Changes introduced in 2026. Making Tax Digital (MTD)
What is Making Tax Digital?
Simply put, Making Tax Digital (MTD) marks the end of the traditional “shoebox of receipts” and the annual paper tax return. Instead, affected business owners, sole traders, and landlords must keep digital records of their income and expenses using compatible software and send quarterly updates to HMRC.
Making Tax Digital is a move towards a more real-time tax system, designed to reduce errors and help you manage cash flow more effectively.
The difference between MTD for VAT and income tax
It is crucial to distinguish between the rules for VAT and the new rules for income tax, as they are separate systems.
MTD for VAT: This is already in place. If your business is VAT-registered, you should already be filing your VAT returns digitally.
MTD for income tax: This is the new requirement starting in April 2026. It applies to your personal income tax (Self Assessment), not your VAT.
Being compliant with MTD for VAT does not automatically make you compliant with MTD for income tax. You may need to register for the new Income Tax service separately, even if you are already using software for VAT.
Information and Dates follow.
MTD Rollout by Income Level
Income Over £50,000
Tax return year: 2024/25 (filed by January 2026)
MTD start date: 6 April 2026
Income Over £30,000
Tax return year:2025/26 (filed by January 2027)
MTD start date: 6 April 2027
Income Over £20,000
Tax return year: 2026/27 (future legislation planned)
Expected MTD start date: April 2028
Submission Dates
These five submissions are made up of four quarterly updates, and one ‘final declaration’.
Quarter 1:
Tax Year Period: 6 April – 5 July
Deadline for submission: 7 August
Quarter 2:
Tax Year Period: 6 July – 5 October
Deadline for submission: 7 November
Quarter 3:
Tax Year Period: 6 October – 5 January
Deadline for submission: 7 February
Quarter 4:
Tax Year Period: 6 January – 5 April
Deadline for submission: 7 May
Final declaration
31 January (Year following)
Do I have to pay tax five times a year?
No. This is a common worry, but MTD 2026 rules only change reporting dates, not payment dates.
Your tax bill is still due at the usual times:
31 January: Balancing payment for the previous year + first payment on account.
31 July: Second Payment on Account.
Timelines –
You advised to Check the new timeline for Making Tax Digital and see if you are liable for the April 2026 rollout.
The rules for how sole traders and landlords report their income to HMRC are changing, and for many sole traders and landlords, the shift begins sooner than you might think.
If you are currently filing your Self Assessment tax return for the 2024/25 tax year (the one due by 31 January 2026), the figure you submit could make you liable for Making Tax Digital for income tax starting in April 2026.
When does Making Tax Digital start for income tax?
A common question we hear from members is: “When does making tax digital start for me?”
It is important to understand that your start date is determined by your “Look-Back” period- specifically, the income you declared in your previous tax returns. You cannot wait until April 2026 to calculate if you are liable; the decision is based on the data you are filing right now.
MTD Rollout by Income Level
Income Over £50,000
Tax return year: 2024/25 (filed by January 2026)
MTD start date: 6 April 2026
Income Over £30,000
Tax return year:2025/26 (filed by January 2027)
MTD start date: 6 April 2027
Income Over £20,000
Tax return year: 2026/27 (future legislation planned)
Expected MTD start date: April 2028
Am I affected? The “qualifying income” check
Determining whether you need to sign up for HMRC Making Tax Digital 2026 rules relies entirely on your “qualifying income”. This is the specific figure HMRC uses to decide if you cross the £50,000 threshold.
It is vital to understand that qualifying income is your total gross income (turnover), not your profit.
Many business owners mistakenly look at their final profit figure (the amount they pay tax on) and assume they are exempt because it falls below £50,000. However, if your total sales or rental income before expenses exceeds the limit, you are legally required to join MTD.
Qualifying income includes the combined total of:
Turnover from self-employment (sole trader income).
Gross rental income from property (UK or overseas).
For example, if you are a freelance graphic designer with a turnover of £45,000 and you also receive £6,000 a year in rental income from a flat you own, your total qualifying income is £51,000. Even though neither source hits the threshold individually, the combined total places you in the mandatory bracket for April 2026.
Income that does not count
Crucially, other sources of income are ignored for this test. You do not need to include:
Wages from employment (PAYE).
Dividends from shares.
Interest on savings.
The “non-VAT” confusion
A common misconception is that MTD is only for businesses that pay VAT. This is no longer the case.
Making Tax Digital for non-VAT registered businesses will affect thousands of sole traders who have historically flown under the radar. Even if your turnover is well below the £90,000 VAT threshold, if it is above £50,000, you must comply with the new income tax rules. You do not need to register for VAT, but you do need to register for MTD for income tax.
Who is exempt from Making Tax Digital?
While these changes are significant for sole traders and landlords, they do not yet apply to everyone.
Limited companies: If you trade exclusively through a Limited Company, you are currently exempt from these specific rules. There is no Making Tax Digital for corporation tax mandate for 2026; at the time of writing, the government has not yet set a date for digitising corporation tax.
Partnerships: General partnerships and Limited Liability Partnerships (LLPs) are also deferred to a later date.
Trusts and estates: These are currently exempt from the rollout.
The new deadlines: Five submissions per tax year
Under the current Self Assessment system, you are likely used to a single major deadline: the 31st of January. Under MTD, this rhythm changes significantly.
From April 2026, if you are within the scope of Making Tax Digital for Income Tax, you will be required to send updates to HMRC five times a year.
These five submissions are made up of four quarterly updates, and one ‘final declaration’.
Quarter 1:
Tax Year Period: 6 April – 5 July
Deadline for submission: 7 August
Quarter 2:
Tax Year Period: 6 July – 5 October
Deadline for submission: 7 November
Quarter 3:
Tax Year Period: 6 October – 5 January
Deadline for submission: 7 February
Quarter 4:
Tax Year Period: 6 January – 5 April
Deadline for submission: 7 May
Final declaration
31 January (Year following)
Although the updates are triggered by each three-month period shown above, every quarterly update is submitted on a cumulative, year-to-date basis from 6 April, replacing earlier totals and including any corrections to previous quarterly updates.
What is a ‘quarterly update’?
It is important not to panic about the frequency; a quarterly update is not a full tax return. It is a digital update of your income and expenses for the most recent three-month period, submitted as part of a cumulative year-to-date total.
If you are using compatible software, this process should be relatively quick; often just checking the data is correct and clicking “submit”. You do not need to make accounting adjustments or tax calculations for these quarterly updates; you are just showing HMRC the raw numbers.
What is the ‘final declaration’?
The Final Declaration (formerly known as the End of Period Statement) is where you finalise your tax position. Together with your end-of-period statements, this replaces the old Self Assessment tax return.
You submit this by 31 January after the tax year ends. This is where you make any accounting adjustments (like accruals or prepayments), claim personal tax reliefs, and confirm your final data is complete.
Do I have to pay tax five times a year?
No. This is a common worry, but MTD 2026 rules only change reporting dates, not payment dates.
Your tax bill is still due at the usual times:
31 January: Balancing payment for the previous year + first payment on account.
31 July: Second Payment on Account.
How to register and set up Making Tax Digital for income tax
One of the biggest misconceptions about Making Tax Digital is that HMRC will automatically switch you over. This is not the case. You must actively set up the process yourself before the deadline.
If you are a sole trader or landlord with qualifying income over £50,000, here is how to set up Making Tax Digital in three steps:
Step 1: Get compatible software
You can no longer use the HMRC website to type in your figures manually. To comply with the rules, you need software that can “talk” directly to HMRC’s systems.
You have two main options:
Compatible accounting software: This is the easiest route for most. Platforms like Xero, QuickBooks, FreeAgent, or Sage handle the entire process, from invoicing to submitting your quarterly updates. If you already use one of these, search for their specific MTD setup guides to switch the feature on.
Bridging software: If you are committed to using spreadsheets, you can keep them. However, you must use “bridging software” that links your spreadsheet to HMRC. This acts as a digital bridge, allowing you to upload your Excel data and submit it legally.
Check the official “Find software that’s compatible with Making Tax Digital for income tax” list on GOV.UK before buying anything.
FSB Member Tip: If you’re an FSB member, you’ll have access to our HMRC recognised Making Tax Digital App, which includes a bridging feature for spreadsheets.
Step 2: Start keeping digital records
Once you have your software, you must start keeping “digital records”. This means every time you buy fuel or invoice a client, the transaction must be recorded in your software with the date, value, and category (e.g., “Travel Costs”).
You cannot simply keep a paper book all year and type the totals into the software at the end. The record-keeping itself must be digital as you go.
Step 3: Register for the MTD service
Do not try to register until you have chosen your software. During the sign-up process, HMRC will ask you to confirm that you have compatible software in place.
Sign up: Go to the Signing up for Making Tax Digital page on GOV.UK.
Authenticate: You will need your Government Gateway ID.
Connect: Once signed up, you will need to “authorise” your software to send data to HMRC. This is usually done by logging into your software and clicking a “Connect to HMRC” button.
Making Tax Digital’s points-based penalty system
If you are worried about making a mistake with the new system, you are not alone. A major concern for many sole traders is the fear of instant fines for clicking the wrong button.
The good news is that HMRC is introducing a new, more lenient penalty system alongside MTD, designed to give you a chance to correct errors before you are fined.
From April 2026, Making Tax Digital penalties will work on a points system, similar to driving licence points.
Late submission: If you miss a quarterly update deadline, you will receive a penalty point. You will not receive a financial fine immediately.
Points threshold: You will only be fined a fixed amount (currently £200) once you reach a certain threshold of points (usually 4 points for quarterly reporters).
Penalty points reset: If you meet your deadlines for a set period afterwards, your points can be reset to zero.
This system is designed to penalise persistent offenders, not business owners who make a genuine one-off slip-up.
Can I opt out of Making Tax Digital?
Most sole traders and landlords over the threshold must join. However, there is an exemption for those who are “digitally excluded”.
This applies if it is not “reasonably practicable” for you to use digital tools due to:
Age, disability, or location (e.g., no internet access).
Religious beliefs that prevent the use of computers.
If you believe you qualify, you must apply to HMRC directly to claim this exemption; it is not automatic.
Don’t ignore the letters
If you receive a letter from HMRC stating you are liable for MTD for income tax, do not ignore it. Check your qualifying income from your 2024/25 tax return immediately.
If you are over the £50,000 threshold, the “clock” has already started ticking. Using the time between now and April 2026 to choose your software and separate your business banking will turn a major headache into a manageable admin task.
Do you Need compliant MTD software?
We have partnered with Rhino Software to provide a HMRC recognised, compliant Making Tax Digital App that handles the needs of the self-employed and property owners, as well as small business owners.
Keep your spreadsheets: If you don’t want to change how you work, use our “bridging” feature to upload your existing spreadsheet data directly to HMRC.
Simple record keeping: Perfect for freelancers who don’t need complex corporate accounting tools.
Ready for income tax: Verified by HMRC for the new April 2026 Income Tax rules.