Making Tax Digital for Income Tax

Making Tax Digital (MTD) changes the way businesses deal with keeping financial records and filing tax returns. From 6 April 2026, MTD for Income Tax starts to apply to self-employed businesses and landlords with property income.

If your business is covered by Making Tax Digital for Income Tax, you must:

• keep digital financial records
• provide quarterly updates to HM Revenue & Customs (HMRC)
• file an annual report online

Although changing to MTD may seem off-putting, it should not be difficult. Using MTD can make it easier to keep up to date with your bookkeeping and get your tax details right. You may also find that better financial records give you insights that help improve your business.

When does MTD for Income Tax apply?

Exemptions from MTD

Keeping digital records for MTD

Quarterly updates

The year-end final declaration

When does Making Tax Digital for Income Tax apply?

Making Tax Digital for Income Tax is gradually being rolled-out to self-employed businesses and landlords:

• From 6 April 2026, the MTD threshold is £50,000 business (and property) income.
• From 6 April 2027, the threshold is £30,000.
• The threshold is expected to fall to £20,000 by July 2029 (or earlier).
• MTD for Income Tax does not apply to partnerships, but is expected to include them at some point.

The thresholds are based on gross business income subject to income tax and Class 4 National Insurance contributions, not on profits. If your turnover is over £50,000, MTD applies to your business from 6 April 2026 regardless of how profitable your business is.

MTD for Income Tax starts applying to your business following the first year in which your income was more than the threshold. So if your tax return shows gross income of more than £50,000 for the tax year 2024/25 (which you must file by 31 January 2026), you are required to comply with MTD from 6 April 2026. Similarly, someone who files a 2025/26 self assessment return showing gross income of £35,000 must comply with MTD from 6 April 2027.

HMRC should notify you when you have to comply with MTD, but you should check if you don't hear anything and think MTD applies. Once MTD applies, you have to register (or ask whoever deals with your bookkeeping and taxes to do it for you).

You can opt voluntarily to use MTD, even if your turnover is below the threshold.

Once MTD applies to your business, it continues to apply indefinitely. You can apply to stop using MTD if you stop being self-employed (or a landlord), or if your turnover falls below the threshold for three years in a row.

Exemptions from Making Tax Digital 

There are a few special circumstances where you are exempt or can apply for an exemption from MTD, even if your taxable income is above the threshold.

Automatic exemptions include:

• if HMRC has already agreed that you are exempt from Making Tax Digital for VAT
• if you do not have a National Insurance number on 31 January before the start of the tax year
• if you are an overseas company
• income as a member of a partnership or a Limited Liability Partnership
• income as a foster carer, or as a Lloyds underwriting member

You can apply for an exemption if:

• you have a disability that means it is not reasonably practicable for you to deal with bookkeeping and tax digitally
• there is some other reason why you are digitally excluded (for example, if you live in a remote location where it is impossible to get reliable broadband)
• your religious beliefs don't allow you to comply

If you have an exemption but the reason for it no longer applies, you must tell HMRC within three months.

Keeping digital records for Making Tax Digital for Income Tax

You must keep digital records of self-employment (and property) income and expenses - for example, using accounting software or a spreadsheet.

You still need to keep any records that you might need to provide evidence of your income and expenses - for example, invoices, receipts and so on.

Importantly, your entire MTD record-keeping system must be 'digitally linked'. This means that once data has been entered into your digital records, any transfers of data happen digitally at every stage. For example:

• If you are using a spreadsheet to record and total expenses, the spreadsheet can calculate subtotals automatically using a formula. You cannot manually use a calculator to work out subtotals and then enter them.
• If you use more than one piece of software to deal with MTD, data has to be imported electronically as it passes between the different programs. You cannot manually re-enter information from one program into another, or copy and paste data.
• When you submit your quarterly updates, the information has to be calculated automatically and sent electronically from the software you are using. You cannot submit data manually.
• If you work with an accountant or an independent bookkeeper, records must pass between you electronically.

For most small businesses, this should not be a problem. If you already use accounting software, you should be able to continue using the same software. Any of the leading accounting software packages for small businesses will be able to comply with the requirements of MTD for Income Tax.

If you use a spreadsheet for your bookkeeping, now might be a good time to consider accounting software. But if you want to continue using spreadsheets, you will need to get special 'bridging software' that lets you file information with HMRC electronically. There are some free options.

You can find government guidance on software that works with Making Tax Digital for Income Tax.

Making Tax Digital for Income Tax quarterly updates

MTD for Income Tax introduces a requirement for quarterly updates, as well as a year end report. The updates are relatively simple, just requiring summaries of income and allowable expenses grouped into set categories.

Standard updates cover set periods with dates matching the tax year:

• 6 April to 5 July (due by 5 August)
• 6 April to 5 October (due by 5 November)
• 6 April to 5 January (due by 5 February)
• 6 April to 5 April (due by 5 May)

However, you can choose to have calendar updates which run to month end dates instead. In this case, the first update covers 1 April to 30 June, the second runs to 30 September and so on. This may be more convenient for you, particularly if your business uses a 31 March accounting year end.

In either case, you provide cumulative totals rather than the amounts for each quarter. The first update covers the first three months, the second update covers the first six months, the third update covers the first nine months and the fourth update covers the full twelve months.

If you have multiple businesses, or both business and property income, you must submit separate quarterly returns for each of them.

Usefully, once you have filed an update, you get an estimate of your tax liability so far. This may make it easier for you to budget for the tax payments that will you will later have to make.

There is a penalty point system if you fail to file quarterly updates on time. Too many penalty points can lead to financial penalties.

The year-end 'final declaration'

A year-end final declaration replaces the self assessment tax return.

You will have already provided much of the information needed in the fourth quarterly update. Income and expenditure figures from this update are automatically included in the final declaration. If necessary, you can adjust them (and would then need to correct the fourth quarterly update).

You also give details of any other taxable income (for example, if you receive significant savings or investment income).

The final declaration must be filed online, by the normal self assessment deadline of 31 January following the end of the tax year. The due dates for paying tax also remain the same as for self assessment, with payments due by 31 January and 31 July.