Making Tax Digital (MTD) is a UK government initiative requiring self-employed individuals and landlords to keep digital records and submit quarterly updates to HMRC using compatible software. MTD replaces the traditional annual Self Assessment tax return with more frequent digital reporting.
MTD for Income Tax becomes mandatory on 6 April 2026 for those with gross income over £50,000, and 6 April 2027 for those earning over £30,000.
What Making Tax Digital Means in Practice
Under MTD, the way you report your income to HMRC changes fundamentally:
| Traditional Self Assessment | Making Tax Digital | |----------------------------|-------------------| | Keep paper or digital records | Keep digital records only | | File once per year (31 January) | Submit quarterly + final declaration | | Software optional | HMRC-recognised software required | | Manual calculations acceptable | Software must calculate tax | | No real-time visibility | See your tax position throughout the year |
MTD does not change what you pay—it changes how you report.
Why HMRC Introduced MTD
HMRC introduced Making Tax Digital to:
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Reduce errors — Manual record-keeping and calculations cause mistakes. HMRC estimates MTD will reduce the £8.5 billion annual "tax gap" from errors and carelessness.
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Modernise tax administration — Paper records and annual filing are outdated. MTD brings UK tax reporting in line with digital banking and accounting.
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Improve compliance — Quarterly reporting catches issues earlier, before they become large problems at year-end.
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Provide real-time visibility — You see your tax position throughout the year, reducing January surprises.
According to HMRC's MTD impact assessment, the initiative aims to make tax administration "more effective, more efficient, and easier for taxpayers."
Who Must Comply with MTD
MTD for Income Tax Self Assessment (MTD ITSA) applies to:
Self-Employed Sole Traders
If you run a business as a sole trader and your gross self-employment income exceeds the threshold, you must comply with MTD.
Examples:
- Freelance designers, writers, consultants
- Tradespeople (plumbers, electricians, builders)
- Delivery drivers (Uber, Deliveroo, Amazon Flex)
- Online sellers (eBay, Etsy, Amazon)
Landlords
If you receive rental income from UK property and your gross property income exceeds the threshold, you must comply with MTD.
This includes:
- Buy-to-let landlords
- Airbnb and short-term rental hosts
- Those renting out a spare room (if income exceeds £7,500 Rent a Room threshold)
Combined Income
If you have both self-employment and property income, your combined gross income determines whether you must comply.
Example: You earn £30,000 from freelancing and £25,000 from rental property. Your combined income of £55,000 means you must comply from April 2026.
MTD Income Thresholds
| Compliance Date | Gross Income Threshold | |-----------------|------------------------| | 6 April 2026 | Over £50,000 | | 6 April 2027 | Over £30,000 | | TBC | Over £20,000 |
Important: The threshold is based on gross income (total receipts), not profit. If your business turns over £60,000 but your profit after expenses is £30,000, you still must comply in April 2026.
What MTD Requires You to Do
1. Keep Digital Records
You must maintain digital records of all:
- Business income received
- Allowable business expenses
- The date, amount, and category of each transaction
"Digital" means using software—spreadsheets alone do not qualify unless paired with bridging software that submits to HMRC.
2. Use HMRC-Recognised Software
Your software must be on HMRC's list of recognised MTD software. The software must:
- Store records digitally
- Calculate your tax position
- Connect to HMRC via the MTD API
- Submit quarterly updates and the final declaration
TaxFolio is HMRC-recognised MTD software built for UK self-employed and landlords.
3. Submit Quarterly Updates
Every three months, you submit a summary of your income and expenses to HMRC:
| Quarter | Period | Deadline | |---------|--------|----------| | Q1 | 6 April – 5 July | 7 August | | Q2 | 6 July – 5 October | 7 November | | Q3 | 6 October – 5 January | 7 February | | Q4 | 6 January – 5 April | 7 May |
Quarterly updates are summaries—you don't need to submit every receipt.
4. File a Final Declaration
After the tax year ends, you submit a final declaration by 31 January, confirming:
- Total income for the year
- All allowable expenses and reliefs
- Any adjustments
- Your final tax liability
This replaces the traditional Self Assessment return.
What MTD Does NOT Change
MTD changes how you report, not what you owe:
- Tax rates remain the same (20%, 40%, 45%)
- Allowable expenses remain the same
- Payment dates remain the same (31 January, 31 July)
- National Insurance calculations remain the same
- Personal Allowance remains the same (£12,570)
You may see your tax position more clearly throughout the year, but the amount you owe is calculated the same way.
MTD Software Requirements
To comply with MTD, your software must:
| Requirement | What It Means | |-------------|---------------| | HMRC-recognised | Listed on GOV.UK's approved software list | | Digital record storage | Stores income and expenses electronically | | Tax calculations | Calculates Income Tax and National Insurance | | MTD API connection | Submits directly to HMRC (no manual upload) | | Quarterly submissions | Can send Q1-Q4 updates | | Final declaration | Can submit year-end confirmation |
Software Options
Full MTD Software (recommended):
- TaxFolio, FreeAgent, QuickBooks, Xero, Sage
- Handles everything: records, calculations, submissions
- Connects to your bank via Open Banking
Bridging Software:
- Connects spreadsheets to HMRC
- You maintain records in Excel/Google Sheets
- Software formats and submits data
- More manual effort, higher error risk
Compare MTD software options in our detailed guide.
MTD Exemptions
Some people are exempt from MTD:
Digital Exclusion
If you cannot use computers or the internet due to:
- Age
- Disability
- Remote location without internet access
- Religious beliefs
You must apply to HMRC for an exemption.
Below the Threshold
If your gross income is below the current threshold, you're not required to use MTD (though you can voluntarily).
Insolvency
Those who are insolvent may be exempt.
MTD Penalties
HMRC uses a points-based penalty system for late submissions:
| Late Submissions | Consequence | |------------------|-------------| | 1st late | 1 point (warning) | | 2nd late | 2 points (warning) | | 3rd late | 3 points (warning) | | 4th late | 4 points + £200 penalty | | 5th+ late | £200 per additional late submission |
Points expire after 24 months of on-time submissions.
Late payment penalties are separate and based on how overdue your tax payment is.
Learn more about MTD deadlines and penalties.
How to Prepare for MTD
If You're in the April 2026 Wave (Income Over £50,000)
Now (January 2026):
- Choose HMRC-recognised software
- Connect your bank accounts
- Start categorising transactions
Before April 2026:
- Ensure historical records are digital
- Practice a test quarterly submission
- Set up deadline reminders
From April 2026:
- Keep all records digitally
- Submit Q1 by 7 August 2026
- Continue quarterly submissions
If You're in the April 2027 Wave (Income Over £30,000)
You have more time, but starting early means:
- Learning the system without deadline pressure
- Identifying gaps in your record-keeping
- Getting comfortable with quarterly reporting
MTD for Different Business Types
Sole Traders
Report self-employment income on the SA103 section. Your MTD software tracks:
- All business income
- Allowable expenses by category
- Capital allowances
Learn more: Sole Trader Tax Guide
Landlords
Report property income on the SA105 section. Your MTD software tracks:
- Rental income by property
- Property expenses
- Mortgage interest (for 20% tax credit)
Learn more: Landlord Tax Guide
Multiple Income Sources
If you have both self-employment and property income, report both through MTD. Your software should handle multiple income types in one submission.
TaxFolio supports both SA103 and SA105 in a single account.
Frequently Asked Questions
Do I still need an accountant with MTD?
For straightforward tax affairs, MTD software like TaxFolio can handle everything. Complex situations (multiple businesses, overseas income, tax planning) may still benefit from professional advice.
Can I use my phone for MTD?
Yes—most MTD software has mobile apps. TaxFolio works on iOS and Android for receipt capture and transaction review.
What if I miss a quarterly deadline?
You receive a penalty point. At 4 points, you get a £200 fine. Try to submit on time, but one missed deadline won't immediately cost you money.
Is MTD the same as Self Assessment?
MTD replaces the reporting part of Self Assessment. Instead of one annual return, you submit quarterly updates plus a final declaration. The tax calculations remain the same.
Get MTD-Ready with TaxFolio
TaxFolio is HMRC-recognised software built specifically for Making Tax Digital:
- Open Banking connects to all UK banks via TrueLayer
- AI categorisation sorts transactions automatically
- Quarterly reminders before every deadline
- One-click submission to HMRC via the MTD API
- From £69.99/year with no monthly fees
Start your free 30-day trial and be ready for MTD before April 2026.