Making Tax Digital income tax bookkeeping rules are simple to state: keep digital records and send HMRC quarterly updates through compatible software instead of one return a year. They became mandatory on 6 April 2026 for sole traders and landlords with qualifying income above £50,000. The threshold falls to £30,000 in April 2027 and £20,000 in April 2028 (GOV.UK, 2026).
Who has to use Making Tax Digital for Income Tax, and from when?
The rules apply to individuals with income from self-employment, UK property or both. HMRC phases them in by income level, using the Self Assessment return it already holds for the tax year two years before each start date (GOV.UK, 2026).
| Qualifying income on your return for | Above | You must use MTD from |
|---|---|---|
| 2024 to 2025 | £50,000 | 6 April 2026 |
| 2025 to 2026 | £30,000 | 6 April 2027 |
| 2026 to 2027 | £20,000 | 6 April 2028 |
HMRC writes to you to confirm that you need to start (GOV.UK, 2026). You should not wait for the letter to check your own figure, because the letter confirms an obligation that already exists. Limited companies are not in scope yet, and general partnerships are not in this first phase either.
Some people can claim exemption, for example if they are digitally excluded, and HMRC publishes the grounds and the application route (GOV.UK, 2026). Most sole traders will not qualify for an exemption and should plan on the assumption that they are in.
What counts as qualifying income?
Qualifying income is your total income from self-employment and property before expenses, which HMRC describes as turnover (GOV.UK, 2026). It is not profit. A landlord with £52,000 of rent and £20,000 of costs is over the £50,000 line even though the taxable profit is £32,000.
UK property counts, and foreign property counts if you are UK resident. For jointly owned property, your share of the income counts (GOV.UK, 2026). Employment income under PAYE, dividends, the State Pension and private pensions do not count, and neither does a share of partnership profits received as an individual partner (GOV.UK, 2026).
HMRC reads the figure from the return you submitted in the previous tax year. If your accounting period was shorter or longer than 12 months, HMRC annualises it, so a six-month figure is doubled (GOV.UK, 2026). That matters for anyone who started trading part-way through a year.
What does a quarterly update actually contain?
Each update is a set of totals for your income and expense categories, not a list of transactions (GOV.UK, 2026). For a sole trader that means turnover and the expense headings you already use on the self-employment pages. For a landlord it means rent and the property expense headings.
Updates are cumulative. Each one covers from 6 April to the end of the quarter, not just the last three months (GOV.UK, 2026). If you find an error in quarter one, you correct the record and the quarter two update carries the corrected total. Nothing is resubmitted.
The standard quarters and deadlines are fixed. You can elect calendar quarters instead, ending 30 June, 30 September, 31 December and 31 March, with the same deadlines, provided you choose before your first update for that income source (GOV.UK, 2026).
| Update period (standard) | 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 |
After the fourth quarter you finalise the year in the software, add income that sits outside the updates such as employment or dividends, and submit the tax return by 31 January as now. Quarterly updates do not replace the return.
What are the deadlines and penalties?
Late submission runs on points. Each missed quarterly update or late return earns one point, and at four points HMRC charges £200, then £200 for every further late submission (GOV.UK, 2026). Points below the threshold drop off automatically 24 months after the missed deadline (GOV.UK, 2026).
There is an easement for the first year. Quarterly updates for the 2026 to 2027 tax year carry no late-submission penalty, though they still have to be sent before the return. The easement does not cover the 2026 to 2027 return itself, which is due 31 January 2028 (GOV.UK, 2026).
Late payment is separate and is percentage-based. Tax paid 16 to 30 days late attracts 3% of the amount owed at day 15; tax still unpaid after 30 days attracts a further 3% of the amount owed at day 30, plus a 10% annual rate charged daily from day 31 (GOV.UK, 2026). Those rates make an in-year view of the likely bill worth having.
What changes in your bookkeeping day to day?
The record-keeping requirement is the real change, not the submission. Every sale and expense must be captured digitally, with the date, amount and category, close enough to real time that a quarterly total can be produced by the 7th of the following month. The January shoebox stops being a viable method.
In practice that means three habits. Bank feeds connected and categorised weekly, not quarterly. Sales invoices raised in the software, not in a word processor, so turnover is already totalled. Receipts captured by photo or email into the software the week they arrive.
Landlords feel this most, because many have never kept books at all. Rent statements from letting agents, mortgage interest, repairs and service charges all need a category and a date. A landlord with three properties and two mortgages has a small business’s bookkeeping whether or not they think of it that way.
There is a second-order effect for anyone who is VAT registered. Both regimes now run on digital records in the same software, so a VAT return and a quarterly income update can come from one set of books. Our VAT return preparation work already assumes that.
Which software is MTD-compatible?
HMRC maintains a software finder listing products that have passed its recognition process, split between full record-keeping software and bridging software that connects an existing spreadsheet to HMRC (GOV.UK, 2026). Bridging software keeps a spreadsheet legal, but the link between the records and the submission has to be digital, and you still need to keep the underlying records to the same standard.
For most sole traders and landlords, accounting software is simpler. Xero publishes its MTD for Income Tax workflow, with quarterly updates submitted from within the product (Xero, 2026). FreeAgent does the same, with the quarterly update and part of the year-end declaration pre-populated from the records (FreeAgent, 2026). Both are widely used by UK accountants, which matters if your accountant will review the year end.
Choose software your accountant already supports, connect your business bank account, and separate business and personal spending if you have not already. Mixed accounts are the single biggest source of wasted bookkeeping hours under MTD.
What should you do before your start date?
Work through six steps in order. First, check the qualifying income on your last submitted return against the table above, remembering that it is turnover, not profit. Second, choose MTD-compatible software from HMRC’s finder and set it up before the tax year starts, so the first quarter is recorded from day one (GOV.UK, 2026).
Third, connect your business bank account and, if you still mix business and personal spending, open a separate account now. Fourth, decide between standard and calendar quarters and set that choice in the software before the first update for each income source (GOV.UK, 2026).
Fifth, decide who submits: you, your accountant, or a bookkeeper preparing the figures for one of you to review. An agent can be authorised to submit on your behalf. Sixth, put the four update deadlines and 31 January in your calendar with a two-week warning on each.
Landlords who use a letting agent should also ask for monthly statements in a format the software can import, rather than an annual summary that arrives after the fourth deadline has passed.
How does an outsourced bookkeeper fit into MTD?
MTD does not require you to do the bookkeeping yourself. It requires the records to be digital, current and submitted on time. A dedicated bookkeeper working inside your Xero or FreeAgent file can categorise the bank feed weekly, raise and chase invoices, capture receipts and prepare each quarterly update for review.
That is how our UK bookkeeping service is set up: a named bookkeeper, a backup and a team lead, working in your software with a checklist for each quarter and a Two-Tier Review before anything is sent. We prepare the quarterly figures and the year-end workings; you or your accountant review and submit. Sole traders in construction can add CIS payroll and statement support to the same engagement.
Pricing depends on volume and scope, so we send a custom quote within 1 business day. Our UK page sets out which services are available to UK clients and how the data-processing agreement works.
Sources
- GOV.UK, Find out if and when you need to use Making Tax Digital for Income Tax: gov.uk
- GOV.UK, Work out your qualifying income for Making Tax Digital for Income Tax: gov.uk
- GOV.UK, Use Making Tax Digital for Income Tax, send quarterly updates: gov.uk
- GOV.UK, Penalties for Making Tax Digital for Income Tax: gov.uk
- GOV.UK, Find software that’s compatible with Making Tax Digital for Income Tax: gov.uk
- Xero, MTD for Income Tax: deadlines, steps and how to prepare: xero.com
- FreeAgent, Simple software to get MTD for Income Tax done: freeagent.com
Frequently asked questions
Who has to use Making Tax Digital for Income Tax from April 2026?
Sole traders and landlords whose qualifying income was above £50,000 on their 2024 to 2025 Self Assessment return had to start from 6 April 2026 (GOV.UK, 2026). Those above £30,000 on the 2025 to 2026 return start on 6 April 2027, and those above £20,000 on the 2026 to 2027 return start on 6 April 2028. HMRC writes to confirm. Limited companies are not in scope yet.
What counts as qualifying income for MTD?
Qualifying income is your total gross income from self-employment and property before expenses, in other words turnover (GOV.UK, 2026). UK property and, for UK residents, foreign property both count, and your share of jointly owned property income counts. PAYE employment, partnership profits received as an individual partner, dividends and pensions are excluded. HMRC reads the figure from the Self Assessment return you submitted in the previous tax year.
What do I send HMRC each quarter under MTD?
A quarterly update of your income and expense totals by category, from the start of the tax year to the end of that quarter (GOV.UK, 2026). You do not send individual transactions. Because updates are cumulative, a correction to an earlier quarter goes into the next update rather than a resubmission. Standard quarters end 5 July, 5 October, 5 January and 5 April, with each update due on the 7th of the following month.
Do I still file a Self Assessment tax return under MTD?
Yes. The quarterly updates are not tax returns. After the fourth quarter you finalise the year in your software, add any other income such as employment or dividends, and submit the year-end tax return by 31 January as before (GOV.UK, 2026). The updates give HMRC an in-year picture; the return sets the final tax bill.
Can I keep using a spreadsheet under Making Tax Digital?
Only with bridging software that connects the spreadsheet digitally to HMRC, and the link between your records and the submission must be digital rather than retyped (GOV.UK, 2026). For most sole traders and landlords it is simpler to move to MTD-compatible accounting software such as Xero or FreeAgent, which keeps the records, calculates the quarterly totals and submits them from one place. Our UK bookkeeping service works inside either.
What are the penalties for missing an MTD quarterly update?
MTD for Income Tax uses a points system. Each late submission earns a point, and at four points HMRC charges a £200 penalty, then £200 for each further late submission (GOV.UK, 2026). Points expire 24 months after the missed deadline. For the 2026 to 2027 tax year there is no penalty for a late quarterly update, but the year-end return due 31 January 2028 is not covered by that easement.
Sources
- GOV.UK, Find out if and when you need to use Making Tax Digital for Income Tax
- GOV.UK, Work out your qualifying income for Making Tax Digital for Income Tax
- GOV.UK, Use Making Tax Digital for Income Tax: send quarterly updates
- GOV.UK, Penalties for Making Tax Digital for Income Tax
- GOV.UK, Find software that's compatible with Making Tax Digital for Income Tax
- Xero, MTD for Income Tax: deadlines, steps and how to prepare
- FreeAgent, Simple software to get MTD for Income Tax done
