Making Tax Digital for Income Tax: What Sole Traders and Landlords Need to Do

Making Tax Digital for Income Tax (often shortened to MTD for ITSA) is the biggest change to Self Assessment in decades. Instead of one tax return a year built from a shoebox of receipts, sole traders and landlords inside the rules now keep digital records and send HMRC a short update every quarter.

Who has to use Making Tax Digital for Income Tax?

It applies to self-employed people and landlords who file Self Assessment, based on their qualifying income: the combined gross income (turnover, before expenses) from self-employment and property. It's being phased in by threshold. From 6 April 2026 it applies if your qualifying income is over £50,000. From 6 April 2027 the threshold drops to £30,000, and from 6 April 2028 to £20,000. HMRC uses the figures on your earlier tax returns to decide when you're in.

Limited companies aren't included, because they pay Corporation Tax rather than Income Tax. Partnerships are not in the first phases either. If you're digitally excluded, for example because of age, disability or location, you can apply to HMRC for an exemption.

What you have to do under MTD

There are three parts. First, keep your business and property records digitally, in software that works with Making Tax Digital. Second, send a quarterly update to HMRC from that software, summarising your income and expenses for the quarter. Third, submit a final declaration after the tax year ends, by 31 January, which replaces the old Self Assessment return and is where you claim allowances and reliefs.

Under the standard quarters, updates are due by 7 August, 7 November, 7 February and 7 May. The quarterly updates don't change what you pay on their own; your tax is still worked out from the final declaration, with the usual payment dates.

Penalties under the new system

MTD for Income Tax uses a points-based system for late submissions: each missed deadline adds a point, and a financial penalty applies once you reach the threshold. Late payment penalties are separate. The simplest protection is bookkeeping that is up to date every month, so each quarterly update is a few clicks rather than a scramble.

How to get ready

Choose MTD-compatible software (HMRC publishes a list; Xero and QuickBooks are among the widely used options) and connect your bank feeds so transactions arrive automatically. Keep business and personal spending in separate accounts. Set up categories that match how HMRC wants income and expenses reported, and capture receipts as you go rather than at year end.

If you have both self-employment and rental income, remember the threshold uses the two combined. And if you're close to a threshold, plan ahead: once you're in, the quarterly rhythm applies for the whole year.

Where an outsourced bookkeeper helps

The hard part of MTD isn't the submission, it's keeping the records clean every quarter. An outsourced bookkeeper reconciles your accounts monthly, categorises transactions correctly and prepares each quarterly update in your software, so the final declaration holds no surprises. Rules and thresholds can change, so always check GOV.UK for the current position.