What is Making Tax Digital (MTD) for Income Tax?
MTD for Income Tax is HMRC’s legal requirement for sole traders and landlords with qualifying income over £50,000 to keep digital records and submit quarterly updates rather than waiting for the full Self Assessment return. (gov.uk)
Key Deadlines and Obligations
- First quarterly update due: 7 August 2026 (covering income and expenses from 6 April 2026 to 5 July 2026) (gov.uk)
- Tax return deadline remains: 31 January 2027 for the 2025-26 tax year (gov.uk)
- Payments on account: second instalment due by 31 July 2026 for many Self Assessment taxpayers (gov.uk)
What You Need to Do Now
- Confirm you’re in the scope. If you're a sole trader or landlord with gross income (before expenses) above £50,000 – or expect to be – you must comply. (gov.uk)
- Register with compatible software. MTD-approved software is mandatory. Make sure the one you use (or plan to use) is recognised by HMRC. (gov.uk)
- Begin digital records. Already required as part of MTD: keep income, expenses accurately, update records throughout the year. Ensure you correct errors as soon as they appear. (gov.uk)
- Plan cashflow earlier. Quarterly updates provide early visibility into your likely tax liability, but payments still fall due at year end; adjust savings accordingly. Use software forecasts. Example: if your estimated liability after first quarter is £3,000, putting aside £1,000 monthly can help avoid being hit all at once.
- Seek support. HMRC resources, webinars, agent support available. If you're new, act sooner rather than later. There is no penalty for missed quarterly updates in the first year, but late Self Assessment returns or payments will incur penalties. (gov.uk)
Common Pitfalls and How to Avoid Them
| Problem | Solution |
|---|---|
| Using non-approved software or paper methods | Verify software’s certification; don’t delay setup |
| Not keeping up with records during busy periods | Schedule weekly/monthly catch-ups |
| Underestimating the tax due in year | Build regular estimates; adjust payments on account accordingly |
Example Scenario
Sarah is a freelance graphic designer earning £70,000 in 2025-26, with £20,000 expenses. She signs up for MTD-approved software by early July and files her first quarterly update by 7 August, showing net profit of £12,500 after expenses. The system estimates her liability including tax, Class 2/4 NI, and suggests budgeted payments. When the full Self Assessment return is due in January 2027, rather than facing a sudden large bill, she has already made progress towards meeting her obligations.
What happens next?
From April 2027, threshold drops to £30,000, and to £20,000 from April 2028. If your income is close to that, keep an eye on upcoming changes. (gov.uk)