses every quarter, and after the year end you confirm the final figures and add anything else, such as employment income or dividends, in a final declaration. The amount of tax you pay does not change; the timing of what HMRC sees does.

Who has to join and when

• From 6 April 2026: qualifying income over £50,000.
• From 6 April 2027: qualifying income over £30,000.
• From 6 April 2028: qualifying income over £20,000.

HMRC looks at the tax return for the year two years before. For the April 2026 start, that is your 2024/25 return, filed by 31 January 2026. If it showed more than £50,000 of gross self-employment and property income, you are in from April 2026 and HMRC will have written to you. Partnerships and anyone below £20,000 are not yet in, and limited companies are outside this phase entirely. You can join voluntarily below the thresholds.

What counts as qualifying income

Gross income, before expenses, from self-employment and from UK and overseas property, added together. A landlord with £35,000 of rent and a sole trader with £20,000 of sales has £55,000 of qualifying income and is in scope from 2026. Employment income, pensions, dividends and interest are not counted for the test, although they are still reported in the final declaration. Income from a jointly owned property counts according to your share.

What you have to do each year

1. Keep digital records of every business and property transaction in compatible software or a linked spreadsheet.
2. Send four quarterly updates, one per business and one for property, each a simple total of income and expense categories for the quarter. No tax is calculated and no adjustments are needed at this stage.
3. Make a final declaration by 31 January after the tax year, adding accounting adjustments, capital allowances, reliefs and all other income, and confirming the figures are complete.
4. Pay on the same dates as before: 31 January and, for payments on account, 31 July.

Quarterly update deadlines

The standard quarters follow the tax year, with each update due a month and two days after the quarter ends:

• 6 April to 5 July: due 7 August.
• 6 July to 5 October: due 7 November.
• 6 October to 5 January: due 7 February.
• 6 January to 5 April: due 7 May.

You can elect for calendar quarters instead (to 30 June, 30 September, 31 December and 31 March) with the same due dates, which suits businesses that already report monthly. Updates are cumulative, so a mistake in one quarter is simply corrected in the next.

Software you can use

HMRC keeps a list of recognised products. The mainstream cloud packages, Xero, QuickBooks, FreeAgent and Sage, all support MTD for Income Tax, and several low-cost tools exist for landlords with a single property. If you prefer a spreadsheet, you can keep using it provided "bridging" software sends the figures to HMRC digitally; copying numbers by hand into a submission is not allowed. Agents can submit on your behalf through their own software, which is how most of our clients will meet the requirement without touching it themselves. Our guide to Making Tax Digital covers choosing software in more detail.

Penalties under the new system

MTD brings the points-based penalty regime already used for VAT:

• Late submissions: one point per missed deadline. For 2026/27 there are no penalties for missed quarterly updates, though you must still send them before you can file your tax return; a late tax return does earn a point. From 2027/28 each late quarterly update earns a point too. At four points a £200 penalty is charged, plus £200 for each missed deadline after that. To clear the points you need 12 months of on-time submissions and every return due in the previous 24 months sent.
• Late payment: for 2026/27, 3% of the unpaid tax at day 15 and a further 3% at day 30, then 10% a year from day 31, plus interest at base rate plus 4%. In your first year under the new rules there is no penalty at day 15 as long as you pay or agree a payment plan within 30 days. For 2027/28 the rates rise to 4% and 4%.

Late payment penalties do not apply to payments on account, and setting up a payment plan with HMRC before the penalty dates pauses them.

Exemptions

You can apply to be exempt if it is not reasonably practicable for you to use software because of age, disability, remoteness or another reason, if you are a practising member of a religious society whose beliefs are incompatible with electronic communication, or if you are subject to an insolvency procedure. Foster carers and people without a National Insurance number are also outside scope. Applications are made to HMRC in writing or by phone, and existing MTD for VAT exemptions carry across.

How to prepare

• Check your 2024/25 and 2025/26 returns for the qualifying income figure, so you know your start date.
• Open a separate business bank account if you have not already; mixing personal and business transactions is the main source of extra work.
• Choose software and connect the bank feed, so records build up without typing.
• Decide whether you or your accountant will send the quarterly updates, and agree a routine for receipts.
• If you are a landlord with several properties, set the software up to report them as one property business, which is how HMRC treats UK lettings.

What Cloudkeepers can do

We set clients up on Xero or QuickBooks, keep the records through the year under our bookkeeping service, send the quarterly updates from our agent software and prepare the final declaration in place of the old tax return. If HMRC has written to you about joining from April 2026, or you expect to pass the £30,000 threshold in 2027, book a discovery call and we will map out the year.