Making Tax Digital, explained.

What is Making Tax Digital and who does it affect?

Making Tax Digital, abbreviated MTD, is HMRC’s programme to replace paper and ad-hoc digital tax records with a single live digital flow between businesses, accountants and HMRC. Sole traders and landlords in scope no longer file one annual Self Assessment. They keep digital records of income and expenses inside MTD-compatible software. They send a quarterly update to HMRC every three months. They finish the year with a Final Declaration. Making Tax Digital for VAT has been mandatory for every VAT-registered business since April 2022. Making Tax Digital for Income Tax begins on 6 April 2026 for the first wave – sole traders and landlords with qualifying income over £50,000.

Qualifying income for Making Tax Digital is gross self-employment income plus gross UK property income, calculated before any expenses or allowances. The threshold steps down each year: above £50,000 from April 2026, above £30,000 from April 2027, and £20,000 or more from April 2028. HMRC tests your qualifying income on the most recent Self Assessment return on file. If you are uncertain, our threshold checker reads the right return and tells you which phase applies. Self-employed people who already use accounting software like Xero, QuickBooks or FreeAgent will mostly see the change in how often submissions go to HMRC; sole traders still on paper records or basic spreadsheets need to use software that HMRC has recognised before their phase starts.

For a single hub covering thresholds, deadlines, quarterly updates, penalty points and exemptions, see our every HMRC MTD change for 2026 guide.

Making Tax Digital timeline at a glance

Three Income Tax phases plus the existing VAT regime cover most of the moving parts. Partnerships and limited companies remain outside MTD for the time being.

• 1 April 2022 – MTD for VAT mandatory for all VAT-registered businesses. There is no further VAT phase planned.
• 6 April 2026 – MTD for Income Tax Phase 1. Sole traders and landlords with qualifying income over £50,000 keep digital records and submit four quarterly updates per year.
• 6 April 2027 – MTD for Income Tax Phase 2. The threshold drops to £30,000.
• 6 April 2028 – MTD for Income Tax Phase 3. The threshold drops to £20,000 or more.
• 2026/27 soft landing. HMRC has confirmed no penalty points for late quarterly updates during the first year of MTD for Income Tax. Late payment penalties still apply.

The three things every sole trader and landlord needs to do

1. Use compatible software. HMRC publishes a list of recognised MTD software. Cloud accounting like Xero, QuickBooks, FreeAgent and Sage cover most needs; bridging software (VitalTax, 123 Sheets) lets you keep using a spreadsheet for under £36 a year. Our software comparison filters by price, income type and features.
2. Keep digital records of income and expenses. The keep digital records rule means transactions go straight into your MTD software at the point of first entry, ideally via a bank feed. You retain those records for at least five years after the relevant 31 January filing date.
3. Send a quarterly update plus a Final Declaration. Four quarterly updates per income source go to HMRC by 7 August, 7 November, 7 February and 7 May. The Final Declaration replacing the annual Self Assessment tax return is due by 31 January following year end.

Making Tax Digital is operationally bigger than any single deadline. Most sole traders and landlords now have five filing events a year, not one. That means picking MTD software, setting up a bank feed, and deciding who handles the submissions. The business owner, the accountant, or both. Get this in place well before April 2026. We have a free guide for each step.

Who is exempt from Making Tax Digital

Making Tax Digital is not universal. HMRC has confirmed permanent MTD exemptions in three cases. People who are digitally excluded by age, disability, or lack of internet access. People without a National Insurance number. Lasting Power of Attorney cases where the donor has lost capacity. Limited companies and general partnerships are also outside scope: HMRC consulted on MTD for Corporation Tax in 2021 but has not set an implementation date, and partnership MTD has been deferred indefinitely. If your only trading or property income comes through a limited company or general partnership, you stay on the existing tax return process for now. Sole traders and landlords below £20,000 in qualifying income remain outside MTD for Income Tax under the published rollout. The rules on dropping below the threshold after registration are still being finalised by HMRC.