What is Making Tax Digital (MTD) for Income Tax?
Introduced in April 2026, MTD for Income Tax requires sole traders and landlords with more than £50,000 gross income from self-employment or property to:
- Keep digital records using MTD-compatible software.
- Submit light-touch quarterly updates of income and expenses.
- Continue submitting a traditional Self Assessment tax return by 31 January for the preceding year. (gov.uk)
Key Deadlines
- First quarterly update period runs from 6 April to 5 July 2026, with a deadline of 7 August 2026. (gov.uk)
- Penalties (points system) for missed updates start after the first year; in the first year, HMRC is not issuing penalty points for late quarterly updates. (gov.uk)
What You Need to Do Now
- Sign up for MTD if your income exceeds £50,000 in self-employment or rental property. Actions involve getting the software, registering with HMRC’s digital services. (gov.uk)
- Choose compatible software that can handle income & expenses recording, generate quarterly reports, embrace digital record-keeping practices. HMRC publishes lists of recognised software. (gov.uk)
- Plan ahead your quarterly submissions to avoid errors and ensure data is ready: track income and expenses continuously. Errors should be corrected “as soon as possible” in digital records. (gov.uk)
Common Challenges & How to Work Around Them
| Challenge | Actionable Insight |
|---|---|
| Not having digital records or software yet | Use HMRC guidance and grant-funded help where available; test software and prepare first update early. |
| Complexity of categorising income & expenses | Consult an accountant or use software features categorising receipts and matching expenses. |
| Misunderstanding update vs. tax return obligations | Updates do not replace your Self Assessment; still due by 31 January. |
| Missing a quarterly deadline | In first year, no penalty points; but after that, points accrue and after 4 missed you receive a £200 fixed penalty. |
Practical Example
Jane is a landlord earning £60,000 from property in 2025-26. Under MTD, she keeps digital accounts and records expenses monthly using compatible software. Her first quarterly update (6 April–5 July) must be submitted by 7 August 2026. She still must file a Self Assessment return by 31 January 2027. If Jane misses the 7 August update, in the first year no penalty points are applied—but after the first year they are.
Tips for Compliance
- Start digital record-keeping immediately if you haven’t already.
- Save all receipts & invoices in digital format.
- Use software that allows previewing your tax position mid-year.
- Consider working with a tax adviser to ensure your software setup is correct and to prepare for future obligations.
MTD for Income Tax marks a structural change—getting organised now offers peace of mind, smoother cash flow, and avoidance of last-minute penalties.