How to prepare for Making Tax Digital for Income Tax

Making Tax Digital for Income Tax begins in April 2026, representing the biggest change to how self-employed individuals and landlords manage their tax affairs in nearly 30 years. If you earn income from self-employment or renting out property, this guide explains what’s changing, when you’ll need to comply, and—crucially—what you can do now to make the transition as smooth as possible, regardless of your income level.

The good news? While the shift from annual tax returns to quarterly digital reporting sounds daunting, getting prepared early can actually make managing your tax affairs easier, not harder. Here’s everything you need to know.

The basics of MTD for Income Tax

Making Tax Digital (MTD) for Income Tax is HMRC’s programme to move self-employed individuals and landlords from annual paper-based or manual record-keeping to digital record-keeping with quarterly reporting throughout the year. Instead of gathering your receipts and invoices once a year for your Self Assessment tax return, you’ll keep digital records as you go and send summary updates to HMRC four times a year.

HMRC’s goals are straightforward: reduce errors (which they estimate cost billions in uncollected tax annually), give taxpayers clearer visibility of their tax position throughout the year, and modernise a system that hasn’t fundamentally changed since 1997. Research from HMRC’s pilot programme suggests 67% of businesses using MTD-compatible software felt it reduced potential for mistakes, and 80% found the software easy to use.

The practical change is significant but manageable. Under the current system, you can keep paper records, add everything up at year-end, and file one annual return by 31 January. Under MTD, you’ll need to keep digital records throughout the year and submit quarterly summaries to HMRC, culminating in a Final Declaration (which replaces your traditional tax return) by 31 January.

Who needs to comply and when

MTD for Income Tax is rolling out in phases based on your qualifying income—the gross amount you earn from self-employment and/or property before deducting expenses.

From 6 April 2026, MTD becomes mandatory for self-employed individuals and landlords with qualifying income over £50,000. This affects approximately 780,000 people and is determined by your 2024/25 tax return (which you’ll submit by 31 January 2026).

From 6 April 2027, the threshold drops to £30,000, bringing in around 970,000 additional people. Your 2025/26 return determines whether you’re in scope.

From 6 April 2028, the threshold drops again to £20,000, adding approximately 900,000 more taxpayers. This was confirmed by the government at Spring Statement 2025.

For those with income below £20,000, there’s no current mandate. The government has indicated it will “continue to explore” how to extend MTD’s benefits to this group, but no timeline has been set.

Working out if you’re in scope

Your qualifying income includes gross income from self-employment (your turnover before expenses) plus gross rental income from UK or overseas property. If you have multiple income sources, they’re combined—so someone with £35,000 in self-employment income and £20,000 in rental income has qualifying income of £55,000 and would be mandated from April 2026.

Importantly, qualifying income does not include employment income (PAYE), dividends, pension income, savings interest, or partnership income. Partnerships are currently excluded from MTD for Income Tax entirely, with no announced date for their inclusion.

For jointly owned property, only your share of the gross income counts toward your personal threshold based on your ownership percentage.

What happens if your income fluctuates

If you’re currently below threshold but might cross it in future years, here’s what you need to know: once you’re required to join MTD, you must stay in the system for at least three years. You can only exit if your qualifying income falls below £20,000 for three consecutive years.

If you’re a new business or your income rises above the threshold for the first time, you’ll typically be required to comply from the start of the third tax year after first exceeding the threshold. This gives you time to prepare, but it means the sooner you start getting ready, the smoother your transition will be.

How quarterly reporting actually works

The quarterly reporting requirement sounds more complicated than it is in practice. You’re not submitting four mini tax returns—instead, you’re sending cumulative summaries of your income and expenses throughout the year.

The quarterly update schedule

For each tax year (6 April to 5 April), you’ll submit four quarterly updates with the following deadlines:

The first quarterly update covers 6 April to 5 July and is due by 7 August. The second update covers the cumulative period from 6 April to 5 October, due by 7 November. The third covers 6 April to 5 January, due by 7 February. The fourth and final quarterly update covers the full tax year to 5 April, due by 7 May.

After your quarterly updates, you’ll submit a Final Declaration by 31 January following the end of the tax year—the same deadline as your current Self Assessment return. This is where you’ll include any additional income (employment, dividends, pensions) and claim reliefs and allowances, and HMRC will calculate your final tax liability.

What you need to include

Quarterly updates contain totals for each income and expense category—think of it as a running summary rather than transaction-by-transaction detail. If your annual income is below the VAT threshold (currently £90,000), you can use simplified “three-line accounts” showing just total income, total expenses, and profit or loss.

Crucially, quarterly updates don’t require accounting adjustments and don’t carry penalties for inaccuracies—they’re designed as progress updates, not formal declarations. If you make an error, you can correct it in your next quarterly submission since the system is cumulative. The formal declaration of accuracy comes only at year-end.

If you have multiple income sources—say, self-employment plus a rental property—you’ll need to submit separate quarterly updates for each source, but your software will handle this automatically.

Why your choice of software matters

Here’s the part that catches many people off-guard: you cannot comply with MTD for Income Tax without MTD-compatible software. HMRC’s online Self Assessment filing system will not be available for those in MTD—submissions must go through software that connects directly to HMRC’s systems via API (Application Programming Interface).

This doesn’t mean you need to become a technology expert. It means choosing software that’s been designed and approved to communicate with HMRC digitally. The software handles the technical connection; you simply enter or import your financial information.

Why spreadsheets alone won’t work

If you currently track your income and expenses in a spreadsheet, you can continue doing so—but you’ll need either MTD-compatible software that can read from your spreadsheet, or “bridging software” that connects your spreadsheet to HMRC. The key requirement is digital links: data must flow electronically from your records to HMRC without manual retyping or copy-pasting.

Several bridging solutions exist at low cost, but many people find that moving to purpose-built MTD software simplifies their entire record-keeping process rather than adding complexity.

What to look for in MTD software

Essential features include HMRC recognition (the software must appear on HMRC’s official Software Choices list), support for your income types (self-employment, UK property, or overseas property), quarterly update submission capability, and Final Declaration filing.

Beyond the essentials, consider whether the software offers bank feed integration (which automatically imports transactions and dramatically reduces manual data entry), receipt scanning, real-time tax estimates so you can see your likely liability throughout the year, and cloud access so you can work from anywhere.

Practical steps to prepare now

Whether you’re in the first wave (April 2026) or won’t be mandated for years, taking action now will make your life considerably easier. Here’s a sensible preparation pathway.

Understand your current position

Start by reviewing your most recent tax return to establish your qualifying income. Look at your gross self-employment turnover (before expenses) and gross rental income. If you’re close to a threshold, consider whether your income is likely to grow—you may be mandated sooner than you expect.

Assess your record-keeping

How do you currently track income and expenses? If you’re using paper records, receipts in a shoebox, or a basic spreadsheet updated once a year, the shift to digital record-keeping will require some adjustment. The earlier you start keeping digital records—even before you’re legally required—the more comfortable you’ll be when mandation arrives.

Choose software early

Don’t wait until your mandate date to select software. Choosing early gives you time to learn the system without deadline pressure, identify any issues with your setup, and build good habits before compliance becomes compulsory.

Look for software built specifically for MTD rather than legacy accounting software with MTD bolted on as an afterthought. Purpose-built MTD software tends to be simpler, more intuitive, and designed around the quarterly reporting workflow rather than treating it as an add-on feature.

Consider a dry run year

If you’re being mandated from April 2026, you can voluntarily sign up to HMRC’s pilot scheme from April 2025. Even if you don’t formally join the pilot, running your own “shadow” MTD process—keeping digital records and preparing quarterly summaries—lets you identify problems before compliance is mandatory.

For those with lower incomes who won’t be mandated immediately, adopting MTD-ready practices now means you’ll be prepared if thresholds drop further or your income grows. You’ll also likely find that better record-keeping saves time and stress at year-end.

Exemptions and special circumstances

MTD for Income Tax isn’t mandatory for everyone. HMRC recognises that some people genuinely cannot use digital systems.

You may qualify for exemption on grounds of digital exclusion if age, disability, or health conditions prevent you from using computers, tablets, or smartphones; if your religious beliefs as a practising member of a religious society are incompatible with electronic record-keeping (and you don’t use digital devices for personal or business purposes); or if your location means you cannot get internet access at home, at your business, or at any reasonably accessible alternative location.

Automatic exemptions apply to those with Power of Attorney, certain non-UK resident individuals, trustees, and several other specific categories.

To apply for exemption, contact HMRC’s Self Assessment enquiries line (0300 200 3310) or write to them. HMRC aims to respond within 28 days. If you were previously exempted from MTD for VAT on similar grounds, your exemption may transfer automatically—contact HMRC with your details.

Note that HMRC will not accept exemption claims based solely on unfamiliarity with technology, the extra time or cost of compliance, or preference for paper records.

Common concerns addressed

“This sounds like more work.” Initially, there’s a learning curve. But spreading record-keeping throughout the year rather than scrambling at year-end often reduces total time spent. Many MTD users report that real-time visibility of their tax position reduces anxiety and helps with financial planning.

“What if I miss a quarterly deadline?” The new penalty system is points-based. You accumulate points for late submissions, and only face financial penalties after reaching a threshold (4 points for quarterly submissions). There’s also a “soft landing” period—no late submission penalties for quarterly updates during your first 12 months of mandatory MTD.

“What about the cost of software?” The government has committed to ensuring free software is available for taxpayers with the most straightforward affairs. Several providers already offer free or low-cost options, though paid software often provides features that save significant time.

“I’m not tech-savvy.” Modern MTD software is designed for non-accountants. If you can use a smartphone or shop online, you can use MTD software. Many providers offer bank feed integration, so transactions import automatically rather than requiring manual entry.

Why getting ready early makes sense

Even if you’re below current thresholds, there are genuine benefits to adopting digital record-keeping and MTD-ready software before you’re required to.

Better ongoing visibility of your finances helps with business decisions and tax planning. Catching up on bookkeeping quarterly rather than annually spreads the workload and reduces year-end stress. You’ll be prepared if your income grows or thresholds are lowered further. And frankly, the organisations that struggle most with any regulatory change are those that leave preparation until the last minute.

The transition to MTD for Income Tax doesn’t have to be painful. With the right software—particularly software designed from the ground up for MTD rather than adapted from older systems—quarterly reporting can become a straightforward routine rather than an administrative burden. The key is choosing a solution that makes compliance simple, keeps you in control of your tax position, and fits naturally into how you already work.