| MTD for Income Tax 2026 — Key Facts at a Glance | ||
|---|---|---|
| Mandatory from | 6 April 2026 (for income above £50,000) | |
| Who is affected | Sole traders and landlords above the qualifying income threshold | |
| What changes | Annual tax return replaced in practice by 4 quarterly updates + Final Declaration | |
| Digital records | Mandatory — paper records no longer sufficient | |
| Software required | HMRC-compatible accounting or bridging software | |
| Penalty soft landing | No penalty points for late quarterly updates in 2026/27 | |
| Next threshold drop | £30,000 from April 2027; £20,000 from April 2028 | |
Making Tax Digital for Income Tax (MTD for Income Tax) is no longer on the horizon — it is here. From 6 April 2026, the way that many self-employed individuals and landlords report their income to HMRC has changed fundamentally. If you are a sole trader or landlord with gross income above £50,000, you are now legally required to keep digital records and submit quarterly updates to HMRC using compatible software.
This is the most significant change to the UK’s self-assessment system in a generation, and it represents both a challenge and an opportunity. At Michael Filiou Ltd, we have been helping our clients prepare for this transition, and we want to make sure every business owner and landlord we work with fully understands what is required — and what it means for them in practice.
In this guide, we explain what Making Tax Digital for Income Tax means, who is affected and when, what you need to do, and how we can help you comply seamlessly and with minimum disruption.
What is Making Tax Digital for Income Tax? (MTD for ITSA Explained)
Making Tax Digital (MTD) is a long-term government initiative to modernise the UK tax system. The aim is to make tax administration more efficient and accurate by requiring taxpayers to maintain digital financial records and submit data to HMRC more frequently via quarterly updates, rather than through a single annual return.
MTD for VAT has been in force since 2019, and most VAT-registered businesses will already be familiar with the concept of using software to submit returns directly to HMRC. Making Tax Digital for Income Tax — sometimes referred to as MTD for ITSA — extends this principle to the self-assessment system for sole traders and landlords.
The enabling legislation was included in the Finance (No. 2) Act 2017, and updated secondary legislation was laid before Parliament in March 2026. While the broad policy direction has been known for several years, the regime has been through a number of delays and refinements, meaning that the version now coming into force is materially different from the original proposals.
Who Needs to Comply with MTD for Income Tax in 2026?
MTD for Income Tax applies to sole traders and landlords whose qualifying income from self-employment and/or property exceeds a specified threshold. Qualifying income means gross turnover or rental receipts before deducting any expenses, allowances, or tax reliefs. It does not include employment income, dividends, savings interest, or pension income.
The rollout is phased across three years:
| Phase | Start Date | Qualifying Income Threshold |
|---|---|---|
| Phase 1 | 6 April 2026 | Above £50,000 |
| Phase 2 | 6 April 2027 | Above £30,000 |
| Phase 3 | 6 April 2028 | Above £20,000 |
Eligibility for a given tax year is determined by reference to the figures on the previous year’s self-assessment return. For the mandatory April 2026 cohort, HMRC is looking at the gross income figures reported on 2024/25 tax returns. If your qualifying income exceeded £50,000 in 2024/25 and you have an ongoing business or property income in 2026/27, you are in scope from 6 April 2026 unless you qualify for an exemption or deferral.
It is also worth noting that MTD for Income Tax does not currently extend to partnerships, though the government has indicated this will follow in due course with no date yet confirmed.
Important: Qualifying income is assessed on a gross basis. A landlord receiving £52,000 in rental income but incurring significant property expenses is still within scope, even if their taxable profit is well below the threshold.
MTD Quarterly Reporting Requirements — What Does It Require You to Do?
Under MTD for Income Tax, you must do the following:
- Keep digital records of all income and expenses relating to your self-employment or property business.
- Use HMRC-compatible software to store those records and submit quarterly updates.
- Submit four quarterly updates to HMRC each tax year, summarising your income and expenses for each quarter.
- Complete a Final Declaration (which replaces the traditional annual tax return process in practical terms) by 31 January following the end of each tax year.
- Continue to report any non-MTD income (such as savings interest, dividends, or employment income) as part of the Final Declaration.
Not sure whether you fall within MTD for Income Tax? We can assess your position quickly and tell you exactly what you need to do. Contact Michael Filiou Ltd on 01707 665533 or email michael@mfiliou.com.
Quarterly Update Deadlines for 2026/27
For the first year of mandation (the 2026/27 tax year), the quarterly update deadlines are as follows:
| Quarter | Period Covered | Submission Deadline |
|---|---|---|
| Quarter 1 | 6 Apr – 5 Jul 2026 | 7 August 2026 |
| Quarter 2 | 6 Jul – 5 Oct 2026 | 7 November 2026 |
| Quarter 3 | 6 Oct – 5 Jan 2027 | 7 February 2027 |
| Quarter 4 | 6 Jan – 5 Apr 2027 | 7 May 2027 |
| Final Declaration | Full tax year | 31 January 2028 |
If you have multiple businesses or properties, you must submit separate figures for each. Quarterly updates capture a running summary of income and expenditure — they do not constitute a final tax calculation, and no tax is payable after each quarterly submission. The payment deadline remains 31 January, as under the existing self-assessment system.
The Final Declaration
After your fourth quarterly update, you will need to make any year-end adjustments, claim reliefs and allowances, and add any other income sources before submitting your Final Declaration. This replaces the traditional annual tax return process in practical terms, though the underlying Self Assessment legislative framework continues to apply. It is due by 31 January following the end of the tax year — so for the 2026/27 tax year, the Final Declaration deadline is 31 January 2028.
MTD for Income Tax Exemptions and Deferrals
Permanent Exemptions
You may be permanently exempt from MTD for Income Tax if it is not reasonably practicable for you to use compatible software — for example, due to age, disability, remoteness of location, or other circumstances. Applications for a digital exclusion exemption can be made directly to HMRC (from 29 January 2026 onwards) either by phone or in writing. You can apply on your own behalf, or your agent can do so on your behalf. HMRC typically responds within 28 days. Until an exemption has been officially confirmed in writing, you remain legally required to comply with all MTD requirements.
Additional permanent exemptions include individuals who lack legal capacity to act on their own behalf and are managed under a Power of Attorney or Court of Protection deputyship.
Temporary Deferrals to April 2027
Certain taxpayers who would otherwise be required to join MTD from April 2026 have been granted an automatic one-year deferral to April 2027. These include individuals whose 2024/25 self-assessment returns included:
- Trust or estate income reported on the supplementary trust pages
- Entries on the residence and remittance supplementary pages relating to non-residence, split year treatment, dual residence, double tax treaty claims, business investment relief, or nominated income
- Claims for averaging relief for farmers or creative artists
- Non-resident performer income
- Foster care income
Deferrals to Summer 2029
Certain specialist groups benefit from a deferral until at least Summer 2029, including Ministers of Religion, Lloyd’s underwriters, and those who claimed the Married Couple’s Allowance or Blind Person’s Allowance on their 2024/25 return. If these allowances were declared on the return, the deferral applies automatically. If not, a formal application will be required.
Leaving MTD for Income Tax
Once within MTD for Income Tax, it is not straightforward to exit the regime. You can leave only if:
- Your qualifying income falls below the relevant threshold for three consecutive tax years.
- You cease self-employment and/or property letting entirely.
- You joined voluntarily and choose to opt out.
A fall in income below the threshold does not automatically remove you from MTD — you must remain compliant for three consecutive years below the threshold unless all business or letting activity has ceased. If a trade or letting cessation is notified to HMRC, you may still need to file up to the quarter of cessation before being removed from the regime.
Example: If your rental income falls from £55,000 to £45,000 in 2026/27, you remain within MTD for at least two further tax years unless the letting activity ceases entirely.
Simplification Measures Reducing the Reporting Burden
Three-Line Accounts
If your annual turnover from self-employment or property income is below the VAT registration threshold (currently £90,000), you may report using three-line accounts — recording only total income, total expenses, and net profit for each quarter. You must still maintain sufficient underlying records to support claims for reliefs and allowances, but you are not required to categorise expenditure in detail within each quarterly submission.
Joint Property Owners
HMRC has indicated that joint property owners may report income on a simplified basis each quarter, with further detail on expenses provided at the year-end Final Declaration. This provides a useful degree of flexibility for those with multiple jointly held properties, though the approach is still evolving in HMRC practice and guidance. We recommend checking current HMRC guidance before relying on this simplification.
Retailers
Retailers are permitted to report gross daily takings figures rather than recording every individual sale. This mirrors the approach already taken under MTD for VAT.
Cash Basis as the Default
Since 6 April 2024, the cash basis of accounting has been the default for sole traders and landlords within the self-assessment system. This means that for most taxpayers entering MTD, their digital records will reflect money actually received and spent, rather than income earned and expenses incurred. This is generally simpler to administer for smaller businesses, though taxpayers can elect to use the accruals basis if they prefer.
What MTD-Compatible Software Do You Need?
You must use software recognised by HMRC as compatible with MTD for Income Tax. There are two main approaches:
- Full-service MTD software — an all-in-one package (such as Xero, QuickBooks, FreeAgent, or Sage) that records your transactions and submits updates directly to HMRC. HMRC’s preference is for taxpayers to use fully integrated software of this kind.
- Bridging software — used alongside spreadsheets or other bookkeeping tools to transmit quarterly data digitally to HMRC. This is permitted and may suit those already comfortable with spreadsheet-based record-keeping, but it does require maintaining a reliable digital link between your records and the submission software. Simply maintaining a spreadsheet alone is not sufficient — the digital connection to HMRC must exist.
Free software options are available for simpler cases. The choice of software will depend on your preferences, budget, and the complexity of your affairs. We can advise you on the most suitable option and help you set it up correctly.
Common question: Can I use Excel for MTD? Excel or Google Sheets alone are not sufficient — you also need bridging software to create the required digital link to HMRC’s systems. For many clients, moving to a simple cloud bookkeeping package is both more straightforward and more cost-effective in the long run.
Common Pitfalls Under MTD for Income Tax
Our experience working with clients through this transition has highlighted a number of recurring issues to be aware of:
1. Mixing personal and business transactions
MTD requires digital records to relate clearly to business income and expenditure. Where personal and business transactions run through the same bank account, categorising entries correctly becomes difficult and increases the risk of errors in quarterly updates. Where possible, maintain a dedicated business bank account.
2. Not maintaining a digital link
A core MTD requirement is that there must be a continuous digital link between your source records and the data submitted to HMRC. Manually re-keying figures from one spreadsheet into another breaks the digital link and puts you outside the rules, even if the figures themselves are accurate. Bridging software must connect directly to your records.
3. Assuming spreadsheets alone are compliant
As noted above, a spreadsheet is not in itself MTD-compliant software. It is the bridge — the software that transmits the data to HMRC — that makes the system compliant. Many taxpayers have assumed that because they keep detailed digital records in Excel, they are already covered. They are not, without the bridging layer.
4. Missing multiple income streams
If you have more than one self-employment or property business, you must file a separate quarterly update for each. It is easy to overlook a smaller side business or an additional property that crosses the threshold when combined with other income. Each stream must be tracked and reported separately.
5. Failing to account for jointly held property correctly
For landlords who own property jointly with a spouse or partner, the rules on how income is split and reported require care. Each person may have their own MTD obligations depending on their share of the income, and — under current guidance — each is treated as a separate taxpayer for MTD purposes.
6. Leaving sign-up too late
HMRC’s sign-up service for MTD has at times been subject to staggered onboarding and processing delays. Those who delay signing up until immediately before a quarterly deadline may find the process incomplete in time. We strongly recommend not leaving registration to the last moment.
Penalties Under MTD for Income Tax: What Happens If You Miss Deadlines?
MTD for Income Tax uses a points-based penalty system for late submissions. Each missed quarterly update or missed Final Declaration triggers one penalty point. Once a taxpayer accumulates four penalty points within a two-year period, a £200 financial penalty is charged. The points reset once the taxpayer complies with all required submissions for a sustained period.
Recognising that the transition represents a major change, the government has confirmed a soft landing for the first year of mandation. Taxpayers required to join from April 2026 will not receive penalty points for late submission of their first four quarterly updates (the quarterly updates for 2026/27). HMRC still expects compliance, and quarterly updates must be submitted before the Final Declaration can be filed.
The soft landing applies only to the quarterly updates in 2026/27 — not to the Final Declaration. A late Final Declaration for 2026/27 will still attract a penalty point. Late payment penalties and interest also remain fully in force.
For late payment, a penalty of 3% applies to tax outstanding after 15 days, rising by a further 3% if still unpaid after 30 days (6% in total), with a further penalty accruing at 10% per annum on the outstanding balance thereafter. These rules mirror the late payment penalty regime already in force.
How Do You Sign Up for MTD for Income Tax?
If you are mandated from 6 April 2026 and have not yet signed up, you should do so as soon as possible. To sign up, you must:
- Be registered for Self Assessment and have submitted a tax return in the last two years.
- Have a Government Gateway account (the same credentials used for Self Assessment online).
- Have compatible software in place, or have authorised your agent to act on your behalf via their Agent Services Account.
You must still submit your 2025/26 Self Assessment tax return in the usual way before transitioning to MTD, as the 2025/26 return is the basis on which HMRC confirms your eligibility. Note that HMRC has been managing onboarding on a staggered basis; if you encounter delays or technical issues during sign-up, please do not leave the matter unresolved — contact HMRC or ask us to assist.
If you use us as your accountants, we can manage the sign-up process on your behalf through our Agent Services Account.
How Michael Filiou Ltd Can Help You Comply with MTD
At Michael Filiou Ltd, we have been preparing for Making Tax Digital for Income Tax for some time. We have invested in the systems, software, and expertise needed to support our clients through this transition as smoothly as possible.
Whether you need help establishing a compliant digital record-keeping system, selecting the right software, understanding whether you are in scope, or simply want us to manage your quarterly submissions on your behalf, we are here to help. With over 30 years of experience serving clients across Hertfordshire and London, and as an ACCA-regulated firm, we bring both technical expertise and practical, hands-on support to every client relationship.
Our clients know they will never miss a deadline, because we keep track for them.
To speak with one of our team:
- Telephone: 01707 665533
- Mobile: 07831 622711
- Email: michael@mfiliou.com
- Address: Salisbury House, 81 High Street, Potters Bar, Hertfordshire EN6 5AS
Frequently Asked Questions
Do I need MTD if I earn under £50,000?
Not yet. For the 2026/27 tax year, MTD for Income Tax only applies to sole traders and landlords whose qualifying gross income from self-employment and/or property exceeded £50,000 in the 2024/25 tax year. The threshold drops to £30,000 from April 2027 and to £20,000 from April 2028. However, if you are likely to fall within scope in future years, it is worth beginning to prepare now.
Can I use Excel for MTD?
Not on its own. While you may continue to use a spreadsheet such as Excel or Google Sheets to record your transactions, you will also need HMRC-recognised bridging software that creates a digital link between your spreadsheet and HMRC’s systems. Simply keeping records in a spreadsheet and manually entering figures elsewhere does not meet the digital link requirement. For many clients, moving to a straightforward cloud bookkeeping package is easier and more cost-effective.
Do I have to pay tax quarterly under MTD?
No. Quarterly updates under MTD are a reporting requirement — they are a summary of income and expenses for each quarter, not a tax payment trigger. Your tax liability continues to be calculated annually, and payment remains due on 31 January following the end of the tax year, as under the existing self-assessment system. The quarterly updates feed into your Final Declaration, which is the equivalent of the annual tax return.
What happens if I miss a quarterly deadline?
Under the MTD points-based penalty regime, each missed quarterly update earns one penalty point. Four points within a two-year period triggers a £200 financial penalty. However, for the first year of mandation (2026/27), HMRC has confirmed a soft landing: no penalty points will be issued for late quarterly updates during this first year. The soft landing does not apply to the Final Declaration or to late payment.
What if my income drops below £50,000 after I join?
A drop in qualifying income below the threshold does not automatically remove you from MTD. You must remain compliant for three consecutive tax years below the threshold before you can exit the regime, unless your self-employment or property letting activity ceases entirely. If your trade or letting ceases, you should notify HMRC promptly.
Can my accountant handle MTD on my behalf?
Yes. If we are appointed as your agent, we can sign you up for MTD, manage your quarterly updates, and file your Final Declaration on your behalf, using our Agent Services Account. This is the approach we recommend for the majority of our clients — it removes the administrative burden from you entirely and ensures nothing is missed. Please get in touch to discuss how we can help.
Where can I find HMRC’s official guidance on MTD for Income Tax?
HMRC’s full guidance on Making Tax Digital for Income Tax is available on GOV.UK.
Important notice: This article is intended as a general guide to current UK tax legislation and practice as at April 2026. It does not constitute specific tax advice and should not be acted upon without seeking professional advice tailored to your individual circumstances. Tax legislation can change. Michael Filiou Ltd is regulated by the ACCA.