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Making Tax Digital 2026: What Every Sole Trader and Landlord Needs to Do Right Now

Making Tax Digital for Income Tax went live on 6 April 2026. If you are a sole trader or landlord with qualifying income over £50,000, the annual Self Assessment tax return is no longer your only reporting obligation. You now need to keep digital records and send updates to HMRC four times a year.

This is one of the biggest changes to the UK tax system in decades — and research suggests only around 30% of those affected are even aware it has happened. If you have not yet taken action, you are not too late, but you do need to move now. The first quarterly submission deadline is 7 August 2026.

This guide explains exactly what has changed, who it affects, what you need to do step by step, and which software makes it as painless as possible.

What Is Making Tax Digital for Income Tax?

Making Tax Digital (MTD) is HMRC's long-running programme to modernise and digitise the UK tax system. Most VAT-registered businesses have been using MTD for VAT since 2019. The new phase — MTD for Income Tax Self Assessment, often shortened to MTD for ITSA — extends the same principle to income tax for individuals.

The core change is this: instead of collecting all your income and expense information once a year for a January tax return, you now record everything digitally throughout the year and send HMRC a summary every quarter. At the end of the tax year, you still file a final declaration — but it is largely pre-populated from your quarterly submissions, making January considerably less of a scramble.

Crucially, quarterly updates are not extra tax returns. They are summaries only. They do not trigger extra tax payments. Your payment deadlines remain exactly as they were: balancing payment by 31 January, first payment on account by 31 January, second by 31 July. What changes is the rhythm of your record-keeping, not when money leaves your account.

Who Must Use MTD Right Now — and Who Is Next

MTD for Income Tax is being rolled out in phases, with the threshold dropping over the next three years.

If you are both a sole trader and a landlord, combine both income streams to check your threshold. A freelance consultant earning £35,000 who also has £20,000 in rental income has qualifying income of £55,000 and is in scope from April 2026.

Partnerships and limited companies are not affected by the current rules.

Around 780,000 sole traders and landlords are in the first wave. A further 970,000 will join in April 2027. Even if you are not yet in scope, understanding the system now makes the transition far smoother when your phase arrives.

What You Actually Have to Do Under MTD

The practical obligations break down into three ongoing tasks.

1. Keep digital records

You can no longer rely solely on paper receipts, a shoebox of invoices, or a basic spreadsheet submitted directly to HMRC. All income and expenses must be recorded in HMRC-recognised software. You can still use spreadsheets, but only if they are connected to a compliant "bridging" tool that submits data digitally — copy-and-paste between a spreadsheet and HMRC's system does not meet the requirements.

The records you need to keep include: business income received, business expenses, property rental income and expenses (kept separately from trading income), and — if relevant — overseas rental income, which must also be reported separately.

2. Submit quarterly updates

Every three months, you send HMRC a summary of your income and expenses using your chosen software. The quarterly periods for the 2026/27 tax year are:

• Quarter 1: 6 April to 5 July 2026 — deadline 7 August 2026
• Quarter 2: 6 July to 5 October 2026 — deadline 7 November 2026
• Quarter 3: 6 October to 5 January 2027 — deadline 7 February 2027
• Quarter 4: 6 January to 5 April 2027 — deadline 7 May 2027

If you have both self-employment and property income, you must submit separate quarterly updates for each income source. That means up to eight quarterly submissions per year. Overseas property income requires its own separate submission on top of that.

3. Submit a final declaration

After the fourth quarterly update, you complete a final digital declaration for the full tax year. This replaces the traditional Self Assessment return and confirms all sources of income — not just self-employment and property, but also employment income, bank interest, dividends, and anything else relevant. Your MTD software will pre-populate much of this from your quarterly submissions.

The deadline for the final declaration remains 31 January, as it does for the current Self Assessment return.

Penalties — and the Grace Period

HMRC has confirmed a grace period for the 2026/27 tax year. Penalty points will not be applied for late quarterly updates during the first year. This means that if you miss a quarterly deadline in the 2026/27 tax year, you will not immediately face a fine.

However, this is not an invitation to ignore the process. The penalty regime that kicks in from 2027/28 works on a points system: one point for each late submission, with a £200 fine triggered once you accumulate four points. Points can remain on your account for up to two years. Getting into the habit now — while there is no penalty risk — is significantly easier than scrambling to comply in year two while managing a points total.

There are also no penalties for errors in quarterly updates. Because each quarterly submission is cumulative, if you miss an item in one quarter, you simply include it in the next. You do not need to refile the quarter containing the error.

Choosing Your MTD Software

This is the most important practical decision you will make. HMRC does not provide its own software — you must use a third-party platform from their approved list, available at gov.uk. All software below is on that list.

The right choice depends on your income sources, how comfortable you are with technology, whether you have an accountant, and whether you want to switch bank accounts to unlock a free option.

Zoho Books has a genuinely free plan (not a trial) for businesses under 1,000 invoices per year. It is clean, well-designed, and fully MTD-compliant. The free tier covers quarterly submissions; the annual final declaration requires a paid plan or a separate tool, so factor this in.

QuickBooks at around £10/month is the cheapest paid option that covers both quarterly MTD submissions and the end-of-year Self Assessment in one place. Its mobile app is particularly good, which matters if you do your bookkeeping on the move.

Xero is the platform most accountants use, which makes it the best choice if you work with an accountant who is already on the platform — the collaboration benefit outweighs the higher monthly cost. If you are doing everything yourself, it is probably more than you need.

If you already use any of these platforms for VAT, check whether your current plan includes MTD for Income Tax — it is sometimes an add-on requiring a plan upgrade rather than being included by default.

Can you use spreadsheets? Yes, but only through HMRC-approved bridging software such as VitalTax or 123 Sheets. These tools create the required digital link between your spreadsheet and HMRC's system. Copy-and-paste alone does not comply. For most people, switching to dedicated software is simpler and less error-prone than maintaining a bridging arrangement.

Simplified Reporting Rules Worth Knowing

Two simplifications are available that reduce the burden for many landlords and smaller sole traders.

The £90,000 simplified reporting rule: If your rental income or sole trade income is below the VAT registration threshold (currently £90,000), you can report total figures for income and expenses without itemising individual categories. You report one number for total income and one for total expenses per quarter, rather than breaking them down into dozens of categories. Most affected taxpayers in the first wave qualify for this.

Joint property owners: If you own property jointly, you only need to report your share of the income in quarterly updates. Expenses can be added at year end. This significantly simplifies reporting for couples who own buy-to-let properties together.

Step-by-Step Action Plan

If you are in scope and have not yet set up MTD, here is exactly what to do.

Step 1: Confirm whether you are in scope. Add up your total gross income from self-employment and property for the 2024/25 tax year. If it exceeded £50,000, you are required to comply from 6 April 2026. If you are not sure, check HMRC's eligibility tool at gov.uk.

Step 2: Choose your software. Use the table above. If you bank with NatWest, RBS, or Mettle, start with FreeAgent. Otherwise, compare Zoho Books (free), QuickBooks (~£10/month), or Xero (~£16/month) based on your needs. Verify your choice is on HMRC's approved software list before signing up.

Step 3: Sign up for MTD with HMRC. Go to gov.uk and search for "sign up for Making Tax Digital for Income Tax." You will need your Government Gateway ID. Once signed up, authorise your chosen software to connect to your HMRC account — the software will redirect you through a secure HMRC login page to complete this.

Step 4: Start keeping digital records. From 6 April 2026 onwards, all income and expenses should be recorded in your software as they occur. Connect your business bank account to the software via Open Banking so transactions are imported automatically — this removes the need for manual data entry and is available in all the software options above.

Step 5: Submit your first quarterly update. The first quarterly deadline is 7 August 2026 covering 6 April to 5 July. Your software will generate a summary from your digital records and submit it to HMRC in a few clicks. Thanks to the grace period, there are no penalty points for late submission in 2026/27 — but getting the first quarter done correctly sets the pattern for the year.

Step 6: Talk to your accountant if you have one. If you use an accountant for your tax return, speak to them immediately. They may already have set up MTD for clients and can handle the software sign-up and quarterly submissions on your behalf. If you do not yet use an accountant and your tax affairs are complex (multiple income sources, overseas property, VAT registration), now is a reasonable time to engage one.

Common Questions

Do I still file a tax return? Yes, but it is replaced by the final declaration under MTD. The process is similar, the deadline remains 31 January, and your software pre-populates it from your quarterly data.

Does MTD mean I pay tax four times a year? No. Quarterly updates are summaries only and do not trigger tax payments. Your existing payment schedule — balancing payment and payments on account — remains unchanged.

What if my income drops below £50,000 next year? MTD entry is based on qualifying income from a prior tax year. If your income drops below the threshold, check current HMRC guidance on whether and when you can leave the system. HMRC has confirmed it is developing an exit process, but the details are still being finalised.

What if I genuinely cannot use digital tools? HMRC offers an exemption process for those who cannot use digital software due to age, disability, remoteness, or other reasons. You must apply for an exemption — it is not granted automatically. Apply via gov.uk before your start date.

I missed the April 6 start date — what now? Start now. There are no penalty points in the first year, so missing the start of the tax year will not result in immediate fines. Set up your software, record your income and expenses from 6 April forward as best you can, and submit your first quarterly update by 7 August. If you are missing receipts or records from the first few weeks of April, reconstruct them as accurately as possible.

Where can I get help? HMRC offers free webinars and online guidance at gov.uk — search for "Making Tax Digital for Income Tax help." The MoneyHelper service provides impartial guidance on MTD. For personalised advice on your specific tax position, Unbiased connects you with FCA-regulated accountants and tax advisers, many of whom offer a free initial consultation.

This article is for informational purposes only and does not constitute tax or financial advice. MTD rules and HMRC guidance are correct as of April 2026 and subject to change. For advice specific to your circumstances, consult a qualified accountant or tax adviser.