Making Tax Digital for Income Tax: The Simple 2026 Guide for Sole Traders and Landlords
Reading Time: 7 minutesIf you’re a sole trader or landlord in the UK, HMRC’s Making Tax Digital for Income Tax, often called MTD for IT or MTD for Income Tax, will change how you report your income, but not how much tax you pay.
Basically:
Same tax rules, new reporting schedule. You will need digital records, quarterly updates, and an end-of-year submission using compatible software.
Let’s explain this clearly, with practical examples and an easy “how to get ready” checklist.
What is MTD for Income Tax?
MTD for Income Tax is HMRC’s new system that requires in-scope sole traders and landlords to:
- 1. Keep digital records of income and expenses (in software)
- 2. Send quarterly updates to HMRC (summary totals)
- 3. Submit your end-of-year return through MTD-compatible software (instead of filing Self Assessment the usual online way for those years)
Important note: quarterly updates are not “four tax returns.” They’re closer to “check-ins” that send totals, and you still finalise at year’s end.
Even before MTD applies to you, consistent bookkeeping makes tax time faster and less stressful. Track income, tag expenses properly, and keep everything organised with Akaunting.
Who does this apply to (and when)?
MTD for Income Tax is based on your qualifying income, which HMRC defines as gross income (turnover) from self-employment and/or property in a tax year.
It does not include other Self Assessment income like:
- – PAYE employment income
- – dividends
- – pensions
- – your share of partnership profit (as an individual partner)
Start dates (phased rollout)
You’ll be required to use MTD for Income Tax if you’re a sole trader/landlord registered for Self Assessment and your qualifying income is:
- – Over £50,000 (based on 2024–25 return) → from 6 April 2026
- – Over £30,000 (based on 2025–26 return) → from 6 April 2027
- – Over £20,000 (based on 2026–27) → government plans to legislate for this threshold (timeline dependent on legislation)
HMRC also mentions that partnerships will be included later, with the timeline still to be confirmed.
Another detail to keep in mind is that HMRC checks your qualifying income based on the previous tax year’s Self Assessment return.
For example, if your 2024-25 return shows qualifying income over £50k, you qualify starting in April 2026.
What actually changes in your daily routine?
1) You keep digital records.
For each income or expense, you need to record:
- – amount
- – date
- – category (matching Self Assessment categories)
Examples:
As a sole trader, you invoice a client £2,500 on 15 May. In your software, that shows up as income dated 15 May, under the category “sales/fees.”
As a landlord, you receive rent of £1,200 on 3 June, which counts as property income. You pay £180 for a repair on 9 June, categorized as a property expense “repairs and maintenance.”
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2) You send quarterly updates (summary totals)
Quarterly updates are totals for the period. You’re not sending every receipt line-by-line to HMRC; you’re sending summaries built from your digital records.
You can use either:
- – Standard update periods (based on the tax year)
- 6 Apr–5 Jul → due 7 Aug
- 6 Apr–5 Oct → due 7 Nov
- 6 Apr–5 Jan → due 7 Feb
- 6 Apr–5 Apr → due 7 May
- – Calendar update periods (if your software supports it — often simpler if you work to 31 March)
- 1 Apr–30 Jun → due 7 Aug, etc. (same deadlines)
3) You still do an end-of-year submission
At the end of the tax year, you submit your “proper” return using MTD-compatible software. You confirm it is correct to the best of your knowledge.
You may have other income, such as PAYE and dividends, that doesn’t count toward qualifying income. However, you still need to include it in your end-of-year submission in the software.
A quick example of what a “quarterly update” looks like
Let’s say you’re a freelance designer (sole trader). For 6 April to 5 July:
- – Sales/fees: £18,000
- – Allowable expenses:
- Software subscriptions: £300
- Marketing: £450
- Travel: £220
- Office costs: £180
Your quarterly update is basically those totals by category, not a 40-page tax return.
Then, at year’s end, you do the final submission where you:
- – confirm totals for the year
- – claim any allowances/adjustments properly
- – add other income sources
- – finalise the tax position
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“How many times will I have to report income?”
For most people, there are 4 quarterly updates and 1 end-of-year submission.
However, if you have multiple income sources, such as two separate sole trades or self-employment plus property, you may need separate updates for each income source in your HMRC setup.
HMRC clearly states the importance of including each income source when you sign up.
What about penalties?
HMRC is using a points-based penalty system for late submissions. However, there is a key soft-landing detail.
If you’re required to comply starting 6 April 2026, HMRC states it will not apply penalty points for late quarterly updates in the first tax year (2026–27). However, penalties can still apply for late end-of-year submissions or late payment.
You have some time to adjust to the new schedule, but don’t treat deadlines as optional.
How to get ready
Step 1: Check if you’re in scope
Start by calculating qualifying income: add your self-employment turnover + property income (gross).
Example:
£27,000 self-employment + £25,000 rental income = £52,000 qualifying income → you’re in from 6 April 2026.
Step 2: Make sure you’re actually sign-up ready
To sign up, HMRC says you must:
- – be registered for Self Assessment
- – have submitted a tax return in the last 2 years
Also, you still file Self Assessment the normal way for the tax year before you start MTD.
Step 3: Choose the right tooling approach
HMRC recognises that some people will:
- – use full bookkeeping software, or
- – keep records in spreadsheets and use bridging software to submit updates/returns
The key is: it must be compatible with MTD for Income Tax.
Step 4: Build a simple “monthly close” habit
Quarterly reporting becomes painless if you do 30–45 minutes a month:
- – Import/review transactions
- – Categorise income/expenses
- – Attach receipts where relevant
- – Reconcile accounts (so totals are real)
- – Run a quick profit snapshot
Quarterly update time then becomes: “generate totals → submit.”
Where Akaunting fits in
Even when submission to HMRC is handled via dedicated MTD for Income Tax software, your biggest win is still the same:
Clean books = fast reporting + fewer errors.
Akaunting is great for building that clean bookkeeping foundation:
- – track income and expenses consistently
- – categorise transactions in a structured way
- – keep documentation organised for you (and your accountant)
And if you’re VAT-registered, Akaunting already offers an MTD for VAT (UK) app that’s designed to submit VAT returns to HMRC.
(MTD for VAT and MTD for Income Tax are different — so always check what’s required for your specific reporting needs.)
Final takeaway
If you treat MTD for Income Tax as “extra admin,” it will feel like extra admin.
If you treat it as:
- – a forced upgrade to cleaner records,
- – a regular check-in on profitability,
- – and fewer year-end tax surprises,
…it becomes a compliance rule that (quietly) makes your business run better.
FAQ
Does MTD mean I’ll pay tax four times a year?
No. It means you report quarterly. Your payment schedule is a separate thing. (MTD changes reporting mechanics; it doesn’t automatically rewrite payment rules.)
Do quarterly updates have to be perfect?
They should be based on your digital records — but the design expectation is that year-end finalisation is where everything is confirmed and adjusted properly.
What if my income drops later?
HMRC notes that once you start, and your qualifying income drops below the relevant threshold for 3 tax years in a row, you can choose to opt out.
What is Making Tax Digital for Income Tax (MTD for IT)?
MTD for Income Tax is HMRC’s new approach to Income Tax reporting for many sole traders and landlords. If you’re affected, you’ll keep digital records, send quarterly updates (summary totals), and then submit your end-of-year tax return or final declaration using compatible software.
When does MTD for Income Tax start?
It will roll out in phases based on your qualifying income:
- – Over £50,000 (2024–25) → from 6 April 2026
- – Over £30,000 (2025–26) → from 6 April 2027
- – Over £20,000 (2026–27) → the government plans to lower the threshold (looking at 6 April 2028)
Who has to follow MTD for Income Tax in 2026?
Starting 6 April 2026, you must use it if your combined gross income from self-employment and UK property is over £50,000, based on your 2024–25 Self Assessment position (as per HMRC’s eligibility rules).
For example: £40k sole trader turnover + £15k rental income = £55k → required from April 2026.
What are the quarterly update deadlines?
For the standard tax-year quarters, the deadlines are: 7 Aug, 7 Nov, 7 Feb, 7 May. If you start in April 2026, your first quarterly update is due on 7 August 2026.
Do quarterly updates mean I pay tax quarterly?
No, quarterly updates are for reporting, not paying. HMRC’s guidance clearly states that “you won’t pay four tax bills a year.” You will still pay by the usual deadlines (typically 31 January, and payments on account may still apply under Self Assessment rules).
What counts as “qualifying income”?
Qualifying income is the gross (before expenses) income from:
- – Self-employment (as reported on your Self Assessment return)
- – UK property income (which includes some UK land dealing or development income).
It’s not the same as “profit,” and it doesn’t include your PAYE salary.
Do landlords have to use MTD for Income Tax too?
Yes, landlords must comply. If your property income (by itself or combined with self-employment income) exceeds the relevant threshold, you’ll have to keep digital records and send quarterly updates.
Are there penalties for late quarterly updates?
Eventually, yes, but there’s a “soft landing” for the first required year. If you must start from 6 April 2026, HMRC states it won’t apply penalty points for late quarterly updates in 2026–27. However, penalties can still apply for late end-of-year returns or late payments.
Can I use spreadsheets for MTD?
Yes, if you use bridging software that connects your spreadsheet records to HMRC and submits the necessary updates or returns. HMRC lists software that “connects to your existing records, such as those held in spreadsheets,” and refers to it as bridging software.
Is MTD for VAT the same as MTD for Income Tax?
No, they are separate systems. MTD for VAT applies to VAT-registered businesses and requires keeping VAT records digitally and filing VAT Returns via software. In contrast, MTD for Income Tax focuses on quarterly updates and year-end reporting for self-employment and property income.
