Contents

What Is Making Tax Digital?

Making Tax Digital (MTD) is HMRC's programme to modernise the UK tax system. The goal is straightforward: replace the annual Self Assessment tax return with quarterly digital updates submitted through compatible software.

Rather than tallying up a full year's income and expenses in January, MTD requires taxpayers to keep digital records and send summary updates to HMRC every three months. At the end of the tax year, you submit a final declaration — effectively replacing the traditional Self Assessment return.

The programme started with MTD for VAT back in 2019, which required VAT-registered businesses to keep digital records and submit VAT returns using compatible software. MTD for Income Tax Self Assessment (MTD for ITSA) is the next phase, and it affects sole traders and landlords directly.

Who Does MTD for Income Tax Affect?

MTD for ITSA applies to individuals who earn income from self-employment or property (or both). However, not everyone is affected at the same time. HMRC is phasing in the requirements based on income thresholds:

  • From April 2026: Sole traders and landlords with annual gross income of £50,000 or more must comply with MTD for ITSA.
  • From April 2027: The threshold drops to £30,000 or more in annual gross income.
  • From April 2028: The threshold is expected to drop further to £20,000 or more, bringing the majority of self-employed taxpayers into MTD.
  • Below £20,000: HMRC has indicated plans to bring all Self Assessment taxpayers into MTD eventually, but no firm date has been set for the lowest earners.

MTD Income Thresholds and Timeline

Here is the full rollout schedule:

Date Who Must Comply Gross Income Threshold
April 2026 Sole traders and landlords £50,000+
April 2027 Sole traders and landlords £30,000+
April 2028 (expected) Sole traders and landlords £20,000+
TBC All Self Assessment taxpayers TBC

Important: The threshold is based on your combined qualifying income from all self-employment and property sources, not from each source individually. If you earn £30,000 from self-employment and £25,000 from rental income, your qualifying income is £55,000 — putting you in the April 2026 group. For more on how the threshold works, see our MTD income threshold guide.

If you are unsure whether MTD applies to you, use our free MTD checker to find out in 30 seconds.

For a complete walkthrough of what this means if you are self-employed, see our guide to Making Tax Digital for sole traders.

It is important to note that the threshold is based on gross income (turnover), not profit. If your total self-employment and property income exceeds the threshold — before deducting any expenses — you are within scope. This includes gig economy workers on platforms like Uber and Deliveroo whose gross platform earnings push them above the threshold.

Partnerships

General partnerships were originally included in the early rollout plans, but HMRC has deferred their inclusion. Partnerships will not need to comply until at least April 2028 at the earliest. Limited companies are not affected by MTD for ITSA — they fall under Corporation Tax, which has its own digital reporting requirements.

What Are Quarterly Updates?

Under MTD for ITSA, each tax year (6 April to 5 April) is divided into four standard quarters:

Quarter Period
Q1 6 April – 5 July
Q2 6 July – 5 October
Q3 6 October – 5 January
Q4 6 January – 5 April

For each quarter, you must submit a summary of your income and expenses to HMRC through MTD-compatible software. You have roughly one month after the end of each quarter to submit.

These quarterly updates are not tax returns — no tax calculation is made at this stage. They simply give HMRC a running picture of your business performance throughout the year. Think of them as digital bookkeeping checkpoints.

If you want to understand the step-by-step process for actually submitting one of these updates, read our guide on how to submit a quarterly update to HMRC.

Final Declaration

After your four quarterly updates, there is one more step:

Final Declaration: This replaces the Self Assessment tax return. You confirm that the figures you submitted during the year are complete and accurate for each source of income, include any additional information — such as personal allowances, Gift Aid donations, student loan repayments, or other adjustments — and submit the declaration. HMRC then calculates your tax liability.

The deadline for the Final Declaration is 31 January following the end of the tax year, the same deadline as the current Self Assessment return.

What Software Do You Need?

HMRC requires that you use MTD-compatible software to keep digital records and submit quarterly updates. You cannot submit updates through the HMRC website — it must be done through approved third-party software.

The software must be able to:

  • Store digital records of income and expenses
  • Submit quarterly updates to HMRC via their API
  • Submit your Final Declaration

There are many options available at different price points. Some are full accounting packages with features you may never need — if you are using FreeAgent and finding it more than you need, see our guide to simpler FreeAgent alternatives. Others, like ClearMTD, are designed specifically for MTD compliance — letting you enter your numbers and submit without unnecessary complexity. HMRC also provides a free basic MTD tool, though it has significant limitations.

If you are comparing options, our guide to the cheapest MTD software in the UK breaks down what is available and what each option costs.

Digital Record Keeping

MTD requires you to keep digital records of all your business transactions. This does not necessarily mean scanning every receipt — it means maintaining a digital log of:

  • All amounts received (income/turnover)
  • All amounts spent (allowable expenses)
  • The date of each transaction
  • The category of each transaction

You can use software to record these directly, or you can maintain records in a spreadsheet — as long as there is a digital link to the software you use for submission. Importantly, you cannot simply type figures into the submission software from paper records. The records themselves must be digital.

What You Need to Do Under MTD

If you are within scope, here is what MTD requires of you in practice:

  1. Keep digital records — all income and expenses must be recorded in MTD-compatible software as they occur. You cannot compile records from paper at year-end.
  2. Submit four quarterly updates — at the end of each quarter, submit a summary of your income and expenses to HMRC through your software. Each update is due roughly one month after the quarter ends. See the full MTD deadlines for 2026/27.
  3. Submit a Final Declaration — after the tax year ends, confirm your total income and tax position. This replaces the Self Assessment tax return.
  4. Use MTD-compatible software — you cannot submit through the HMRC website. You need third-party software that connects to HMRC's MTD API.

For a step-by-step guide to making your first quarterly submission, see your first MTD quarterly update.

How Is MTD Different from Self Assessment?

If you currently file a Self Assessment tax return, here are the key differences under MTD:

Self Assessment MTD for ITSA
Frequency Once a year Four quarterly updates + final declaration
Submission method HMRC website or paper MTD-compatible software only
Record keeping Can be paper-based Must be digital
Deadline 31 January Quarterly deadlines + 31 January for final declaration
Tax calculation On submission After final declaration

The overall tax you owe does not change — MTD is about how and when you report, not how much you pay.

How to Prepare for MTD

If your gross income is above £50,000, MTD for ITSA is already in effect from April 2026. Here is what you should do:

  1. Choose compatible software. Look for something that handles quarterly submissions without unnecessary complexity. ClearMTD is built specifically for this purpose.

  2. Start keeping digital records. If you are still using paper records or a basic spreadsheet without a digital link to submission software, now is the time to switch.

  3. Understand your quarters. Know the deadlines and set reminders. Late submissions may result in penalties under HMRC's new points-based penalty regime.

  4. Sign up for MTD with HMRC. You need to register for MTD for ITSA through your Government Gateway account. Your software provider can guide you through this.

  5. Connect your software to HMRC. Most MTD software uses OAuth to securely connect to your HMRC account. This is a one-time setup.

For a full overview of the 2026 rules including key dates and compliance steps, see MTD for Income Tax 2026.

Penalties Under MTD

HMRC has introduced a new points-based penalty system for late submissions and late payments:

  • Late submission: You receive one point for each missed deadline. Once you reach the penalty threshold (currently 4 points for quarterly obligations), you receive a £200 penalty for each subsequent late submission.
  • Late payment: Interest accrues from the due date. If payment is 15 days late, a penalty of 2% of the outstanding amount applies. At 30 days, a further 2% penalty is charged. After 30 days, a daily penalty accrues at 4% per annum.

HMRC has introduced a soft landing for 2026/27 that waives penalty points for late quarterly updates during the first year — but late payment penalties still apply.

Staying on top of quarterly deadlines is therefore important — not just for compliance, but to avoid accumulating penalty points.

Frequently Asked Questions

Do I still need to file a Self Assessment tax return under MTD?

No. The Final Declaration submitted through your MTD software replaces the Self Assessment tax return. However, during the transition period, some taxpayers may need to complete both for the first year if they have other income sources not covered by MTD.

What if my income is below £50,000?

If your gross self-employment and property income is below £50,000 but above £30,000, you will need to comply from April 2027. If it is below £30,000, there is no obligation yet, though you can sign up voluntarily. Voluntary sign-up lets you get familiar with the process before it becomes mandatory.

Can I use a spreadsheet instead of software?

You can use a spreadsheet for record keeping, but it must be digitally linked to MTD-compatible submission software. You cannot submit quarterly updates from a spreadsheet alone — the data must flow digitally into the submission software, which then sends it to HMRC.

What happens if I miss a quarterly deadline?

You receive a late submission penalty point. Points accumulate over a 24-month period. Once you reach the threshold of 4 points, each further late submission triggers a £200 penalty. You can reset your points to zero by submitting on time for a period of 24 months.

Does MTD apply to my PAYE income?

No. MTD for ITSA only applies to self-employment income and property income. If you are employed and your employer deducts tax through PAYE, that income is not affected. However, if you have both PAYE and self-employment income, you still need to report the self-employment portion through MTD if you meet the threshold. See our guide on MTD for second income for more detail.

Getting Started

MTD for ITSA is now a reality for higher-earning sole traders and landlords. The sooner you set up compatible software and establish a routine for digital record keeping, the smoother the transition will be.

ClearMTD is designed to make quarterly submissions simple — enter your income and expenses, connect to HMRC, and submit. No accounting jargon, no bloated features. Just straightforward MTD compliance from £7.50 per month.