Making tax Digital (MTD)
Making Tax Digital (MTD)
Making Tax Digital (MTD) is the UK Government’s initiative to make it easier for individuals and businesses to keep digital tax records and submit tax information to HMRC.
MTD is being introduced in stages. If you are self-employed or a landlord with qualifying income above the relevant threshold, you may need to use MTD for Income Tax and keep digital records.
The rules are changing from 6 April 2026, so it is important to understand whether MTD applies to you and when you need to get ready.
What is Making Tax Digital?
Making Tax Digital is HMRC’s move towards a more digital tax system.
Instead of keeping your tax records entirely on paper or spreadsheets and submitting information only through an annual tax return, qualifying taxpayers will need to:
- Keep digital records
- Use compatible accounting software
- Send income and expense information to HMRC digitally
- Submit an End of Period Statement
- Submit a final tax return where required
- Keep their digital records up to date
MTD for Income Tax is sometimes referred to as Making Tax Digital for Income Tax Self Assessment (MTD for ITSA).
Who needs to use Making Tax Digital?
MTD for Income Tax is being introduced based on your qualifying income, rather than simply your profit.
The rules are being introduced in stages.
From 6 April 2026
You will need to use MTD for Income Tax if your qualifying income is more than £50,000 for the relevant previous tax year.
From 6 April 2027
The requirement will extend to individuals with qualifying income of more than £30,000.
From 6 April 2028
The requirement will extend to individuals with qualifying income of more than £20,000.
This means more sole traders and landlords will gradually come within the MTD system.
MTD Income Thresholds
Start Date | Qualifying Income Threshold |
6 April 2026 | More than £50,000 |
6 April 2027 | More than £30,000 |
6 April 2028 | More than £20,000 |
What is Qualifying Income?
For MTD for Income Tax, qualifying income can include income from:
- Self-employment
- Property rental businesses
If you have more than one business or property income source, the combined qualifying income may determine whether you are required to join MTD.
Different rules can apply to partnerships and other types of income, so professional advice may be appropriate if your circumstances are more complex.
What Do I Need to Do for MTD?
If MTD for Income Tax applies to you, you will generally need to:
01. Sign Up for MTD
You need to register for MTD for Income Tax with HMRC when you become required to use the system.
You will normally need your:
- National Insurance number
- Government Gateway details
- Business information
- Accounting information
02. Use Compatible Software
You will need to use accounting software that is compatible with MTD.
The software should allow you to:
- Keep digital records
- Connect to HMRC
- Send updates to HMRC
- Submit required information
- Keep your financial information organised
Examples of accounting software may include compatible versions of platforms such as Xero, QuickBooks and other HMRC-compatible products.
The software you choose should be suitable for your business and meet HMRC’s MTD requirements.
03. Keep Digital Records
You must keep the relevant business and financial records digitally.
These can include:
- Sales and income
- Business expenses
- Purchases
- Bank transactions
- Business records
- Property income and expenses, where applicable
Your digital records should contain the information needed to support the figures submitted to HMRC.
What are Quarterly Updates?
Under MTD for Income Tax, qualifying taxpayers will generally need to send quarterly updates to HMRC.
These updates provide HMRC with information about your income and expenses during the relevant period.
The updates are not the same as paying your tax every quarter.
The purpose is to give HMRC a more regular picture of your tax position.
You will still need to complete the required year-end process and calculate your final tax liability.
What are the Quarterly Update Deadlines?
For a standard tax year running from 6 April to 5 April, the quarterly update periods are generally:
Period | Deadline |
6 April – 5 July | 7 August |
6 July – 5 October | 7 November |
6 October – 5 January | 7 February |
6 January – 5 April | 7 May |
The exact reporting arrangements can depend on your accounting period and circumstances.
Do I Still Need to Submit a Tax Return?
MTD does not simply mean that the Self Assessment tax return disappears immediately.
Under MTD for Income Tax, you will still need to complete the required year-end process.
This can include:
- End of Period Statements
- Final declarations
- Reporting other sources of income
- Claiming relevant reliefs
- Providing information required to calculate your final tax liability
The final tax position is then used to determine how much tax you need to pay.
When Do I Have to Pay My Tax?
MTD does not change the basic tax payment deadlines.
For most taxpayers using the standard Self Assessment system, tax is generally due by:
31 January following the end of the tax year
A second payment on account may also be due by:
31 July
depending on your circumstances.
For example, for the 2026/27 tax year, the tax year ends on 5 April 2027 and the main Self Assessment payment deadline is generally 31 January 2028.
Do I Need MTD If I Have a Small Business?
It depends on your qualifying income.
If your qualifying income is below the applicable MTD threshold, you may not currently be required to use MTD for Income Tax.
However, the threshold is reducing over time.
For example, someone who is below the £50,000 threshold for the first phase may still need to prepare for MTD when the threshold falls to £30,000 or £20,000.
It can therefore be useful to start keeping digital records before you are legally required to join.
What If I Have More Than One Business?
If you operate more than one sole-trader business, your qualifying income may need to be considered across your relevant businesses.
For example, if you have:
- Business A generating £35,000
- Business B generating £20,000
your combined qualifying income could be £55,000.
This may mean that you fall within the MTD requirements, depending on the relevant tax year and rules.
If you have multiple businesses or income sources, it is important to check your position carefully.
What If I Am a Landlord?
MTD for Income Tax can also apply to landlords with qualifying property income.
If your qualifying rental income is above the relevant threshold, you may need to:
- Keep digital property records
- Use compatible software
- Send quarterly updates
- Complete the year-end reporting requirements
The rules can apply to individuals with UK property businesses and, in relevant circumstances, foreign property income.
What About Partnerships?
MTD for Income Tax is being introduced gradually.
The rules for partnerships are different from those applying to individual sole traders and landlords, and not every partnership will enter the system at the same time.
If you are a partner in a business partnership, you should check the specific MTD rules that apply to your partnership.
What Happens If I Do Not Follow MTD Rules?
If you are required to use MTD and fail to meet the relevant obligations, HMRC’s points-based penalty system can apply to late submissions.
The penalty system is designed to encourage taxpayers to submit information on time.
Depending on your circumstances, penalties can potentially apply for:
- Late quarterly updates
- Late annual submissions
- Late tax payments
HMRC may also have discretion to waive penalties in appropriate circumstances.
Keeping your records up to date and submitting information on time can help you avoid unnecessary penalties.
Can I Use Excel for MTD?
Simply keeping your records in a spreadsheet does not necessarily mean that you are fully compliant with MTD.
Where digital records are required, the records must meet HMRC’s digital-record requirements.
In some circumstances, spreadsheets can be used as part of a compliant MTD setup, but bridging software may be required to connect the records to HMRC.
For many small businesses, dedicated MTD-compatible accounting software can be a simpler solution.
What Happens If I Use an Accountant?
You can appoint an accountant or tax adviser to help you comply with MTD.
Your accountant can potentially help you with:
- MTD registration
- Choosing compatible software
- Setting up digital bookkeeping
- Recording income and expenses
- Quarterly updates
- End of Period Statements
- Final tax reporting
- Tax calculations
- HMRC correspondence
- Compliance and deadlines
However, you remain responsible for ensuring that the information you provide is accurate.
What Are the Benefits of Making Tax Digital?
MTD is not only about complying with HMRC requirements.
Moving to digital accounting can also help you:
- Keep financial records organised
- Reduce manual data entry
- Monitor business performance
- Track income and expenses
- Identify potential cash-flow problems
- Reduce bookkeeping errors
- Access financial information more quickly
- Make better business decisions
- Prepare for tax payments in advance
For many businesses, moving to digital bookkeeping can make managing finances easier throughout the year.
How Can TX Accountants Help With MTD?
Making Tax Digital can seem complicated, particularly if you have always managed your accounts using paper records or spreadsheets.
At TX Accountants Ltd, we can help you prepare for MTD and make the transition to digital accounting as straightforward as possible.
Our MTD support can include:
- Checking whether MTD applies to you
- Assessing your qualifying income
- Helping you choose suitable accounting software
- Setting up your digital bookkeeping system
- Keeping your records organised
- Preparing and submitting quarterly updates
- Managing year-end reporting
- Reviewing your tax position
- Helping you meet HMRC deadlines
- Providing ongoing accounting and tax support
Whether you are a sole trader, landlord or small business owner, we can help you understand what MTD means for your business and what you need to do next.
Get Ready for Making Tax Digital
The move to MTD is happening in stages, and the number of people affected will increase as the income thresholds fall. If you think you may be affected, don’t wait until the deadline to start preparing. Getting your accounting software and digital records set up early can make the transition much easier.
Contact TX Accountants Ltd at info@txaccountants.co.uk to discuss your MTD requirements and find out how we can help. You can also explore our accounting and tax services or request a free consultation.
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Author...
Farhad Kabir
MSc AFA MIPA FCCA
Partner