Making Tax Digital for Income Tax changes how many sole traders and landlords maintain records and report information to HMRC.
Instead of preparing all their business figures after the tax year has ended, qualifying taxpayers must keep digital records and send quarterly updates through compatible software. They must also submit their annual tax return through the Making Tax Digital system.
For some people, this process started on 6 April 2026. Others will enter the system in April 2027 or April 2028.
However, not everyone feels ready.
Some taxpayers still use paper records or spreadsheets. Others only organise their income and expenses once a year. Many are unsure whether the rules apply to them at all.
If this sounds familiar, the important thing is to act now. Being unprepared does not automatically mean that the position cannot be corrected. However, waiting will make the transition harder.
Who Must Use Making Tax Digital for Income Tax?
The requirements apply to qualifying individuals with income from self-employment or UK property.
The start dates are being phased in:
| Qualifying income | Relevant income year | MTD start date |
| More than £50,000 | 2024/25 tax year | 6 April 2026 |
| More than £30,000 | 2025/26 tax year | 6 April 2027 |
| More than £20,000 | 2026/27 tax year | 6 April 2028 |
These thresholds refer to qualifying income before expenses, often called gross income or turnover.
For example, suppose a person received:
- £28,000 from self-employment; and
- £25,000 from property.
Their combined qualifying income would be £53,000. Therefore, they may need to use Making Tax Digital even though neither income source exceeds £50,000 on its own.
HMRC uses the relevant Self Assessment tax return to establish qualifying income. Its current guidance confirms that taxpayers with qualifying income over £50,000 for 2024/25 should have started using Making Tax Digital from 6 April 2026.
Income from employment, pensions, dividends or savings does not normally form part of the qualifying-income calculation. However, the taxpayer may still need to report those sources in their annual tax return.
What Does Making Tax Digital Require?
A qualifying taxpayer will generally need to:
- use compatible software;
- create and maintain digital records;
- record business or property income and expenses;
- send quarterly updates to HMRC;
- make any necessary adjustments; and
- submit their annual tax return by 31 January after the end of the tax year.
The quarterly updates provide summary information from the digital records. They do not replace the annual tax return.
The taxpayer must still review the final figures, make tax adjustments, include other personal income and claim any relevant reliefs.
The tax payment deadline also remains 31 January after the end of the tax year, unless another payment date applies.
What Does “Not Ready” Usually Mean?
Different taxpayers face different problems.
For some, not being ready means that they have not selected software. For others, it means that they have not organised the records from the beginning of the tax year.
Common situations include:
- still using paper invoices and receipts;
- recording income and expenses only once a year;
- using a spreadsheet that does not connect to HMRC;
- having no separate business bank account;
- not knowing which income counts towards the threshold;
- not having signed up for Making Tax Digital;
- not having authorised an accountant;
- having several income sources in different systems;
- missing records from the start of the tax year; and
- feeling unable to use accounting software confidently.
These problems need different solutions. Therefore, the first step is to identify the actual gap.
First, Check Whether You Need to Join
Do not assume that Making Tax Digital applies simply because you submit a Self Assessment return.
Likewise, do not assume that it does not apply because each individual business or property produces less than the threshold.
Check:
- whether you are a sole trader or landlord;
- each source of gross self-employment income;
- each source of gross property income;
- your combined qualifying income;
- the relevant tax return used for the assessment;
- whether an automatic exemption applies; and
- whether you need to apply for an exemption.
If your qualifying income exceeded £50,000 in 2024/25, you may already fall within the requirements for 2026/27.
If it exceeded £30,000 in 2025/26, you may need to start from 6 April 2027.
Checking early gives you time to correct HMRC’s information if the figures or income sources appear wrong.
What If You Should Have Started in April 2026?
Do not wait until the first annual filing deadline.
You should establish:
- whether you have signed up;
- whether HMRC has recorded the correct income sources;
- whether your software supports Making Tax Digital for Income Tax;
- whether digital records exist from 6 April 2026;
- which quarterly updates are outstanding; and
- what information you need to bring the records up to date.
If you joined or set up software after the start of the tax year, you may need to create digital records covering the earlier part of that year.
This does not necessarily mean entering every transaction manually. Depending on the software and available records, it may be possible to import bank transactions, invoices or spreadsheet information.
However, imported data still needs review. Bank feeds cannot decide whether a transaction is personal, whether VAT applies or whether a transfer represents business income.
Will HMRC Penalise the First Late Quarterly Updates?
HMRC has confirmed that it will not apply late-submission penalty points for quarterly updates during the 2026/27 tax year.
However, this is not a general exemption from Making Tax Digital.
Taxpayers must still send all required quarterly updates before they can submit their annual tax return. Penalties can also apply if the annual tax return is late or the tax remains unpaid after the deadline.
After 2026/27, a late quarterly update can normally result in a penalty point.
For quarterly obligations, the penalty threshold is generally four points. Once a taxpayer reaches the threshold, HMRC can charge a £200 penalty. Further failures while the taxpayer remains at the threshold can lead to additional penalties.
Therefore, the first-year approach gives taxpayers some time to adjust, but it should not encourage them to postpone the work.
Choose Software That Fits the Business
The most expensive or complicated system is not always the best choice.
Before selecting software, consider:
- how many transactions occur each month;
- whether the taxpayer has one or several businesses;
- whether they receive UK property income;
- whether the business is VAT-registered;
- whether payroll or invoicing features are needed;
- whether an accountant will access the records;
- whether bank feeds are available;
- whether existing data can be imported;
- whether the system supports the full annual tax return; and
- the level of training and support available.
Software that works for VAT does not automatically provide every feature needed for Making Tax Digital for Income Tax.
Similarly, software used to prepare an annual Self Assessment return may not support digital records and quarterly updates.
Always confirm the position with the software provider before relying on the product.
Can You Continue Using a Spreadsheet?
In some cases, yes.
A taxpayer may be able to maintain records in a spreadsheet and use bridging or compatible software to send information to HMRC.
However, the system must preserve the required digital links. Repeatedly copying figures manually from one program to another may not meet the digital-record requirements.
A spreadsheet-based process also needs controls.
For example:
- use consistent categories;
- protect formulas;
- keep backup copies;
- separate each business or property activity;
- reconcile the figures to bank records;
- retain supporting documents; and
- prevent transactions from being omitted or duplicated.
For a simple business, this may work well. For a business with many transactions, direct bookkeeping software may prove easier to maintain.
What Digital Records Must You Keep?
The taxpayer or their agent will need to create and store digital records of self-employment and property income and expenses.
The records will generally include information such as:
- the amount of each transaction;
- the transaction date;
- the relevant income or expense category; and
- the business or property activity to which it relates.
Digital records do not remove the need to keep supporting evidence.
Taxpayers should continue to retain invoices, receipts, bank statements and other documents used to prepare their tax return. HMRC’s guidance confirms that these supporting records remain necessary.
A photograph or electronic copy may be acceptable in many situations, provided it remains clear, complete and accessible.
What If Your Bookkeeping Is Already Behind?
Start with the information you have.
Do not delay the whole process because several receipts or invoices are missing.
A practical recovery process may involve:
- obtaining bank and credit-card statements;
- importing available transactions;
- gathering sales invoices;
- downloading purchase invoices from email or supplier portals;
- separating personal and business items;
- identifying transfers between accounts;
- listing missing documents;
- reconciling the closing balances; and
- asking an accountant to review uncertain transactions.
Work through the records month by month.
Trying to repair the entire year at once can feel overwhelming. Breaking the task into shorter periods makes the work more manageable and helps identify missing information sooner.
Can an Accountant Do Everything for You?
An authorised accountant can help with many Making Tax Digital tasks.
Depending on the agreed service, the accountant may:
- check whether you must join;
- help choose software;
- register or sign you up;
- create or review digital records;
- send quarterly updates;
- correct errors;
- prepare the annual tax return; and
- communicate with HMRC.
However, the taxpayer still needs to provide accurate and timely information.
An accountant cannot maintain current records if invoices, receipts and explanations arrive several months late.
Therefore, both parties should agree:
- who records transactions;
- who reviews bank feeds;
- who keeps supporting documents;
- when records must be provided;
- who submits each quarterly update; and
- who completes the annual tax return.
Clear responsibilities prevent both sides from assuming that the other person has completed a task.
Can You Apply for an Exemption?
Some people can apply for an exemption because it would not be reasonable or practical for them to use compatible software.
Possible grounds for digital exclusion include:
- age combined with difficulty using digital systems;
- a health condition or disability;
- religious beliefs that prevent the use of digital communications; or
- lack of internet access because of the taxpayer’s location.
HMRC should consider the person’s individual circumstances.
However, HMRC states that it will not normally grant an exemption simply because:
- the taxpayer previously submitted paper returns;
- they are unfamiliar with accounting software;
- they only have a few transactions;
- the process will take extra time; or
- software creates additional cost.
An accountant can help with Making Tax Digital, but the availability of an agent does not automatically decide whether the taxpayer is digitally excluded.
Taxpayers who need to use Making Tax Digital from April 2026 or April 2027 can apply now. Those who expect to join in April 2028 should apply from summer 2027.
Do not assume that an exemption applies until HMRC has confirmed it, unless the taxpayer clearly falls within an automatic exemption.
What If You Have Applied for an Exemption?
If you have already signed up and your circumstances change, HMRC advises taxpayers to continue using Making Tax Digital while it considers the exemption application.
Keep a copy of the application and any supporting evidence.
If HMRC refuses the application, the decision letter should explain how to appeal.
The taxpayer should review HMRC’s reasons carefully. An appeal should explain why using compatible software is not reasonable or practical for that particular person. It should not rely only on a general dislike of technology.
Do Quarterly Updates Show the Tax You Must Pay?
Quarterly updates can help taxpayers understand their developing financial position, but they do not normally create a final tax bill.
The figures may still require year-end adjustments for matters such as:
- capital allowances;
- private use;
- stock;
- accruals or prepayments;
- losses;
- finance costs;
- tax reliefs; and
- other income.
Therefore, taxpayers should not treat every quarterly figure as a final calculation.
At the same time, the updates can support tax planning. Regular records make it easier to estimate profit and set aside money for the eventual bill.
Common Mistakes When Preparing for MTD
Waiting until the first quarterly deadline
Choosing software and importing records can take longer than expected. Begin before the deadline wherever possible.
Assuming the accountant has signed you up
Confirm the position directly. Signing an agent-authorisation form does not necessarily mean that the Making Tax Digital registration has been completed.
Looking only at one income source
Qualifying income combines relevant self-employment and property income.
Buying software before checking its functions
Make sure the product supports your income sources, digital records, quarterly updates and annual tax return.
Ignoring old bookkeeping habits
New software will not solve an old process problem on its own. Decide who will enter and review the records regularly.
Applying for an exemption only because software feels unfamiliar
HMRC does not normally treat a lack of software experience as digital exclusion.
Consider training, assisted digital support or help from an accountant.
Practical Guide
1. Check your gross self-employment and property income
2. Confirm the date from which MTD applies
3. Check whether an exemption applies
4. Review every business and property income source
5. Choose compatible software
6. Sign up or ask your authorised agent to do so
7. Create digital records from the start of the relevant tax year
8. Import and reconcile bank transactions
9. Collect supporting invoices and receipts
10. Agree responsibilities with your accountant
11. Send any outstanding quarterly updates
12. Keep preparing for the annual tax return and payment deadline
Frequently Asked Questions
Does Making Tax Digital apply to limited companies?
Making Tax Digital for Income Tax currently focuses on qualifying sole traders and landlords. Limited companies follow separate Corporation Tax and Companies House requirements.
Does employment income count towards the threshold?
Employment income does not normally form part of qualifying income. The test focuses on gross income from self-employment and property.
What if I have two small businesses?
HMRC considers the combined qualifying income from relevant self-employment and property sources. Two individually small businesses can therefore take the taxpayer over the threshold.
Do I have to send four tax returns every year?
No. Quarterly updates provide summary income and expense information. You still complete an annual tax return after the tax year ends.
Can my accountant send the quarterly updates?
Yes, provided the accountant has the correct authorisation and access to compatible software. However, you must provide the underlying records on time.
Can I use my current accounting software?
Possibly. Ask the provider whether the software supports Making Tax Digital for Income Tax, including digital records, quarterly updates and the annual tax return.
What happens if I miss a quarterly update in 2026/27?
HMRC will not apply late-submission penalty points for quarterly updates during 2026/27. However, you must submit all required updates before completing the annual tax return.
Can I opt out because the software is too expensive?
Additional cost alone will not normally qualify someone for exemption. Check whether lower-cost or free software meets your needs and whether another exemption ground applies.
What if my qualifying income later falls below the threshold?
Do not stop using the system without checking the rules. The effect may depend on your income over the relevant period and whether HMRC has confirmed that the digital obligations have ended.
Where to Find Official HMRC Information
You can find current guidance here:
- Making Tax Digital for Income Tax: step-by-step guidance, covering eligibility, software, registration and ongoing obligations.
- Check if and when you need to use Making Tax Digital, explaining the thresholds and start dates.
- Sign up for Making Tax Digital for Income Tax, explaining the information needed to join.
- Create digital records, covering income, expenses and supporting documents.
- Send quarterly updates, explaining the reporting process and deadlines.
- MTD penalties, covering late-submission points and late-payment penalties.
- Check whether you can claim an exemption, explaining automatic and digital-exclusion exemptions.
- Apply for an exemption, explaining when and how to apply.
Making Tax Digital rules continue to develop. Therefore, check current HMRC guidance before making decisions about your eligibility or software.
💡 Key Takeaway
If you are not ready for Making Tax Digital for Income Tax, the worst approach is to ignore it.
First, confirm whether the rules apply and when you must start. Then choose suitable software, create the missing digital records and agree who will complete each task.
Taxpayers who should have joined in April 2026 still have an opportunity to bring their records and quarterly updates up to date. HMRC will not apply penalty points for late quarterly updates during 2026/27, but the updates must still be submitted before the annual tax return.
If age, health, disability, religious beliefs or lack of internet access make digital compliance unreasonable, consider whether an exemption may apply. However, unfamiliarity with software or extra cost will not usually be enough on its own.
Need Help?
If you are unsure whether Making Tax Digital for Income Tax applies to you, Accounts Tax Group can review your qualifying income and confirm your likely start date.
We can help you choose compatible software, organise digital records, catch up with missing bookkeeping and submit quarterly updates. We can also review whether your circumstances may support an exemption application.
Contact Accounts Tax Group before your first reporting deadline so that we can help you create a process that works throughout the year.
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