Making Tax Digital for Income Tax: Am I Affected?

Making Tax Digital for Income Tax (MTD for ITSA) is the biggest change to tax reporting in a generation. It affects the self-employed and landlords. The checker above tells you whether it applies to you, and from when. This guide explains what MTD for Income Tax is and who must comply. It covers the timetable, what quarterly reporting involves, and how to get ready without panic.

What is Making Tax Digital for Income Tax?

MTD for Income Tax replaces the once-a-year Self Assessment return with a digital, quarterly system. You no longer pull everything together after the tax year ends. Instead, you must keep digital records of your income and expenses. You then send quarterly updates to HMRC using compatible software. After the year end, you submit a final declaration. The aim is to spread reporting through the year and reduce errors.

Who has to comply, and when

MTD for Income Tax is being introduced in stages. The trigger is your qualifying income. That means your combined gross income from self-employment and property, before expenses.

It is combined turnover from self-employment and rental property that counts. Not your profit. Not other income such as employment or pensions. If your self-employment and property income together exceed the threshold for a phase, you fall within MTD from that date. The checker above helps you work out which phase, if any, applies to you.

Who is not affected

MTD for Income Tax does not apply to you if your only income comes from:

• employment (PAYE)
• pensions
• savings
• dividends

It is specifically for sole traders and landlords above the income thresholds. If you are below the relevant threshold, you keep using the existing Self Assessment system for now. The thresholds are scheduled to come down over time.

What quarterly reporting actually involves

Under MTD, the rhythm of your tax year changes. You will:

• Keep digital records of business income and expenses as you go, using MTD-compatible software or a bridging tool.
• Send four quarterly updates to HMRC summarising your income and expenses for each period.
• Submit a final declaration after the tax year. This confirms the figures and adds anything else, such as other income and reliefs. It replaces the old annual return.

The quarterly updates are summaries, not full tax calculations. You do not pay tax four times a year. Payment deadlines stay broadly as they are. The change is mainly about how and when you report.

Why HMRC is doing this

The government wants to reduce errors and make tax more accurate. Capturing information closer to real time, through software, should beat once-a-year manual returns. For you, the upside is a clearer running picture of your tax position through the year. The downside is more frequent admin and the need for compatible software. Getting set up early makes the transition far smoother.

How to get ready

• Work out your qualifying income and which phase applies. The checker above does this.
• Choose MTD-compatible software and start keeping digital records before your start date. Your first quarter should not be a scramble.
• Separate business and personal transactions, ideally with a dedicated account, to keep record-keeping clean.
• Keep receipts digitally as you go, not in a shoebox for the year end.
• Speak to your accountant if you use one. Many will handle the quarterly submissions for you.

What "digital records" actually means

A common worry is that MTD means complicated accounting software. In practice, a digital record is simply an electronic record of each item of business income and expense. That means the date, amount and category. You can keep it in software, or in a spreadsheet linked to a bridging tool. You do not have to scan every receipt. You do need the underlying figures recorded digitally, not written in a paper book and added up once a year. Many people find digital records make their tax easier. The information is captured as it happens, and the quarterly summaries are largely automatic. The key is to choose your tool and start recording before your MTD start date. Then your first quarter runs smoothly.

A worked example - a landlord

Consider Sara. She has rental income of £28,000 and a small amount of freelance income of £6,000. Her combined qualifying income is £34,000. Her total is over £30,000, so she comes into MTD for Income Tax from April 2027. From that date she keeps digital records of her rental and freelance income and expenses. She sends four quarterly updates each year and submits a final declaration after the tax year. Her actual tax bill is unchanged. It still depends on her profit. What shifts is how she reports, from one annual return to ongoing digital reporting. Knowing her start date now means she can choose software and build the habit well before it becomes compulsory.

Penalties under the new system

MTD comes with a points-based penalty system for late submissions. You do not get an immediate fine for a single slip. Instead, you collect a point each time you miss a submission deadline. A penalty applies only once you reach a threshold of points. There are separate penalties for paying tax late. These get heavier the longer payment is outstanding. The system is designed to be fairer than the old automatic fines. Even so, it rewards staying on top of your quarterly updates. The simplest way to avoid points? Set calendar reminders for each quarterly deadline, or let an accountant handle submissions.

Voluntary sign-up and exemptions

You do not have to wait until MTD becomes compulsory for you. HMRC lets eligible taxpayers sign up voluntarily. That can be a sensible way to get used to the system early. You can iron out software issues while there is no pressure. On the other side, some people can apply for an exemption. This covers cases where it is not reasonably practicable to use digital tools, for example because of:

• age
• disability
• a location with poor internet
• religious grounds

Exemptions are not automatic. You must apply, and HMRC decides each case. If you think an exemption might apply to you, raise it well before your start date. Do not leave it to the last minute.

What stays the same

It is easy to assume MTD changes everything. In fact, much stays familiar. The tax rules themselves are unchanged, including:

• the personal allowance
• the income tax bands
• National Insurance
• the expenses you can claim

Your overall tax bill is still based on your annual profit, not on the individual quarterly updates. Those updates are estimates, reconciled in the final declaration. Payment dates for your tax are broadly unchanged too. In other words, MTD changes the plumbing of reporting, not how much you owe. That is reassuring once you understand it. The main adjustment is the habit of keeping records digitally and submitting through the year, instead of in one annual rush.

Where to get help

You do not have to navigate MTD alone. If you already use an accountant, ask them how they will handle your quarterly updates. Many will manage the whole process and simply ask you to keep records flowing through the year. If you do your own tax, choose your MTD-compatible software early. Use the free guidance on GOV.UK, which sets out the rules, deadlines and the list of approved software. HMRC also runs webinars and support for people moving to the new system. The single best piece of advice is to start before you have to. Keep digital records early, and sign up voluntarily ahead of your mandatory date if you wish. That way your first compulsory quarter is routine, not a scramble. It also gives you time to fix any teething problems with your software or record-keeping while there is no penalty pressure. You arrive at your mandatory start date already comfortable with the new system.

Plan your wider tax position

MTD changes how you report, not how much tax you owe. Your bill still depends on your profit and the income tax and National Insurance rules. To estimate what you will actually pay, use our self-employed tax calculator. To understand the income tax bands behind it, see the income tax calculator. Landlords can estimate tax on rental profit with the rental income tax calculator.

Key takeaways

• MTD for Income Tax replaces the annual return with digital records and quarterly updates.
• It starts in April 2026 for qualifying income over £50,000, and April 2027 for over £30,000.
• Qualifying income is combined self-employment and property turnover, before expenses.
• Employment, pension, savings and dividend income alone do not bring you into MTD.
• You do not pay tax quarterly. The change is about reporting, not payment dates.

This guide gives general information on Making Tax Digital for Income Tax. It is not personal tax advice. Rules and thresholds can change, so confirm your position with HMRC or a qualified adviser.