What is Making Tax Digital for Income Tax?

Making Tax Digital for Income Tax is a new way for some sole traders and landlords to keep digital records and report their income and expenses to HMRC.

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Instead of only dealing with your Self Assessment after the tax year has ended, you'll need to keep your records digitally throughout the year and send quarterly updates using MTD compatible software (not supplied by HMRC).

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You'll need to:

✔ keep digital records of your business income and expenses

✔ use compatible accounting software

✔ send quarterly updates to HMRC

✔ finalise and submit your tax return after the end of the tax year

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Quarterly updates does not mean four full tax returns every year.

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More on that below.

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Who needs to use Making Tax Digital?

MTD for Income Tax is being introduced gradually.

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From 6 April 2026

You'll need to use MTD if your qualifying income was over £50,000 in the 2024/25 tax year.

From 6 April 2027

You'll need to use MTD if your qualifying income was over £30,000 in the 2025/26 tax year.

From 6 April 2028

You'll need to use MTD if your qualifying income was over £20,000 in the 2026/27 tax year.

The important words here are qualifying income.

This isn't your profit after expenses.

It's your gross income from self employment and property before expenses.

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What counts towards the MTD income threshold?

Your qualifying income is the total gross income you receive from:

Self-employment + property income before expenses are deducted.

If you have more than one sole trade, or you have both self-employment and property income, these can therefore combine when determining whether you are over the threshold.

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An example

Imagine you're a sole trader and your 2025/26 figures are:

Business turnover: £27,000

Rental income: £8,000

Business expenses: £9,000

Your qualifying income for MTD purposes would broadly be £35,000, not your profit after expenses.

That could mean you need to start using MTD from 6 April 2027.

This is one of the areas we see causing the most confusion, the threshold isn't simply based on your profit.

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Does MTD mean four tax returns a year?

Nope!. Quarterly MTD updates are not four separate tax returns.

You'll send summaries of your digital records to HMRC every three months through compatible software.

After the tax year ends, you'll still need to finalise your tax position and submit your tax return, including any necessary adjustments, allowances, reliefs and other income.

So there is more reporting throughout the year.

But no, you aren't suddenly completing four full Self Assessment tax returns.

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What do I need to do for Making Tax Digital?

If MTD applies to you, you'll need to:

1. Keep digital records

Your business income and expenses need to be recorded digitally.

2. Use compatible software

You'll need software that works with MTD for Income Tax.

We use Xero with our bookkeeping clients, giving us access to the information we need without constantly chasing for bank statements.

They also have access to Hubdoc or Smart Capture where receipts and documents can be uploaded and stored digitally, all via an app.

Less paperwork.

Less chasing.

Less "I definitely put that receipt somewhere safe..."

3. Send quarterly updates

Every three months, summaries of your income and expenses are sent to HMRC using your compatible software.

4. Finalise your tax return

After the end of the tax year, you'll still need to finalise your tax affairs and submit your tax return by the relevant deadline.

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What are the MTD quarterly deadlines?

For those using standard quarterly periods, updates generally need to be submitted by:

7 August

7 November

7 February

7 May

Your exact requirements can depend on your circumstances and accounting period, so don't rely on that video you watched online....

Check what applies to you.

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Do I need an accountant for Making Tax Digital?

No, you don't legally need an accountant or bookkeeper to use Making Tax Digital.

You can manage your own records, software and submissions if you're comfortable doing so.

But if the thought of keeping everything up to date, understanding what you can claim and remembering another four deadlines isn't exactly filling you with joy…

that's where we come in.

We can manage the bookkeeping and MTD process for you so it becomes part of your normal accounting rather than another job sitting permanently on your to-do list.

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Can my accountant submit my MTD updates for me?

Yes. An authorised agent can manage MTD obligations on your behalf.

For our bookkeeping clients, we're already working in the background throughout the year.

Your bank feeds into Xero, receipts can be uploaded through Hubdoc or Smart Capture, we keep your bookkeeping up to date and we're not waiting until January to discover what happened nine months ago.

That's the whole point.

Accounts shouldn't be something you only think about once a year.

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Do I need Xero for Making Tax Digital?

You don't specifically have to use Xero.

You do need compatible software if you're required to use MTD.

We use Xero because it allows us to work collaboratively with our clients and keep records updated throughout the year.

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Can I still use spreadsheets for MTD?

In some circumstances, spreadsheets may form part of an MTD compatible setup when used with appropriate software or bridging arrangements.

But there are digital record keeping requirements to consider.

If your current accounting system is essentially:

spreadsheet + bank statements + receipts in three different places + mild panic

this is a very good time to review it.

What happens if I haven't received a letter from HMRC?

Don't assume you're outside MTD simply because HMRC hasn't contacted you.

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HMRC uses information from your Self Assessment tax returns to identify people who may need to use MTD, but it remains your responsibility to check whether the rules apply to you.

If you're unsure, check your qualifying income or speak to your accountant.

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Are there exemptions from Making Tax Digital?

Yes. There are circumstances where someone may be automatically exempt or can apply to HMRC for an exemption.

For example, HMRC has provisions for people who are digitally excluded.

Exemptions depend on individual circumstances, so we'd recommend checking the latest HMRC guidance rather than assuming one applies.

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When should I get ready for MTD?

Before the tax year in which you're required to start.

Please don't wait until your first quarterly deadline.

If you're going to fall into MTD from April 2027, the ideal time to sort your bookkeeping process and software is now.

That gives you time to:

✔ understand whether MTD applies to you

✔ get your bookkeeping up to date

✔ choose suitable software

✔ set up bank feeds

✔ start using digital receipt capture

✔ iron out any problems

✔ actually get used to the system

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The aim isn't just to tick an HMRC box.

It's to make your accounting easier.

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Making Tax Digital help for small businesses

We're a family run accountancy and bookkeeping practice based in Hornchurch, Essex, supporting sole traders and small businesses across Essex and the UK.

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We help with everything from bookkeeping and Self Assessment to Making Tax Digital, VAT, payroll and limited company accounts.

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And when we manage your bookkeeping, we're not waiting for a carrier pigeon to deliver twelve months of bank statements in January.

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We're working in the background throughout the year.

You run the business. We'll keep the numbers organised.

 

 

 

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Making Tax Digital FAQs

Is the MTD threshold based on turnover or profit?

The MTD qualifying income threshold is based on your gross income before expenses, rather than your taxable profit after expenses.

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I'm a sole trader earning over £30,000. When does MTD start?

If your qualifying income for 2025/26 is over £30,000, you will need to start using Making Tax Digital for Income Tax from 6 April 2027, subject to the eligibility and exemption rules.

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Does rental income count towards the £30,000 MTD threshold?

Property income can form part of your qualifying income for MTD. If you have both self employment and property income, the amounts can therefore combine when assessing the threshold.

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Does employment income count towards the MTD threshold?

The MTD qualifying income test is based on qualifying income from self employment and property, rather than simply adding every source of income you receive.

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Do limited companies need MTD for Income Tax?

MTD for Income Tax is aimed at individuals with qualifying self employment and/or property income. A limited company's Corporation Tax obligations are separate.

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Do I have to submit four tax returns?

No. The quarterly updates are summaries of your digital records. You'll still finalise your tax affairs and submit your tax return after the end of the tax year.

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Can my accountant do MTD for me?

Yes. An authorised agent can help manage your MTD obligations, including submissions.

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Do I need accounting software?

If MTD applies to you, you'll need to use software compatible with Making Tax Digital for Income Tax. (HMRC does not provide the software).

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What if I'm under the MTD threshold?

If your qualifying income is below the threshold that applies to you and you aren't otherwise required to use MTD, you can generally continue with the existing Self Assessment process. You can also choose to join MTD voluntarily in some circumstances.

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Last reviewed: September 2026

The information on this page is general guidance and isn't a substitute for advice based on your individual circumstances. Tax rules and HMRC guidance can change. Check current GOV.UK guidance or speak to a bookkeeper or accountant.