What is Making Tax Digital (MTD) for Income Tax?
From 6 April 2026, the UK has officially rolled out MTD for Income Tax. If you're a sole trader or landlord with combined gross income from self-employment and property exceeding £50,000, you are required to:
- Keep your tax and business records in digital format using software that’s MTD-compatible. (legislation.gov.uk)
- Submit quarterly updates to HMRC during the tax year. (legislation.gov.uk)
- File an end-of-year final declaration, replacing or supplementing the traditional Self Assessment. (legislation.gov.uk)
The regime will be phased in for lower income thresholds in subsequent years:
| From | Threshold |
|---|---|
| April 2027 | £30,000 income |
| April 2028 | £20,000 income |
Who’s exempt (for now)
Some categories permanently or temporarily exempt from MTD include:
- Ministers of religion, Lloyd’s underwriters, individuals with power of attorney (legislation.gov.uk)
- Non-UK resident entertainers or sportspeople (if no other qualifying UK income) (gov.uk)
- Those who are digitally excluded (e.g. unable to access digital tools) also have exemption paths. (legislation.gov.uk)
Examples in Practice
Imagine Sam, a landlord with rental income of £40,000 per year and a small self-employed graphic design side hustle bringing in £15,000. Her income from both sources totals £55,000, pushing her into MTD from April 2026. She must use MTD-compatible software, submit quarterly updates, and file the final declaration.
On the other hand, Alex, whose combined income is £28,000, will be mandated to join MTD in April 2027. Until then, Alex could voluntarily sign up or continue under Self Assessment as before.
Actionable Steps for Compliance
- Audit your income sources now to see if your gross income exceeds £50,000 (next thresholds: £30,000 in 2027; £20,000 in 2028).
- Buy or subscribe to MTD-compatible software that supports digital record keeping and quarterly updates.
- Understand your reporting calendar: decide whether to align updates to standard calendar quarters or tax-year quarters. (legislation.gov.uk)
- Check if you're exempt and document any reason: e.g. power of attorney, entertainment status, digital exclusion.
- Train or assist your accountant/bookkeeper—everyone involved must understand the new workflow.
- Plan cashflow—with quarterly updates, you’ll have visibility through the year, but also responsibility to keep on top of taxes so you’re not caught out at year-end.
Key Risks & Benefits
- Benefits include reduced last-minute cramming, better forecasting, fewer errors, and more consistent business data throughout the year.
- Risks include software costs, potential changes to working practices, penalties for non-compliance (though penalty reform comes alongside MTD). (gov.uk)
Conclusion
If you're in scope already, don’t wait—begin tracking income and expenses in MTD-compatible software. If you're due to be included in future years (2027-28), plan ahead. MTD isn’t just a tax rule; it’s a shift in process. Adapting sooner can mean less stress, more accuracy—and potentially financial advantages.