MTD IT A practical guide to the rules, the thresholds, the deadlines and the penalties.
Making Tax Digital for Income Tax is the largest change to the way self-employed people and landlords report their income in a generation. Around 800,000 people are expected to move onto the new platform each year, and the way you keep records and talk to HMRC is going to look very different from the annual return you may have grown used to. This guide sets out who is affected, how to work out whether you are within scope, what you will actually have to do, and what happens if you get it wrong.
Who has to use Making Tax Digital for Income Tax.
Only two kinds of income bring you into the regime. The first is self-employment income earned as a sole trader. The second is property income, including income from foreign property. Partnership income does not count, and neither does income from a limited company or employment.
The rules are being introduced in phases, based on your qualifying income:
- From April 2026, for those with qualifying income above £50,000.
- From April 2027, for those with qualifying income above £30,000.
- From April 2028, for those with qualifying income above £20,000.
The single most important point to grasp is that the test is based on gross income, not profit. It is your turnover and other business income that counts, not what is left after expenses. For property, this means the full rent. If a letting agent deducts their fee and pays you the balance, you must still count the gross rent, not the amount that lands in your account. You should add together your self-employment turnover and your total property income, including any other property income, to work out where you stand.
Working out your qualifying income.
If you want to check the figures against a filed return, the qualifying income is drawn from specific boxes. For self-employment and UK property, look at the SA105 boxes 5, 6.1, 22 and 23. For foreign property, look at SA106 boxes 14 and 16. Only your share of any income counts, so for jointly held property it is your share of the gross rent that matters, not the whole.
Rent a room relief needs a little care. If your rent a room income is below the limit of £7,500, it is not shown as income at all. You simply tick a box, so it does not feed into your qualifying income. If your rent a room income is above the limit, you either enter the full amount and deduct the relief, or you use the profit and loss method and deduct your actual expenses instead.
One trap catches people out. Even if your income falls in the current year, you will still be within Making Tax Digital if your income in the previous year was above the threshold. The test looks back, so a good year followed by a quieter one does not release you straight away.
What you actually have to do.
Once you are within scope, the annual return gives way to a rhythm of digital record keeping and quarterly updates. HMRC will write to everyone who is mandated to confirm that they must join.
Keeping digital records.
Digital record keeping means more than storing a monthly total. You need to keep your records transaction by transaction, so month one rent, month two rent and so on, rather than a single figure for the year. The cash basis is the default. Each record needs a date, an amount and a short piece of analysis, and that analysis can double as the box narrative for your expenses.
Because the cash basis is the default, timing matters. There may be situations where a tenant pays several months of rent in advance, perhaps where there is a question mark over their financial standing. On the cash basis, all of that rent is included when it is received. You can always correct your records and resubmit during the year, so an early mistake is not fatal.
How many submissions you will make.
The number of quarterly submissions depends on how many sources you have. If you have one self-employment and one property business, you make two submissions each quarter, one for each. If you have two separate self-employments and two properties, you make three submissions each quarter, one for each self-employment and one covering all the property income together, because your UK properties form a single property business. Foreign property is always a separate submission on top of that.
There is an easement for jointly owned property. You can report only the rent on a quarterly basis and leave the fuller detail to your annual return. And where you receive combined interest and capital payments but only get an interest statement once a year, you still need to identify the interest portion and enter it yourself.
The timeline for the first phase.
For those coming in from April 2026, the year unfolds as follows. The dates are worth marking in the diary now, because the quarterly rhythm is unforgiving once it starts.
| Date | What happens |
| 6 April 2026 | Start keeping digital records using compatible software. |
| 7 August 2026 | First quarterly update due, covering 6 April to 5 July 2026. |
| 7 November 2026 | Second quarterly update due, covering 6 April to 5 October 2026. |
| 31 January 2027 | Self Assessment tax return for 2025 to 2026 due in the usual way. |
| 7 February 2027 | Third quarterly update due, covering 6 April 2026 to 5 January 2027. |
| 7 May 2027 | Fourth quarterly update due, covering 6 April 2026 to 5 April 2027. |
| 7 August 2027 | First quarterly update for the new year, covering 6 April to 5 July 2027. People with gross income above £30,000 begin using MTD. |
| 7 November 2027 | Second quarterly update due, covering 6 April to 5 October 2027. |
| 31 January 2028 | First MTD final declaration due and income tax payable for 2026 to 2027. |
When your circumstances change.
Life does not stand still, and Making Tax Digital has rules for most of the changes that can arise. Some changes must be reported to HMRC through your online services account or, if you use an agent, through the agent services account. Others, such as changing your software, do not need to be reported at all, though you may still have to take some action.
Adding a new income source.
You only need to add income you earn as a sole trader. You do not need to add partnership income, income from a limited company or employment income, although you must still include those in your tax return if you have them.
Helpfully, you do not have to start keeping digital records or sending quarterly updates for a brand new source straight away. You only do this after you have submitted a tax return that includes the income for the first time. So if you start a new self-employment on 1 July 2026, you first report it in your 2026 to 2027 return, which is due by 31 January 2028, and you then begin digital records and quarterly updates for it from 6 April 2028. You can choose to bring it into Making Tax Digital from the start if you prefer, by selecting that option in your software.
Landlords are treated differently. If you already let a UK property and start letting another, this is not a new income source, because all your UK properties form one UK property business, and your non-UK properties form one foreign property business. In that case you must create digital records for the new property from the moment you start receiving rent from it.
Ceasing an income source.
Ceasing a source means your business has stopped trading or you have stopped receiving property income. You tell HMRC the date the income ended, and you must do so by the quarterly update deadline for the period in which it stopped. The ceased source is then picked up in your tax return.
If only one of several sources stops, you tell HMRC and complete any outstanding quarterly updates for that source, after which the update reminders for it stop, although you will still be reminded to file your return. You must keep going with digital records and quarterly updates for everything that continues. If you stop letting one UK property but still let others, your property business simply continues, and you do not need to tell HMRC at all.
If you cease your only source of self-employment or property income, you tell HMRC the date it ended, send the final quarterly update for the period that includes that date, and include the ceased income in your return, which you must still file using Making Tax Digital software. After that year you will not need to use Making Tax Digital again unless you start a new qualifying source, though you must still store your digital records to support the return.
Where someone using Making Tax Digital dies, their obligations stop. The personal representative must tell HMRC about the death and make sure any outstanding returns are completed, but they do not need to use Making Tax Digital on that person’s behalf, so no digital records, outstanding quarterly updates or software submissions are required from them.
Amending a return.
If you need to change a return after submitting it, you do so through your compatible software, and you have up to 12 months from the submission deadline. The change flows through to your online account and produces an updated tax calculation. If you need to change something before you submit, you correct your digital records rather than making an amendment.
Coming out of Making Tax Digital.
Opting out when income falls.
If your qualifying income has fallen below the relevant threshold for three consecutive years, you can either carry on voluntarily or opt out and return to Self Assessment. HMRC uses the income in your fourth quarterly update for the third year to confirm that you have been below the threshold throughout. If you started in April 2026, for example, you could opt out after the end of the 2029 to 2030 tax year once the income across the relevant returns and that fourth update sits at or below the thresholds concerned. Once you opt out, you stop digital records and quarterly updates, any updates already sent for that year are deleted, and you file a Self Assessment return for it instead.
Exemptions.
Most eligible people will have to use Making Tax Digital, and simply not wanting to is not a valid reason to avoid it. Some exemptions are automatic and indefinite. You are automatically exempt if you are filing for someone else under a power of attorney or court appointment, if you are acting as the personal representative of someone who has died, if you do not have a National Insurance number, or if you are filing as a trustee, which includes charities and some pension schemes.
Beyond that, you can apply for an exemption if you are digitally excluded, meaning it is not reasonable for you to use software. That might be because age, disability or a health condition prevents you using digital devices, or because you do not have reliable internet access and cannot reasonably use an alternative. HMRC assesses each application on its own facts. You will not qualify simply because you have always filed on paper, because you are not confident with software, because you have only a few records, or because compliance would take extra time or money.
To apply on grounds of digital exclusion you can call HMRC on 0300 200 3310, or write to Self Assessment, HMRC, BX9 1AS, using the heading Making Tax Digital for Income Tax, Digitally Excluded Exemption. If you expect to be in from April 2026, the application process is open now, so it is worth applying as early as possible.
Penalties.
Miss the new deadlines and you can pick up penalty points that lead to a charge, although there is a more lenient approach for the 2026 to 2027 tax year. For that first year, HMRC has said there are no penalties for late quarterly updates, but you can still be penalised for a late tax return and for late payment, and record keeping penalties still apply. There are broadly three types of penalty.
Late submission penalties.
These work on a points system. You receive one point for each missed deadline, and at four points you receive a £200 penalty, with a further £200 for each subsequent miss. In 2026 to 2027 this applies only to the end of year tax return, not to the quarterly updates.
Late payment penalties.
Interest runs from day one, currently at 7.75 per cent. A 3 per cent penalty applies after 15 days, rising to 6 per cent after 30 days, with further daily penalties beyond that. For the first year only, you have up to 30 days to pay or to agree a Time to Pay arrangement before penalties begin, rather than the usual 15.
Record keeping penalties.
You must keep proper digital records using compatible software, and the penalties for failing to do so can reach £3,000. In practice, if you make a genuine mistake and can show you took reasonable care, HMRC says it will not apply a penalty. The higher penalties are reserved for errors that are careless or deliberate. These penalties do not apply to your quarterly updates, even after your first year, because you can correct errors in those after submission. The penalties for error bite only on your tax return, which is where you confirm your final position.
How points are cleared.
If you stay below the four point threshold, each point is removed automatically 24 months after it was applied. If you reach or exceed the threshold, the points remain, on top of the fine, until you have completed a full 12 months meeting every quarterly update and tax return deadline, and you have submitted any outstanding updates or declarations. The relevant dates are shown in your HMRC online services account.
A word on software changes and insolvency.
You can change your software whenever you like, and you may even use different software for different income sources. Whichever software you use, you must keep your digital records for at least five years from the submission deadline for the year concerned. If you change software after a tax year ends, you simply keep the old records accessible and do not need to import them. If you change part way through a year, you either import the current year’s records into the new software or recreate them, and where you use bridging software you must link the new software to your records and remove the old link.
Insolvency does not release you. If you keep receiving self-employment or property income after entering a formal insolvency procedure, you carry on using Making Tax Digital. Any late submission penalty points are reset to zero at that point, but if you continue to receive income after the tax year in which you became insolvent, points and penalties apply as normal from then on.
Where this leaves you.
Making Tax Digital rewards preparation. The people who find the transition smoothest will be those who have their record keeping in order, who understand which of their income sources count, and who have marked the quarterly deadlines well in advance. If your affairs involve more than one source, foreign property, jointly held property or a rent a room arrangement, the detail matters a great deal, and it is worth working through your particular position carefully rather than assuming the headline threshold tells the whole story.
Which of your income sources do you think will bring you into Making Tax Digital first, and have you worked out whether it is the £50,000, £30,000 or £20,000 threshold that applies to you?