Making Tax Digital for Income Tax: the complete guide for sole traders and landlords

Making Tax Digital for Income Tax, often shortened to MTD ITSA, is the biggest change to how self-employed people and landlords report to HMRC in decades. Instead of one annual Self Assessment return, you keep digital records through the year, send a short update every quarter and then finalise your position after the tax year ends.

This guide explains who is affected and when, what you have to do, the dates that matter, and how to prepare. The rules and thresholds can be amended, so always check the current position on GOV.UK. You can also test your own situation with our Making Tax Digital checker.

Who has to follow MTD for Income Tax

MTD applies to sole traders and landlords whose gross qualifying income is above a threshold. Qualifying income is your gross income from self-employment plus your gross income from property, added together and measured before expenses. Employment income, pensions and dividends do not count towards the threshold.

The thresholds phase in over three years:

• From 6 April 2026: qualifying income over £50,000
• From 6 April 2027: qualifying income over £30,000
• From 6 April 2028: qualifying income over £20,000

HMRC measures your income using a tax year before the start date, so if you are close to a threshold you should check your figures against the current guidance. Limited companies are not affected, because they pay Corporation Tax rather than Income Tax. Partnerships are expected to follow later.

Some people can apply for an exemption, for example where it is not reasonable to use digital tools because of age, disability or remote location.

What changes compared with Self Assessment

Under traditional Self Assessment you gather your records after the year ends and file one return by 31 January. Under MTD you:

1. Keep digital records of your income and expenses throughout the year, using compatible software.
2. Send a quarterly update to HMRC summarising income and expenses for each quarter.
3. Send an end of period statement for each business or property, confirming your figures and making any accounting adjustments.
4. File a final declaration by 31 January after the tax year, which replaces the old Self Assessment return and brings in other income such as dividends and savings interest.

The final declaration is where your tax is calculated, so the quarterly updates are a running estimate rather than a bill.

The quarterly deadlines

For the standard quarters, each update is due one month after the quarter ends.

Quarter ends	Update due
5 July	7 August
5 October	7 November
5 January	7 February
5 April	7 May

You can choose calendar quarters instead, which end on 30 June, 30 September, 31 December and 31 March, if that suits your records better. The final declaration is due by 31 January following the end of the tax year.

What records you need to keep

Digital records means keeping information in software rather than on paper or in a spreadsheet that is not linked to HMRC. For each transaction you need the date, the amount and a category that matches HMRC's headings, such as turnover, cost of goods, travel, premises costs or professional fees. You do not have to send HMRC receipts, but you must keep supporting evidence for the standard retention period.

For landlords, property income and expenses are reported separately from trading income, and each property business is a separate source. If you have both self-employment and rental income, you will send updates for each.

The simplest way to meet the rules is to use accounting software with bank feeds, which categorises transactions as they arrive, and to review them every month. That is the routine our monthly bookkeeping service follows, and our dedicated Making Tax Digital bookkeeping service adds the quarterly figures.

Choosing compatible software

HMRC publishes a list of software that connects to its systems. Xero, QuickBooks, FreeAgent and Sage all have compatible products, and there are lower-cost tools aimed at sole traders and landlords. Spreadsheets can still be used, but only with bridging software that links the spreadsheet to HMRC and keeps a digital audit trail. For most people, moving to proper accounting software is simpler and saves time. Our guide to choosing accounting software compares the options.

If you are moving from spreadsheets, a planned software migration keeps your history intact.

How to prepare, step by step

Check whether and when you are in scope. Add up your gross trading and property income and compare it with the thresholds.

Choose your software now. Starting to use it before your MTD start date lets you learn it with no pressure and gives you a clean opening position.

Set up bank feeds and categories. Connect your business bank account and agree categories with your accountant or bookkeeper.

Separate business and personal spending. Mixed accounts create extra work every quarter.

Build a monthly routine. Reconciling once a month makes each quarterly update a ten-minute job rather than a scramble. Use our monthly checklist.

Plan your cash. Quarterly updates do not create payments, but they give you an earlier view of your likely tax bill, which helps you set money aside.

Common mistakes to avoid

• Waiting until the quarter ends to catch up. Late entry means guesswork. Reconcile monthly.
• Mixing property and trading income. They are reported separately.
• Forgetting income from other sources. The final declaration includes everything, so keep records of dividends and interest.
• Ignoring expenses that arrive late. If a supplier invoice relates to an earlier quarter, you can correct it in the next update or at the end of period statement.
• Assuming it will not apply to you. The thresholds fall in 2027 and 2028, so many more people are coming into scope.

How much extra work is it?

If your bookkeeping is already up to date, quarterly updates add roughly an hour per quarter. If your records are currently a once-a-year job, the biggest change is the discipline of keeping them current. For most of our clients the total cost is modest: our MTD bookkeeping adds about an hour a quarter on top of monthly bookkeeping, at £15 an hour.

Penalties and compliance

HMRC has introduced a points-based penalty system for late submissions, so a missed quarterly update gains a point and enough points trigger a financial penalty. Late payment of tax carries interest and further penalties. Penalties and rates are set by HMRC and can change, so check GOV.UK for the current regime.

Frequently asked questions

Does MTD for Income Tax apply to limited companies?

No. Limited companies pay Corporation Tax and are outside MTD for Income Tax. VAT-registered companies already follow MTD for VAT.

What counts as qualifying income for the threshold?

Gross income from self-employment and property, added together before expenses. Employment income, pensions and dividends are not included.

Can I still use a spreadsheet?

Only with compatible bridging software that links to HMRC and preserves a digital audit trail. Most people find accounting software simpler.

Do I still file a Self Assessment return?

Not in the traditional form. You send quarterly updates and then a final declaration, which replaces the annual return for those in MTD.

Can you handle the quarterly updates for me?

Yes. We keep the records, prepare the quarterly figures for your approval and make sure your final declaration figures are ready. See Making Tax Digital bookkeeping or get an instant quote.