Making Tax Digital
Making Tax Digital is HMRC's programme that requires businesses to keep digital records and report to HMRC using compatible software. It has applied to all VAT-registered businesses since April 2022, and it now applies to Income Tax for many sole traders and landlords.
What is Making Tax Digital?
Under Making Tax Digital (MTD), you keep your business records in software and send information to HMRC from that software. The aim is to have fewer errors and to give you a clearer view of your tax position during the year, not just after it ends.
There are two MTD regimes in force today:
- MTD for VAT applies to all VAT-registered businesses.
- MTD for Income Tax applies to sole traders and landlords whose income from self-employment and property is over a set threshold. It started on 6 April 2026, and more people will join in 2027 and 2028.
MTD for Income Tax is not a new tax. It does not change how you pay tax or when payments are due, including the 31 January balancing payment and any payments on account.
Who does Making Tax Digital affect?
VAT-registered businesses
Since 1 April 2022, every VAT-registered business has had to keep digital VAT records and file VAT Returns through compatible software, whatever its turnover. HMRC now signs up new VAT registrations to MTD automatically unless the business is exempt or has applied for an exemption.
You must register for VAT if your taxable turnover for the last 12 months goes over £90,000, or if you expect it to go over £90,000 in the next 30 days. The deregistration limit is £88,000.
Sole traders and landlords
You need to use MTD for Income Tax if all of the following 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 above the threshold for the relevant year
Qualifying income is your total self-employment and property income before expenses (your turnover, not your profit). HMRC works it out from the tax return you filed for an earlier year. For example, £25,000 of rent plus £27,000 of self-employment income makes £52,000 of qualifying income.
The following do not count towards qualifying income: employment income, your share of profit from a partnership, dividends (including from your own company), and the State Pension or private pensions.
Jointly owned property: only your share of the income counts. If a let property brings in £50,000 and you own half, your share is £25,000. In your quarterly updates you can report income only for jointly let properties, and add the expenses after the end of the tax year.
Partnerships and limited companies
- Partnerships do not need to use MTD for Income Tax yet. HMRC has said it will set out a timeline later, and no date has been announced.
- Limited companies: HMRC's Transformation Roadmap (July 2025) states that HMRC does not intend to introduce MTD for Corporation Tax. It will modernise Corporation Tax systems in other ways instead. Directors who also have sole trader or rental income may still fall within MTD for Income Tax in their own right.
When does MTD for Income Tax apply to me?
| Qualifying income over | Measured in tax year | You must use MTD for Income Tax from |
|---|---|---|
| £50,000 | 2024 to 2025 | 6 April 2026 (already in force) |
| £30,000 | 2025 to 2026 | 6 April 2027 |
| £20,000 | 2026 to 2027 | 6 April 2028 |
If your qualifying income is £20,000 or less, you are exempt. These thresholds are set in law.
Checked on 12 October 2026.
HMRC writes to people it expects to be affected. A letter is not required for the rules to apply. If your income is over the threshold, it is your responsibility to sign up. From September 2026, HMRC began signing up people who should have joined from April 2026 but had not done so.
Quarterly update deadlines
Once you are in MTD for Income Tax, you send a quarterly update for each self-employment and property business. A quarterly update is a summary of your income and expenses, not a tax return.
| Update period (standard, tax year basis) | Deadline |
|---|---|
| 6 April to 5 July | 7 August |
| 6 April to 5 October | 7 November |
| 6 April to 5 January | 7 February |
| 6 April to 5 April | 7 May |
If your accounts run from 1 April to 31 March, you can choose calendar update periods. The deadlines stay the same.
After the year ends, you use your software to submit your tax return by 31 January. HMRC previously called this the "final declaration".
Penalties
MTD for Income Tax uses a points-based system for late submissions:
- You get one point for each missed deadline. At 4 points you pay a £200 penalty, and another £200 each time you miss a further deadline.
- For 2026 to 2027 only, late quarterly updates do not earn points. A late tax return still does. You must send all quarterly updates before you can submit your tax return.
- Late payment penalties for 2026 to 2027: none if you pay within 15 days. From day 16, the penalty is 3% of the tax owed at day 15. From day 31, it is 3% of the tax owed at day 15 plus 3% of the tax owed at day 30, and a yearly rate of 10% on the amount still unpaid, charged daily until you pay (for up to 2 years). In your first year of the new penalties, HMRC applies no penalty until day 31. For 2027 to 2028, the 3% rates rise to 4%.
- Late payment penalties do not apply to payments on account. If you contact HMRC and agree a payment plan, and keep to it, penalties are paused from the date you contacted HMRC.
- Late payment interest still applies from the first day you are late, at the Bank of England base rate plus 4%.
People who volunteer before they have to join get no penalties for late quarterly updates while they are volunteering, and have a 2-point threshold for late returns.
VAT has its own penalties, kept separate from MTD for Income Tax, for VAT periods starting on or after 1 January 2023. Late VAT Returns earn points: for quarterly returns the threshold is 4 points, then a £200 penalty for each further late return. Late VAT payments attract 3% of the VAT owed at day 15, a further 3% of the VAT owed at day 30, and a yearly rate of 10% charged daily from day 31.
Exemptions
Some people are exempt automatically. Others must apply. They include:
- people with qualifying income of £20,000 or less
- people without a National Insurance number before the start of the tax year
- trustees filing a trust return (SA900), non-resident companies (SA700) and personal representatives of someone who has died. Your own self-employment or property income may still count
- people whose tax return shows they cannot provide information to HMRC because of physical or mental incapacity and who have a power of attorney, or a deputy, controller or guardian, in place
- Lloyd's underwriting members, ministers of religion, and people claiming Married Couple's Allowance or Blind Person's Allowance. HMRC will set a timeline for some of these later
- people who are digitally excluded, for example because age, health or disability prevents them from using a computer, tablet or smartphone, because they cannot get internet access at home or work because of where they are, or because their religious beliefs are incompatible with using digital records. You need to apply for this exemption. Not being familiar with software, or the extra cost and time, is not enough on its own
- some temporary exemptions until at least April 2027, for example for foster and kinship carers (qualifying care relief), people claiming averaging relief, people with income from trusts or estates (SA107), and people who file the SA109 residence pages, including non-resident entertainers and sportspeople
Most of these exemptions are automatic if they showed on your 2024 to 2025 tax return. If they did not, you may need to apply.
If you are exempt, you still file a Self Assessment tax return in the usual way.
What you need to do
- Check your qualifying income for 2024 to 2025, 2025 to 2026 and 2026 to 2027 against the thresholds above.
- Choose compatible software. It must keep your digital records, send quarterly updates and submit your tax return. HMRC does not provide software. It lists recognised products in its software finder and does not recommend any of them. Bridging software that connects to spreadsheets is allowed.
- Keep records digitally, with digital links. For VAT, moving data between programs must be done digitally, for example by linked cells, file import and export, or an API. Copy and paste does not count as a digital link.
- Sign up, or check whether HMRC has signed you up, before the tax year you need to start.
- Send quarterly updates on time, then submit your tax return by 31 January.
- Apply for an exemption if you think you qualify.
How IB&Co Accountants can help
IB&Co Accountants is a UK accountancy and tax practice based in Canary Wharf. We are regulated by the Institute of Financial Accountants (IFA) and the Institute of Public Accountants (IPA), and led by Ishmael Bangura FFA, accountant and qualified tax adviser.
We can help you to:
- work out whether MTD for Income Tax applies to you and from which date
- choose and set up software that suits your business or lettings
- move from spreadsheets or paper records to a setup that meets HMRC's digital record rules
- prepare and send your quarterly updates and tax return as your agent
- keep your VAT records and VAT Returns compliant with MTD for VAT
- apply for an exemption where you are likely to qualify
Partner benefits for our clients. As a QuickBooks and Xero ProAdvisor, we can often arrange MTD-compatible software subscriptions at partner rates and set them up for you. We are also an official partner of Revolut, Starling Bank and Tide, and can help you open a business bank account and connect it to your records from day one.
Book a Discovery Call or request a quote
Every client's situation is different. On a short discovery call, we will look at your income sources, records and deadlines, then suggest the next steps.
- Level 37, 1 Canada Square, Canary Wharf, London E14 5AA
- 020 7164 0225 (+44 20 7164 0225)
- WhatsApp 07915 376468
- hello@ibandco.co.uk for tax enquiries
- info@ibandco.co.uk for everything else
Checked on 12 October 2026. This page is general information based on HMRC guidance and legislation at that date, and is not advice for your circumstances. The rules may change, including at the Budget on 28 October 2026, and some changes can take effect on Budget day.