Making Tax Digital for Income Tax: where you stand now

MTD for Income Tax went live in April 2026. If you're in the first wave your next quarterly deadline is 7 November. If you're in the April 2027 wave, you've about six months.

Making Tax Digital for Income Tax is no longer something on the horizon. It started on 6 April 2026, and the first quarterly deadline has already passed.

Which means there are now two groups of people. Those already in it, who need to keep on top of the quarterly cycle. And those joining in April 2027 at the lower threshold, who have time to get set up properly if they use it.

What MTD for Income Tax actually is

Under the old system, if you were self-employed or a landlord you filed one Self Assessment return a year by 31 January.

Under MTD you keep your income and expense records digitally in compatible software, and send HMRC a summary of those figures four times a year. At the end of the year you submit a final declaration, which is effectively your tax return, done through the software.

The important thing is that your tax bill doesn't change. It's calculated the same way and paid on the same dates, with the same payments on account in January and July. What changes is how and how often you report.

The quarterly updates aren't full tax returns. They are summaries of your qualifying income and expenses, and they're cumulative, so each one shows the year to date rather than just that quarter. If you missed something in quarter one it gets picked up next time.

HMRC has said the quarterly updates don't need to be perfectly accurate. Provided they're roughly right and on time, you won't be penalised for inaccuracies. The final declaration is the one that has to be right.

Does it apply to you?

MTD for Income Tax applies to sole traders and landlords whose gross income from self-employment or property is over the threshold.

Gross income, not profit. That means your turnover or your total rent before you deduct anything. A lot of people look at their profit figure on their SA302, see it's under the threshold, and assume they're outside. That's the wrong number.

The thresholds are phased. From April 2026 it applies if your qualifying income is over £50,000. From April 2027 that drops to £30,000. From April 2028 it drops again to £20,000.

Qualifying income is your combined gross income from self-employment and property, all added together. A sole trade turning over £30,000 alongside rental income of £25,000 is £55,000 in total, which puts you in the first wave. Multiple properties and multiple businesses all aggregate. Foreign property counts.

What doesn't count is employment income, pensions, dividends, savings interest and investment income. So somebody on PAYE earning £80,000 with a rental property bringing in £18,000 has qualifying income of £18,000. The salary is irrelevant.

HMRC determines whether you're in scope from the self-employment and property figures on your 2024/25 return for the first wave, and will do the same from later returns for subsequent waves.

Jointly owned property and partnerships

This one causes confusion among landlords.

If you and your spouse own a property together as individuals, that's jointly owned, and each of you reports your share on your own return. Only your share counts towards your threshold. A property bringing in £40,000 owned equally gives each of you £20,000 of qualifying income, not £40,000.

If your properties are held in a formal partnership and you file a partnership return, that's different. Partnership income isn't currently within MTD for Income Tax, so it doesn't count towards your threshold and you don't submit quarterly updates for it. HMRC has said partnerships will be brought in at some point, but there's no date.

Companies aren't affected at all. If you trade through a limited company none of this applies to you.

The quarterly cycle

For the 2026/27 tax year the standard quarters are:

Quarter 1 covers 6 April to 5 July 2026, and was due by 7 August 2026.

Quarter 2 covers 6 July to 5 October 2026, and is due by 7 November 2026.

Quarter 3 covers 6 October 2026 to 5 January 2027, due by 7 February 2027.

Quarter 4 covers 6 January to 5 April 2027, due by 7 May 2027.

The final declaration for 2026/27 is due by 31 January 2028, the same deadline you've always had.

There's an option to use calendar quarters instead, ending 30 June, 30 September, 31 December and 31 March. If you're VAT registered on calendar quarters it's worth lining them up so you're working to the same periods.

If you've more than one income source, such as a sole trade and a rental property, you submit separate quarterly updates for each, then one final declaration at the year end covering everything.

Once you're in MTD you can no longer use the old HMRC Self Assessment system. The final declaration goes through the software.

Digital records and software

HMRC requires each transaction to be stored digitally, in software rather than on paper. Receipts in a box doesn't count. Nor does adding up your receipts and typing a total into a spreadsheet, because the individual transactions haven't been stored.

You need HMRC-recognised software that keeps the records, submits the quarterly updates and handles the final declaration.

At Saymur we put clients on Xero. It does everything MTD requires, the bank feeds work well, it's cloud-based so we can see and work on your records alongside you, and the Simple plan covers what most people with reasonably straightforward affairs need. QuickBooks and FreeAgent also support MTD for Income Tax, and FreeAgent is free if you bank with certain providers.

Bridging software exists for people who want to keep records in a spreadsheet and submit through a bridging tool. It's cheaper, but there are no bank feeds, everything is manual, and most bridging tools only handle the quarterly submissions rather than the final declaration, so you would need something else for the year end anyway.

The single most useful thing you can do

If your business or rental income is going into the same account as your personal spending, every quarter somebody has to pick the business transactions out of everything else.

Open a separate account. Business or rental income in, business or property expenses out. Connect it to your software as a bank feed and what comes through is clean. You categorise it and submit, rather than working through personal transactions looking for allowable expenses.

It's free to set up and takes a day. It will save hours every quarter for as long as you're in MTD.

Penalties

The penalty system is a points system rather than the old fixed penalties.

Each missed quarterly update or final declaration deadline earns one penalty point. It's one point per deadline even if you've multiple businesses, so a sole trader who is also a landlord missing the same quarterly deadline for both gets one point, not two. Four points triggers a £200 fine, and every missed deadline after that's another £200.

For the first wave there's a soft landing. HMRC has confirmed no penalty points for late quarterly updates during 2026/27 for those who started in April 2026.

Two things that soft landing doesn't cover. It doesn't apply to the final declaration or to late payments, which carry penalties from the start. And it doesn't apply to the April 2027 group at all, so if you're joining then, points count from day one.

If you're joining in April 2027

If your qualifying income is between £30,000 and £50,000, you come in from April 2027, and you've roughly six months.

Use them. Get on software now rather than in March, so you're comfortable with it before it matters. Open the separate bank account. Agree with your accountant who is doing what, because the most common problem we see is nobody having decided whether the client or the firm is submitting the quarterly updates.

And be aware there's no soft landing for your group. The first wave got a year of grace on quarterly penalties. You won't.

How it works with your accountant

Your accountant doesn't disappear under MTD, but there's more interaction through the year and you need to agree who does what.

Broadly there are two approaches. Either your accountant does everything, so you send them your records quarterly instead of annually and they handle the submissions and the final declaration. Or you keep the records and submit the quarterly updates yourself, with your accountant taking over for the final declaration, reviewing everything and adding your other income.

Both work. What doesn't work is leaving it unclear, because the deadline arrives and nobody has done it.

If you would like help getting set up, or you want to talk through how the work should be split, get in touch with us at Saymur.