Making Tax Digital for Income Tax: The complete guide

Making Tax Digital (MTD) is the government’s ongoing plan to bring tax accounting and collection into the 21st century.

As the name suggests, it does this by legally requiring the use of software. As such, it also requires key accounting records relating to tax are kept digitally, and that these are communicated regularly to HMRC.

In return, it’s possible to see throughout the year how much tax you owe before payment becomes due at the usual times. This aids better cash flow calculations, among other things.

And the use of accounting software can be revolutionary, reducing or even removing much of the drudgework of administration. This frees up people to do more of what they love within their business.

In this article, we take a look at Making Tax Digital (MTD) for Income Tax and try to answer some questions by way of an introduction for the general reader. Don’t worry, this isn’t a technical deep dive!

We start with a brief overview of MTD before diving into some questions and answers to help you navigate what MTD for Income Tax will mean for your business.

It should be noted that we already have blogs that look in-depth at certain kinds of business impacted by MTD for Income Tax:

Background on Making Tax Digital

The first wave of Making Tax Digital became law in 2019 when MTD for VAT was introduced. This was expanded out to more businesses in 2022.

But it’s four years later – in April 2026 – when arguably one of biggest changes is set to arrive.

MTD for Income Tax will affect millions of sole traders and landlords, with those with qualifying income over £50,000 falling within scope from 2026, those with qualifying income over £30,000 from 2027, and those with qualifying income over £20,000 from 2028.

Qualifying income is simply your gross income from self-employment and/or property (before expenses, in both cases). It is not your net income.

MTD has been called the biggest shake up in tax for a generation. But even this might be too conservative an estimate of the impact it will have for millions of people.

You owe it to yourself to get ready sooner, rather than later.

To be clear, Making Tax Digital for Income Tax is known by several titles, but they all refer to the same thing:

• Making Tax Digital for Income Tax Self Assessment, or MTD for ITSA
• MTD for Income Tax, MTD for IT, or MTD IT.

You might also hear it referred to as ‘phase 2’ of MTD, but care should be taken because this means different things to different people.

1. What is Making Tax Digital for Income Tax in a nutshell?

Here is MTD for Income Tax summarised in as few words as possible:

• MTD for Income Tax’s requirements replace the need for a Self Assessment return, and affects sole traders and landlords who currently use the Self Assessment income tax system.
• In the first phase, it will only affect those listed above with qualifying income over £50,000. In the second phase, it will affect those with qualifying income over £30,000, and in the third phase those with a total qualifying income over £20,000.
• For each sole trader business, and for total rental income, it requires at least updates every three months to be submitted to HMRC.
• Each individual must also submit a tax return by 31 January following the end of the tax year in the previous April, using their accounting software.

We look into all of this in more depth below.

2. Who does MTD for Income Tax affect?

MTD for Income Tax will affect any of the following individuals who currently use the Self Assessment system and whose qualifying income is higher than the threshold:

• Sole traders.
• Landlords receiving rental income (including furnished holiday lettings, and foreign property).

The thresholds will apply to the income of an individual, rather than to individual businesses.

For example, if an individual is both a sole trader and also a landlord receiving rental income, then the income from these two businesses is added together to determine if that person crosses the threshold.

Similarly, if an individual owns several sole trader businesses then the income from each should be added up to see if that person crosses the threshold.

If the individual does not cross the threshold then they should continue using submitting a Self Assessment tax return, as currently is the case. Anybody just starting out as a sole trader or landlord will use the Self Assessment system until such time as HMRC tells them otherwise (e.g. when their income for a tax year crosses the threshold), or if they choose to voluntarily sign-up for MTD for Income Tax.

3. What are MTD for Income Tax quarterly updates?

Quarterly updates are a regular requirement of MTD for Income Tax. They help you better understand your tax and National Insurance liability across the year.

The rules are simple. At a minimum every three months across the tax year, and for any business you own, you’re required to submit updates about your business income and expenses to HMRC, using software.

Landlords need to submit these updates for their rental income but only one is required, regardless of how many properties are owned and from which rent is collected.

It has to be emphasised that four updates each accounting period is a minimum. You can submit more if you think it will assist your accounting.

A business that earns more than £50,000 would need to submit at least the following updates for the 2026/27 tax year:

• 1st: Due by 7 August 2026 (covers 6 April 2026 – 5 July 2026)
• 2nd: Due by 7 November 2026 (covers 6 July 2026 – 5 October 2026)
• 3rd: Due by 7 February 2027 (covers 6 October 2026 – 5 January 2027)
• 4th: Due by 7 May 2027 (covers 6 January 2027 – 5 April 2027)

Some businesses can also use calendar update periods if their basis period ends 31 March, rather than 5 April. In other words, the first quarterly update for such a business would still be due by 7 August but would cover the period 1 April – 30 June.

The updates will contain information about your accounting such as your income and allowable expenses.

There’s no legal requirement for the updates to be accurate. Nor will you ever need to go back and correct anything that was wrong in an earlier quarterly update.

However, accurate updates will mean HMRC is able to best estimate your tax and National Insurance liability, so you can be sure about cash flow and the amount of money that you’re putting away to pay your eventual tax bill.

These updates might sound foreboding but good accounting software will automate much of it. It’s likely all you will have to do is review the information before tapping or clicking to submit it. If you have an accountant or bookkeeper, they can do this for you.

Updates need to be submitted in this way for each business you own, and for any property income. This could mean submitting several updates each quarter.

4. What are MTD for Income Tax end of period statements (EOPS)?

If you’ve been following MTD for Income Tax for over the years since its inception, you may have heard of End of Period Statements, or EOPS.

These are no longer a part of MTD for Income Tax.

HMRC now only requires quarterly updates and the digital tax return in terms of submissions.

Similarly, the term Final Declaration was once used to refer to the digital tax return HMRC requires as part of MTD for Income Tax. The term is no longer used but you might still hear some people referring to it.

5. What is the MTD for Income Tax digital tax return?

By no later than 31 January following the end of the tax year (5 April), you need to sign a digital tax return, in a similar way to you might currently with Self Assessment. However, this is done within the MTD-compatible software.

This replaces the Self Assessment tax return, along with anything else you may have heard about, such as a Final Declaration or end of period statements (EOPS).

It means bringing together all the data including business and non-business income needed to finalise your tax position and reach your final tax liability. You (or your accountant) should also include any applicable reliefs and adjustments.

As with Self Assessment, HMRC will then tell you via the MTD software how much tax and National Insurance you’re liable for. You then digitally sign this (notably, your accountant or bookkeeper cannot sign it on your behalf).

The tax return applies to you as an individual, so you only need to submit one, regardless of whether your income comes from multiple sole trader businesses and/or property rental. Its deadline is fixed each year on 31 January.

6. Can my accountant or bookkeeper create quarterly updates and the tax return for me as part of Making Tax Digital?

They can prepare and submit both, and also submit the quarterly updates on your behalf. But as with the current Self Assessment system, you will need to review and digitally sign the tax return within the MTD-compatible software.

Your accountant or bookkeeper can also sign you up to MTD, if you wish, rather than you doing so yourself. Discuss this with them ahead of time.

You will need to ensure your accounting software is digitally linked to that of your accountant and/or bookkeeper. and let HMRC know when you sign up that your accountant will act on your behalf.

Speak to your accountant ahead of time to ensure this is the case.

Note that it’s possible to have both a bookkeeper and a separate accountant digitally linked to your MTD account and software in this way.

7. When do I pay my tax and National Insurance contributions under MTD for Income Tax?

You should pay any outstanding tax liability by 31 January following the end of the tax year on 5 April. You will know the amount due because of your tax return.

If you pay on account then a further payment will then be due by 31 July, just like with Self Assessment.

8. How do I sign up for MTD for Income Tax?

Right now this isn’t possible outside of the MTD for Income Tax beta programme (see ‘What’s the MTD for Income Tax beta programme?’ below).

HMRC is contacting people to tell them if they need to follow the MTD for Income Tax rules as of April 2026, based on their most recent tax return.

Following this, you must sign up via the HMRC website. You must ensure you have MTD-compatible software in place and sign-in to your MTD for Income Tax account within the software. Speak to your software vendor if you have any questions.

Your accountant or bookkeeper might be able to sign you up to MTD for Income Tax, if you wish to avoid the task yourself. Speak to them ahead of time about this.

9. Is Self Assessment ending because of MTD for Income Tax?

No. For those who are required to use MTD for Income Tax, the digital tax return replaces the need to file a Self Assessment return.

However, for everybody else required to file a Self Assessment return and who are outside the scope of MTD for Income Tax, there will be no change. Self Assessment will continue to be used. Examples might include company directors or those needing to declare pension income.

Furthermore, those new to being a sole trader and/or renting out property will not go straight to MTD for Income Tax, even if they’re sure their income will be above the threshold. Instead, they will sign-up for Self Assessment and then switch to MTD for Income Tax as and when HMRC notifies them in writing. Alternatively, they could voluntarily sign-up to MTD for Income Tax after signing-up to Self Assessment, but this will mean they will still need to complete a year of Self Assessment.

10. What’s the MTD for Income Tax beta programme?

HMRC is running an optional beta programme that you can sign up to in order to take part in MTD for Income Tax between now and its mandation in April 2026.

There are some limitations on who can join.

You need to be up to date with your taxes, for example, with no outstanding liabilities. Those who claim Married Couple’s Allowance or Blind Person’s Allowance cannot sign-up, and nor can those who are bankrupt or insolvent (or know they will be soon).

Those who use averaging calculations for their income, such as seasonal businesses like farmers, also can’t sign-up to the beta.

You’ll need software compatible with MTD for Income Tax, of course, such as Sage Accounting. This has plans for all kinds and sizes of sole traders and landlords, including Sage Accounting Individual Free.

11. Is MTD for Income Tax delayed?

MTD for Income Tax was intended to be among the first of the Making Tax Digital schemes, back in 2015.

Obviously, that did not happen. Brexit, the pandemic, consultations with stakeholders by HMRC, and other factors, all contributed to Making Tax Digital being fundamentally rescoped by the government.

Even after its official launch, the scheme was delayed twice, most recently following an announcement from the government in December 2022.

However, it’s very unlikely at this point there will be any further delays given that the launch date of April 2026 is so close.

12. Is there free software for MTD for Income Tax?

Yes. A good example is Sage Accounting Individual Free, which lets you simplify your finances with free accounting software that makes bookkeeping, transaction tracking, and both MTD for Income Tax and Self Assessment easy.

There are other Sage Accounting plans for other types and sizes of business.

The government considers the purchase of compatible MTD accounting software to be a legitimate business expense that businesses are expected to pay.

13. Can I use spreadsheets for MTD for Income Tax?

The use of spreadsheets is allowed for sole traders and landlords that fall within the scope of MTD for Income Tax.

However, there are complicated guidelines around the cutting/copying and pasting of the tax records, which falls under the digital linking rules. In short, while spreadsheets can be used for MTD, care must be taken.

You’ll will be breaking the law if you copy and paste certain values from a spreadsheet into your accounting software to complete a quarterly update, for example. Instead, the link between the spreadsheet and the accounting software must be both digital and automated, according to the digital linking rules.

Spreadsheets have inherent limitations, such as poor data security measures, and the ease at which a simple mistyping can accidentally erase a critical formula. You must maintain your digital records for five years as part of the income tax rules.

Can you be sure that you’ll be able to do this if you’re using spreadsheets?

Those using a spreadsheet for MTD for VAT require bridging software to file their returns with HMRC. This is available from software vendors. The same kind of software is likely to be available for MTD for Income Tax, and will probably link into a broader cloud-enabled service.

However, most experts agree that it’s simpler easier and more effective to use cloud accounting software.

14. What’s the MTD for Income Tax threshold?

The first phase of MTD for Income Tax will apply only to self-employed businesses’ income and/or property income of more than £50,000.

The second phase will apply to those earning over £30,000. The third phase applies to those earning over £20,000.

Here’s how to determine when you might need to use MTD for Income Tax:

• As of April 2026: If you have qualifying income over £50,000 in the 2024/25 tax year and subsequent tax years.
• As of April 2027: If you have qualifying income over £30,000 in the 2025/26 tax year and subsequent tax years.
• As of April 2028: If you have qualifying income over £20,000 in the 2026 /27 tax year and subsequent tax years.

15. How long do I have to keep my old accounting records as part of MTD for Income Tax?

This doesn’t change compared to the existing Self Assessment system. You should keep records for at least five years. The difference with MTD is that these must be kept digitally. You cannot print out your accounting records and stash them in a filing cabinet, for example.

16. Where can I learn more about MTD for Income Tax?

HMRC is running webinars about MTD for Income Tax. The MTD for Income Tax beta government pages also provides some information about how the scheme will work.

The government’s overview of Making Tax Digital contains higher-level information about its plans.

We’ll share more details on Sage Advice whenever any new information becomes available, including guidance on how to comply.

Final thoughts on MTD for Income Tax

Key to getting ready for MTD for Income Tax is to stay ahead of the curve when it comes to learning about it, and also adoption.

Aim to sign up as soon as you can. This way you’ll be ahead of the millions of others doing the same thing, and who are likely to cause substantial congestion when it comes to receiving support from HMRC and also their software vendor.

If you need to switch to using accounting software to comply with MTD for Income Tax then this is also best done as soon as possible, so you can adapt and improve any of your admin processes ahead of the legal requirements of MTD for Income Tax coming into force.

Cloud accounting software will be updated in time, and you can start using it today.

MTD for Income Tax might seem like a big change but by splitting out the required tasks into chunks, you can introduce the requirements gradually for the benefit of you—and your business.

Editor’s note: This article was first published in September 2021 and has been updated several times for relevance.