What is Making Tax Digital (MTD) for Income Tax
Making Tax Digital is HMRC’s initiative to digitise tax reporting and push for more frequent, accurate submissions. From 6 April 2026, sole traders and landlords with qualifying income thresholds must:
- keep digital records using recognised software, and
- submit quarterly updates of their income and expenses.
This shifts tax reporting from annual to ongoing throughout the year. (gov.uk)
Who is in scope and the rollout timeline
| Phase | Threshold | First Updates Required |
|---|---|---|
| April 2026 | Income (self-employment plus property) over £50,000 in tax year 2024-25 | First quarter update due 7 August 2026, then every quarter after, and full Self Assessment return for that year by 31 Jan 2028. (gov.uk) |
| April 2027 | £30,000 income threshold | corresponding quarterly deadlines and return due by Jan-Feb following year. |
| April 2028 | £20,000 income threshold | as above. |
Changes to penalties and what you can do now
- In the first 12 months after joining MTD: no penalty points for late quarterly updates. Occasional slips will not lead to immediate fines.
- After that, a point-based penalty system is in place, culminating in a £200 penalty only once four points are reached. (gov.uk)
How this interacts with UK compliance obligations like IR35 & Self Assessment
- If you are a contractor at risk of IR35 or an umbrella company arrangement, MTD doesn’t change IR35’s substance—your working practices still matter.
- Self Assessment still required for the whole year; quarterly updates feed into it.
Practical measures to take now
- Choose recognised software that supports quarterly reporting and expense/income categorisation.
- Organise your records like receipts, invoices, bank statements—digitally or with good scanning.
- Plan cashflow: quarterly payments may affect cash management.
- Engage a tax agent or adviser early if unsure about software or deadlines.
Example
A sole trader, Maria, earned £60,000 income from her self-employment and property in 2024-25. She must begin quarterly updates from 6 April 2026. The first Q1 update (income from 6 April – 5 July) is due on 7 August 2026. No penalty if she’s late in that first year—but Mexico afterwards points could result in £200 if 4 accumulated.
Summary checklist
- Verify income threshold in last tax year
- Select suitable software
- Start weekly or monthly tracking of income/expenses
- Understand the penalty system
- Prepare full Self Assessment annually based on quarterly data
Category: Compliance
Author: NomadicTax Research Team