Making Tax Digital (MTD) for Income Tax is a new way to report income from self-employment and property to HMRC. It will be introduced in phases from April 2026. You will legally have to use MTD for Income Tax from 6 April 2026 if your gross income from these sources totals over £50,000 (before expenses and tax are deducted). You will legally have to use MTD for income tax from 6 April 2027, if your gross income from these sources totals over £30,000.
No, MTD for Income Tax will require sole traders and landlords to send quarterly updates of their self-employment and property income and expenses to HMRC. You will need to have kept up to date digital records using MTD for Income Tax compatible software, the quarterly updates will be simple summaries generated by your MTD for Income Tax software. At the end of the year, you will still need to submit your annual tax return. This will already include information submitted during the year in your quarterly updates.
The government is not changing how payments of tax are collected. HMRC already offers a range of different ways that customers can pay the tax they owe, including payments on account or by setting up weekly or monthly payments via a Budget Payment Plan. The introduction of Making Tax Digital for Income Tax will not change this, and your Income Tax liability will continue to be assessed after the end of the tax year, when you submit your tax return using MTD compatible software. However, estimates of your liability will be available during the tax year.
Additional records are not necessarily needed compared to traditional Self-Assessment, but these records do now need to be kept digitally, using MTD for Income Tax compatible software. The records provided to HMRC will be summaries, not a breakdown of individual transactions. HMRC is working with the software community to ensure software is available at a range of price points. This will include free software for those with the simplest circumstances.
MTD for Income Tax compatible software is provided by an organisation outside of HMRC that works with MTD for Income Tax systems, so that agents and customers can use it to submit quarterly updates to HMRC. You need to use an MTD for Income Tax compatible software product or products that collectively will enable you to:
• create and store digital records of your business income and expenses
• send quarterly updates
• submit your tax return by 31 January after the end of the year
• receive information back from HMRC
When MTD for Income Tax becomes mandatory from April 2026, one penalty point will apply for each missed submission deadline. A financial penalty will only be charged once the points threshold of four points is reached.
Regularly updating records and making full use of software features, including helpful nudges and prompts, will reduce the chance of errors, meaning less time is spent trying to put things right. It will also ensure you have up to date, accurate information to help with business planning.
Sole traders and landlords with a total income from self-employment and property of more than £20,000 will be required to use MTD for Income Tax from a later start date. This will be confirmed by the government at a future fiscal event. Sole traders and landlords with qualifying income below £20,000 will be able to sign up voluntarily so they can benefit from the changes.
HMRC will tell customers how to apply for an exemption from MTD for Income Tax at a later date when the application process opens. This could be because:
• of disability, location or age
• their religious beliefs are incompatible with using software to keep digital records