Making Tax Digital for Income Tax: The Complete UK Guide (2026–2028)

If you're a sole trader or landlord in the UK, the way you report income to HMRC is changing — not as a proposal, but as a rollout with dates already fixed in law. This guide covers exactly what's changing, who it affects and when, what you need to do, and what happens if you don't.

What Making Tax Digital for Income Tax actually is

Making Tax Digital (MTD) is HMRC's programme to move tax reporting online and reduce errors. It started with VAT in 2019 — if you're VAT-registered, you're likely already used to digital VAT filing. The current phase extends the same approach to Income Tax Self Assessment, which is why you'll often see it written as MTD for ITSA.

The stated reason is straightforward: HMRC estimates the Self Assessment tax gap (the difference between tax owed and tax actually collected) at around 18.5%, roughly £5 billion a year, and believes digital, more frequent reporting closes a meaningful part of that gap through fewer errors and less scope for mistakes to go unnoticed until year-end.

What changes in practice: instead of one annual Self Assessment return, you'll submit four quarterly updates through approved software, followed by a final declaration each year (replacing what used to be your Self Assessment return). The final declaration deadline stays the same — 31 January following the end of the tax year — but by the time you reach it, your quarterly figures are already in the system, so there's less to gather at the last minute.

Who it affects — and who it doesn't

MTD for Income Tax applies to sole traders and landlords (including people who are both) whose qualifying income is over the relevant threshold. It does not apply to:

• Limited companies — they continue reporting through Corporation Tax, which has its own separate system.
• Employees on PAYE — this only concerns self-employment and property income.
• Anyone below the lowest confirmed threshold (£20,000) — though you can opt in voluntarily.

"Qualifying income" is a specific term worth getting right, because it trips people up: it's your total gross income from self-employment and property combined, before expenses or any tax allowances are deducted. It is not your profit, and it is not your income from each source assessed separately — a sole trader earning £28,000 from a business and £15,000 from a rental property has £43,000 in qualifying income, not two amounts under separate thresholds.

The three thresholds and dates

The rollout is staged by income band, assessed using your income from two tax years before the date you're brought in:

HMRC's own estimates put roughly 780,000 people in the first wave (over £50k) and a further ~970,000 joining at the £30k threshold — so by 2028, well over a million and a half additional sole traders and landlords will have moved onto MTD.

One detail that catches people out: this is assessed every year on a rolling basis. If your income dips below the threshold in a later year, that doesn't automatically take you back out of MTD once you've been brought in — the rules for coming back out are narrower than the rules for going in. If your income is close to a threshold and fluctuates year to year, this is worth planning around rather than assuming a quiet year gives you an exit.

What you actually need to do

1. Use HMRC-recognised software. You cannot use a spreadsheet on its own — HMRC requires "digital links," meaning if you use a spreadsheet at all, it has to connect to bridging software that submits to HMRC digitally rather than you copying figures across by hand. See our comparison of MTD-ready software for sole traders and landlords →
2. Keep digital records of your income and expenses as you go, rather than reconstructing them at year-end.
3. Submit quarterly updates to HMRC — broadly a running summary of income and expenses every three months.
4. Submit your final declaration by 31 January, consolidating the year's quarterly data plus any other personal income (PAYE, dividends, interest) to arrive at your final tax bill.

Penalties — and the first-year soft landing

MTD for Income Tax has its own points-based penalty system, separate from existing Self Assessment penalties:

• Miss a quarterly update or your final return, and you pick up a penalty point.
• Reach 4 points, and you're fined £200 — with another £200 for every further missed deadline after that.
• Points expire after 24 months of staying compliant.
• Late payment penalties are separate again and start accruing from day 16 after the due date.

The one piece of good news: if you were mandated in from April 2026, you won't receive penalty points for late quarterly updates during your first 12 months. This doesn't cover the year-end final declaration, though, which is still enforceable — so the soft landing buys you time to get the quarterly habit right, not a free pass on the annual deadline.