Making Tax Digital for Income Tax: What You Need to Know

Making Tax Digital for Income Tax is changing the way many sole traders and landlords manage and report their tax information to HMRC.

If you are used to organising your records once a year for Self Assessment, the new system may feel like a big change. The good news is that preparing early can make the move much easier.

Making Tax Digital, often called MTD, is designed to encourage better digital record keeping and more regular reporting. Instead of waiting until the end of the tax year to organise everything, qualifying individuals will need to maintain digital records throughout the year and send quarterly updates to HMRC using compatible software.

Here is what you need to know and how you can prepare.

What Is Making Tax Digital for Income Tax?

Making Tax Digital for Income Tax is part of HMRC’s wider plan to make tax administration more digital.

The system will apply to qualifying individuals with income from self employment and property. Rather than relying mainly on annual record keeping, MTD encourages you to keep your financial information organised digitally throughout the year.

Why HMRC Is Introducing Making Tax Digital

HMRC wants to make tax reporting more accurate and reduce avoidable mistakes.

Keeping records digitally can make it easier to see your income and expenses throughout the year. It can also reduce the amount of work needed when important tax deadlines approach.

How MTD for Income Tax Changes Tax Reporting

Under MTD for Income Tax, qualifying individuals will need to use compatible software to keep digital records and submit required information to HMRC.

This means record keeping becomes an ongoing part of managing your finances rather than something you deal with only around the Self Assessment deadline.

When Does Making Tax Digital for Income Tax Start?

MTD for Income Tax is being introduced in stages. When you need to join depends mainly on your qualifying income.

Making Tax Digital From April 2026

From 6 April 2026, MTD for Income Tax applies to qualifying sole traders and landlords whose total qualifying income from self employment and property is more than £50,000.

Your qualifying income is generally based on your gross income before expenses rather than your taxable profit.

When the £30,000 Threshold Applies

The next stage begins from 6 April 2027.

Individuals with qualifying income of more than £30,000 will then come within MTD for Income Tax requirements.

This means people who are not affected in 2026 may still need to start preparing for the following tax year.

What Happens When the Threshold Falls to £20,000?

The Government has also announced plans to extend MTD for Income Tax to those with qualifying income above £20,000 from April 2028.

If your income is around these thresholds, keeping accurate records now will make it much easier to understand when the rules apply to you.

Who Needs to Use Making Tax Digital for Income Tax?

The rules mainly affect individuals receiving qualifying income from self employment, property, or both.

Making Tax Digital for Sole Traders

If you are a sole trader, your gross self employment income counts towards your qualifying income.

You should therefore check your income carefully rather than waiting until the MTD deadline approaches.

Making Tax Digital for Landlords

Landlords are also included.

Qualifying property income is taken into account when deciding whether you need to use MTD. This makes the changes particularly important for landlords who currently manage rental income and expenses using paper records or basic spreadsheets.

What If You Have Both Business and Property Income?

Your qualifying income can include both self employment and property income.

For example, if you receive income from a sole trader business as well as rental property, the relevant amounts are considered together when determining whether you cross the MTD threshold.

Who Does Not Need to Join Yet?

If your qualifying income is below the applicable threshold, you will not normally need to join MTD for Income Tax at that stage.

There are also certain exemptions and specific circumstances where different rules may apply. If you are unsure, speak to an accountant before assuming you are outside the requirements.

What Will You Need to Do Under MTD for Income Tax?

MTD changes how financial information is recorded and submitted.

Keep Digital Records

You will need to maintain digital records of relevant business or property income and expenses.

The aim is to keep these records updated throughout the year rather than collecting paperwork just before your tax return is due.

Send Quarterly Updates to HMRC

You will need to send quarterly updates to HMRC through compatible software.

These updates provide summaries of your income and expenses during the year. Keeping your bookkeeping up to date will make this process much easier.

Complete Your Final Declaration

At the end of the tax year, you will still need to finalise your tax position and provide any other information HMRC requires.

The process is designed to bring together your relevant income information so that your final Income Tax liability can be calculated correctly.

What Counts as MTD Compatible Software?

Compatible software must be able to meet HMRC’s MTD requirements, including maintaining the necessary digital records and communicating information to HMRC.

Can You Continue Using Spreadsheets?

You may be able to continue using spreadsheets in some circumstances, but they need to form part of a compliant digital system.

This may require bridging software or another compatible solution that can connect your records with HMRC.

Choosing Accounting Software for MTD

Choose software that suits the way you actually manage your finances.

Consider how easy it is to record income and expenses, manage invoices, reconcile bank transactions and share information with your accountant.

Your accountant can help you understand which option is suitable rather than paying for features you do not need.

What Are the Benefits of Making Tax Digital?

MTD introduces additional responsibilities, but better digital record keeping can also have practical benefits.

Better Visibility of Your Tax Position

Keeping records throughout the year gives you a clearer picture of your income and expenses.

This can make it easier to plan ahead and avoid unexpected surprises.

Fewer Record Keeping Errors

Digital accounting systems can reduce mistakes caused by missing paperwork, duplicated information and manual calculations.

Accurate records also make it easier for your accountant to identify potential issues.

More Up to Date Financial Records

Regular bookkeeping means you have a more current view of your financial position.

This information can help with budgeting, cash flow planning and wider business decisions, not just tax reporting.

How to Prepare for Making Tax Digital

You do not need to wait until MTD becomes mandatory before preparing.

Check Whether the Income Threshold Applies to You

Start by checking your gross income from self employment and property.

Understanding your qualifying income will help you identify when you are likely to enter MTD.

Move Your Records to a Digital System

If you currently rely heavily on paperwork, consider moving towards digital bookkeeping.

Starting early gives you time to become comfortable with the new process.

Choose MTD Compatible Accounting Software

Check that your accounting software supports Making Tax Digital for Income Tax.

Avoid choosing software simply because it is popular. It should suit your business, property portfolio and accounting needs.

Get Used to Keeping Records Throughout the Year

Regular bookkeeping will become increasingly important.

Rather than leaving everything until the end of the year, create a routine for recording transactions and checking your accounts.

Speak to Your Accountant Before the Deadline

Your accountant can check whether MTD applies to you, review your current record keeping and help you choose appropriate software.

Preparing before your mandatory start date can prevent unnecessary pressure later.

Making Tax Digital for Income Tax FAQs

When does Making Tax Digital for Income Tax start?

MTD for Income Tax starts from 6 April 2026 for qualifying individuals with annual qualifying income above £50,000. The income threshold reduces in later phases.

What is the income threshold for MTD?

The initial qualifying income threshold is above £50,000 from April 2026. It reduces to above £30,000 from April 2027, with plans to extend the system to qualifying income above £20,000 from April 2028.

Do landlords have to use Making Tax Digital?

Yes, landlords may need to use MTD for Income Tax when their qualifying property and self employment income exceeds the applicable threshold.

Do sole traders need MTD compatible software?

Sole traders who come within MTD for Income Tax will need compatible software that supports the required digital record keeping and HMRC submissions.

Do I still need to complete a Self Assessment tax return?

MTD changes how qualifying income is recorded and reported. Your exact year end obligations depend on your circumstances and the income you receive, so it is worth checking your requirements with an accountant.

Can my accountant manage MTD for me?

Yes. An accountant can support you with digital record keeping, compatible accounting software, quarterly submissions and your year end tax obligations.

Get Ready for Making Tax Digital

Making Tax Digital for Income Tax represents a significant change for sole traders and landlords, but it does not need to become an additional source of stress.

The key is to understand when the rules apply to you and prepare your records before your mandatory start date.

At Alba Financial Accountants, we can help you understand your MTD responsibilities, organise your digital records and prepare for the new reporting requirements. Getting everything in place early means you can approach the changes with confidence while continuing to focus on your business.