Making Tax Digital (MTD) is HMRC's programme to digitise the UK tax system. It started with VAT. Now it's expanding to income tax, and this is where it gets significant for millions of self-employed people.

If you're a sole trader or landlord with qualifying income above £50,000, MTD for Income Tax Self Assessment (ITSA) starts in April 2026. If your income is above £30,000, you're next in April 2027.

This isn't optional. It's a legal requirement.

What MTD Actually Requires You to Do

MTD replaces annual Self Assessment returns with a digital recordkeeping and reporting system. Here's what changes:

Digital records. You must keep your income and expense records using MTD-compatible software. Spreadsheets are allowed only if they can connect digitally to HMRC systems.

Quarterly updates. Instead of one annual return, you submit quarterly summaries of income and expenses to HMRC through your software. These are due within one month of each quarter end.

End of Period Statement (EOPS). After the tax year ends, you submit a finalisation statement confirming your figures are complete and correct. This replaces the annual Self Assessment return.

Final declaration. You confirm your total taxable income across all sources and make any necessary adjustments.

The quarterly deadlines follow the tax year quarters:

  • Q1: 6 April to 5 July (submission by 5 August)
  • Q2: 6 July to 5 October (submission by 5 November)
  • Q3: 6 October to 5 January (submission by 5 February)
  • Q4: 6 January to 5 April (submission by 5 May)

Who Needs to Comply and When

April 2026: Self-employed individuals and landlords with qualifying income above £50,000

April 2027: Self-employed individuals and landlords with qualifying income above £30,000

Future (TBC): Those with income below £30,000 and potentially partnerships. No confirmed date yet.

"Qualifying income" means gross income from self-employment or property, not profit. If your freelance revenue is £55,000 but after expenses your profit is £30,000, you're still in the April 2026 group because your gross income exceeds £50,000.

Which Software to Use

HMRC maintains a list of MTD-compatible software. Major options include:

FreeAgent is popular with freelancers and micro-businesses. Includes banking integration, invoicing, and automatic categorisation. From £14.50/month, though many banks offer it free (NatWest, Mettle, Tide).

Xero offers comprehensive accounting with MTD compatibility. Strong for businesses with employees or complex needs. From £15/month.

QuickBooks provides Self-Employed and Small Business tiers, both MTD-compatible. From £10/month.

Sage offers various products for different business sizes. Well-established with accountants. Pricing varies.

HMRC's own free software exists for simple cases but has limited functionality. Fine if you have straightforward income and expenses with no complications.

When choosing, consider:

  • Does it integrate with your bank account?
  • Can your accountant access it directly?
  • Does it handle your specific business type well?
  • What happens if you outgrow it?

How to Prepare Now

Step 1: Check whether you're affected. Review your qualifying income for the current tax year. If it's above £50,000, you need to be ready by April 2026.

Step 2: Choose your software. Don't wait until March. Migration takes time, especially if you're moving from paper records or basic spreadsheets.

Step 3: Set up digital recordkeeping. Start recording income and expenses in your chosen software now. Even before MTD requires it, digital records are easier to manage.

Step 4: Talk to your accountant. If you use one, discuss how MTD changes your working relationship. Some accountants want direct access to your software. Others prefer you to send exported data.

Step 5: Understand the penalties. Late submissions attract penalties under HMRC's new points-based system. Each late submission earns a point. Accumulate enough points and you receive a financial penalty. The intention is to target persistent late filers rather than occasional mistakes.

What MTD Doesn't Change

Your tax liability doesn't change. MTD is about how you report, not how much you owe. Your allowable expenses, tax rates, and payment dates remain the same.

You can still use an accountant. MTD doesn't require you to do everything yourself. Your accountant can submit on your behalf using agent software.

Your payment dates are largely unchanged. You'll still pay tax in January and July through the payment on account system, though HMRC has discussed aligning payments more closely with quarterly reporting in the future.

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