MAKING TAX DIGITAL GUIDE

Making Tax Digital for Income Tax: what it means if you are self-employed.

Making Tax Digital changes how sole traders keep records and report to HMRC. It does not change the way you pay tax or when payments are due. This guide covers who has to join, when, and what you need to do each quarter.

Figures for the 2026/27 tax year · Last reviewed 21/10/2026

The short version

If you are a sole trader registered for Self Assessment, Making Tax Digital for Income Tax (MTD) will reach you once your income passes a set level. When it does, three things change:

Your records go digital. You keep your income and expenses in software, not on paper or in a notebook.
You send quarterly updates. Four times a year your software sends HMRC running totals of your income and expenses.
You file your tax return through software. The yearly return is still due by 31 January, but it is sent from compatible software.

HMRC is clear that MTD will not change the way you pay tax or the dates that payments are due. It is a change to record keeping and reporting, not a new tax.

Who has to use it

You need to use MTD for Income Tax if all of these apply:

You are a sole trader or landlord registered for Self Assessment
You have income from self-employment, property, or both
Your qualifying income is over the threshold for the relevant tax year

Partnerships are not included yet. HMRC says they will need to use the service later, but no date has been set.

The thresholds and start dates

MTD is coming in stages. HMRC looks at the qualifying income on one year's tax return to decide whether you must start, and the start date is the 6 April a year after that return's tax year ends.

Over £50,000 on your 2024/25 return: you should have started from 6 April 2026
Over £30,000 on your 2025/26 return: you start from 6 April 2027
Over £20,000 on your 2026/27 return: you start from 6 April 2028

So 2026/27 is the year in which the first group is already reporting quarterly, and it is also the year whose income decides who joins in April 2028. If you passed the £50,000 level and have not signed up, GOV.UK says you can still do so.

If HMRC sees from your return that you are over a threshold, it will write to you. But you are still responsible for checking. A missing letter does not mean you are exempt.

What counts as qualifying income

This is the part that is easy to get wrong. Qualifying income is your total income from self-employment and property before expenses. In other words, it is your turnover, not your profit. If you let property, see Making Tax Digital for landlords.

Some income is left out. According to GOV.UK, the income that does not count includes:

Wages from employment taxed through PAYE
Your share of profit from a partnership as an individual partner
Dividends, including dividends from your own company
The State Pension and private pensions

If you also rent out property, the gross rent is added to your self-employment turnover. If you own a property jointly, only your share counts.

This example is made up to show how the test works. Imagine a self-employed mobile hairdresser. On their 2025/26 tax return, their takings are £26,000 and their expenses are £9,000, so their profit is £17,000. They also rent out a flat they own outright for £6,000 a year.

Their qualifying income is £26,000 plus £6,000, which is £32,000. Profit does not come into it. Because £32,000 is over the £30,000 threshold, they would need to start using MTD from 6 April 2027.

Keeping digital records

Under MTD you keep digital records of your self-employment income and expenses. Each record needs three things:

The amount
The date the income was received or the expense was incurred
A category, which depends on your type of business

HMRC says records should be created as close to the date of the transaction as possible. At the latest, a quarter's records must exist before that quarter's update is due.

You will need to keep these records for at least 5 years after the 31 January filing deadline for the tax year they relate to.

Can you still use a spreadsheet?

Yes, but not on its own. A spreadsheet cannot send anything to HMRC, so it has to be digitally linked to bridging software that can. The link must be digital. Once a record has been sent to HMRC, you must not move it by hand, so retyping figures or copying and pasting them into other software is not allowed. Linked cells, CSV or XML file transfers and API connections are all acceptable ways to link.

Many sole traders may find it simpler to use one bookkeeping product that keeps the records, sends the quarterly updates and files the return.

Quarterly updates and their deadlines

A quarterly update is a summary, not a pile of paperwork. It sends HMRC the totals for each income and expense category. HMRC does not receive your individual receipts or invoices. See MTD quarterly deadlines for 2026/27 for the dates in full.

Each update is cumulative. It covers everything from the start of the tax year to the end of that quarter. The standard periods and deadlines are:

Quarter to 5 July: update due by 7 August
Quarter to 5 October: update due by 7 November
Quarter to 5 January: update due by 7 February
Quarter to 5 April: update due by 7 May

If your accounts run from 1 April to 31 March, you can choose calendar periods instead. These end on 30 June, 30 September, 31 December and 31 March. The deadlines stay the same. You must make that choice before you send your first update of the tax year.

Because the totals build up through the year, a mistake in one update can be corrected in your records and carried into the next one. You do not need to resend the earlier update. The exception is a correction after your fourth update, which means resending that fourth update before you make any tax adjustments.

The tax return at the end of the year

After your fourth quarterly update, you check whether any adjustments are needed and then submit your tax return through your software. The deadline is 31 January after the end of the tax year, as it is now. You can file earlier if you like.

The return is also where you add income HMRC does not pick up automatically, such as savings interest, dividends or a share of partnership profits.

You must still have filed a normal Self Assessment return for the tax year before you start MTD.

Penalties for late updates and returns

MTD uses a points system for late submissions.

2026/27 tax year: HMRC will not give penalty points for late quarterly updates. A late tax return still earns a point.
Later tax years: each late update earns a point. Once you reach 4 points you get a £200 penalty. A late tax return also earns a point.

Late payment of tax is treated separately. If you do not pay your Self Assessment bill on time, you will get a late payment penalty, whether or not you use MTD.

A grace year is not a reason to wait. The 2026/27 rules give time to get used to quarterly updates. But the habits you build this year carry into the years when every late update counts.

Exemptions

Some people are exempt. Some exemptions apply automatically. If you are not automatically exempt, you need to apply to HMRC. One of these is for people who are digitally excluded, meaning they cannot practically use software to keep records or file. That exemption may be permanent, depending on circumstances.

To apply, you contact HMRC's Self Assessment general enquiries by phone or in writing. You explain how you file now, including any help you get, and why you think you should be exempt. HMRC aims to reply within 28 calendar days. If you are refused, you can appeal within 30 days of the decision letter.

Being exempt from MTD does not mean you stop filing. You still report your income and gains on a Self Assessment return.

How to get ready

Check your turnover, not your profit. Add up gross self-employment and property income from your latest return.
Use the GOV.UK checker. It tells you whether you need to join, when, and whether you may be exempt.
Pick your software early. Choose a product that keeps records and files to HMRC, or a spreadsheet with linked bridging software.
Separate business and personal spending. A dedicated business bank account makes categorising far easier.
Record as you go. Little and often beats a rush in the week before each deadline.
Put the four deadlines in your diary. 7 August, 7 November, 7 February and 7 May.

When you are ready, our guide explains how to sign up for MTD with HMRC.

Why up-to-date books make MTD easier

MTD rewards people whose records are always current. If every bank line is matched to a receipt and given the right category as it happens, each quarterly update is a quick check of figures that already exist.

That is what daily bookkeeping does. Your software is kept up to date every working day, missing receipts and invoices are chased while they are easy to find, and you get a clear monthly picture of how the business is doing.