Making Tax Digital for Income Tax: What Sole Traders and Landlords Need to Know

27 February 2026

From 6 April 2026, sole traders and landlords with qualifying income over £50,000 must comply with Making Tax Digital (MTD) for Income Tax Self Assessment. This means keeping digital records in compatible software and sending quarterly updates to HMRC - a fundamental shift from the traditional annual Self Assessment tax return. Around 864,000 people are affected in this first wave, with thresholds dropping to pull in millions more over subsequent years. No delays have been announced; HMRC confirmed in February 2026 that the rollout is firmly on track.

This guide covers everything affected taxpayers need to know: thresholds, deadlines, what quarterly updates actually involve, software options (including spreadsheets), the new penalty regime, and how to sign up.

Who Must Comply, and When Each Threshold Kicks In

MTD for Income Tax is being rolled out in three phases based on qualifying income - defined as total gross income (turnover before expenses) from self-employment and/or property:

The £20,000 threshold from April 2028 was confirmed at the Spring Statement on 26 March 2025, with legislation to be introduced in Finance Bill 2025–26. The government has stated it will “continue to explore” how to bring the benefits of digitalisation to the roughly four million taxpayers below £20,000, but no mandation date has been set for that group.

A critical detail many people miss: qualifying income means gross income, not profit. Even if you make a loss after expenses, you must comply if your turnover exceeds the threshold. If you have both self-employment and rental income, these are combined - for example, £27,000 from a trade plus £25,000 from property equals £52,000, which exceeds the £50,000 threshold.

Income from employment (PAYE), pensions, dividends, and partnerships does not count. HMRC determines your qualifying income from the Self Assessment return filed for the relevant tax year.

Partnerships remain outside MTD for Income Tax for now. HMRC says it is “committed to the future introduction” for partnerships but has set no date.

What Quarterly Updates Actually Mean in Practice

The core obligation under MTD for Income Tax is straightforward: keep digital records throughout the year, then send summary totals to HMRC every quarter. Here is exactly what this involves.

Digital record-keeping

You must record the date, amount, and category of every business income and expense transaction using compatible software (or spreadsheets linked to bridging software - more on this below). Records should be created as close to the transaction date as possible. You must keep these digital records for at least five years after the 31 January submission deadline for that tax year. A welcome simplification: businesses with combined turnover under £90,000 can submit consolidated expense totals rather than a full category-by-category breakdown.

What you send each quarter

Quarterly updates are sent four times per year. Your software totals up your income and expense categories and sends these summaries to HMRC - not individual transaction details. Each update is cumulative from 6 April, meaning it includes all data from the start of the tax year plus any corrections to earlier quarters. No tax or accounting adjustments (such as capital allowances) are needed at this stage. Even quarters with no activity require a nil return. If you have both self-employment and property income, you send separate quarterly updates for each source.

Quarterly deadlines

Those using a 31 March year-end can opt for calendar quarter periods (1 April – 30 June, etc.) with the same deadlines.

Year-end: tax return and final declaration

After the fourth quarterly update, you make tax and accounting adjustments in your software - capital allowances, simplified expenses, disallowable costs - and add any other income sources HMRC does not already hold (savings, dividends, and so on). Your software will show pre-populated data from HMRC, such as PAYE employment income. You then submit your tax return and final declaration through your MTD software, confirming all income sources are complete and accurate. This replaces the traditional Self Assessment tax return. The deadline remains 31 January following the end of the tax year - unchanged from Self Assessment.

It is worth noting that the previously discussed End-of-Period Statement (EOPS) has been removed from the MTD process. The current GOV.UK guidance contains no reference to it.

As HMRC’s agent toolkit puts it: “If your digital records are kept up-to-date throughout the year, these quarterly updates can be submitted with just a few clicks.”

Spreadsheets Are Fine - If You Use Bridging Software

Good news for the many sole traders and landlords who currently track income and expenses in spreadsheets: you can keep using them. HMRC explicitly supports this approach, provided you use bridging software to transmit your data.

The critical requirement is digital linking - data must flow electronically from your spreadsheet to the bridging software. You cannot manually retype or copy-paste figures. Acceptable digital links include linked cells in spreadsheets, automated data imports, and API connections.

If you already track your income and expenses in a spreadsheet, the simplest route to compliance is bridging software - it connects to your existing spreadsheet and handles only the HMRC submission side. You keep your current workflow and simply add a submission step each quarter. qwartly is bridging software designed specifically for this: upload your spreadsheet, map your columns once, and submit to HMRC in minutes.

For spreadsheet users, we recommend qwartly - at £49/year, it is purpose-built for sole traders and landlords who want to keep their spreadsheets and simply need a way to submit quarterly updates to HMRC. The workflow is straightforward: upload your spreadsheet, map your columns to HMRC categories once, review the summary, and submit.

The New Points-Based Penalty Regime Replaces Automatic Fines

MTD for Income Tax introduces a reformed penalty system - the same framework already used for VAT since January 2023. It replaces the old automatic fine structure with something more proportionate.

Late submission penalties

Each missed quarterly update or tax return deadline earns one penalty point. For quarterly filers, the threshold is 4 points - only once you accumulate 4 points does a financial penalty of £200 apply. Every subsequent late submission while at the threshold triggers another £200 charge. Points below the threshold expire roughly two years after the relevant deadline. To reset points back to zero once at the threshold, you must complete a 12-month period of compliance (all submissions on time) and have submitted all returns due within the preceding 24 months.

Late payment penalties

Late payment penalties follow a separate structure:

• After 15 days: a penalty of 3% of the outstanding tax is charged.
• At day 30: a further 3% is added.
• From day 31 onwards: interest accrues at 10% per annum on the outstanding balance.

For a taxpayer’s first year in the system, the day 15 penalty is waived, giving a full 30 days before any charge. These rates are set to increase: from April 2027, the day 15 and day 30 charges will each rise to 4%.

Late payment interest runs on top of penalties, currently set at the Bank of England base rate plus 4% (increased from base rate plus 2.5% on 6 April 2025). Agreeing a Time to Pay arrangement with HMRC stops further penalties from accruing, though interest continues. A separate penalty of up to £3,000 can be charged for failure to keep adequate digital records.

Signing Up Requires Your Existing Government Gateway Account

If you already file Self Assessment online, you already have what you need. The MTD sign-up process uses your existing Government Gateway user ID and password - no new account is required.

Before signing up, you need to have chosen compatible software (qwartly is MTD bridging software built for spreadsheet users - £49/year), and you will need:

• Your National Insurance number
• Business start date (if within the last two tax years)
• Your accounting method (cash basis or accruals)
• Basic business details

You may be asked to verify your identity via the HMRC app (matching your face to a passport or driving licence) or by answering security questions.

The sign-up service is already live. Those mandated from 6 April 2026 should sign up before that date. If you have multiple income sources - say, a sole trade and a rental property - you must sign up each one. HMRC will also write to taxpayers it identifies as needing to join, based on their Self Assessment returns. Certain groups currently cannot sign up, including partners in partnerships, those with outstanding tax liabilities, and those who are bankrupt or insolvent.

Recent Announcements Confirm the Programme Is Full Steam Ahead

The MTD for Income Tax programme has a long history of delays - originally announced in 2015, it was postponed multiple times. But the current timeline appears firmly locked in. Here is the recent announcement trail:

• Autumn Budget 2024 (30 October 2024) confirmed the government’s intention to extend MTD to those with qualifying income over £20,000 “by the end of this Parliament.”
• Spring Statement 2025 (26 March 2025) pinned the £20,000 threshold to a specific date - April 2028 - and published a technical note titled “Modernising the tax system through Making Tax Digital.” This also introduced new exemptions for digitally excluded taxpayers, certain non-UK residents, and those for whom HMRC cannot provide a digital service.
• Legislation Day (21 July 2025) saw draft Finance Bill 2025–26 clauses published, refining the mandation schedule and penalty reforms.
• February 2026 brought HMRC’s press release actively urging the 864,000 affected taxpayers to prepare, with no hint of further delay.

The estimated cost to businesses is modest: HMRC puts the average one-off transitional cost at £320 and the annual ongoing cost at £110.

Conclusion

MTD for Income Tax is no longer a distant prospect - it launches in weeks for those earning over £50,000. The practical burden is lighter than many fear: quarterly updates are summary totals sent with a few clicks if records are kept up to date, and spreadsheet users can continue their current approach by adding bridging software. The 12-month grace period on penalty points for the first cohort provides breathing room, but the direction of travel is clear.

With thresholds dropping to £30,000 in April 2027 and £20,000 in April 2028, the vast majority of self-employed people and landlords filing Self Assessment will be within scope within three years. If you use spreadsheets, the simplest next step is to pair them with qwartly - bridging software that lets you upload your spreadsheet and submit to HMRC in minutes, for £49/year - then sign up through your Government Gateway account before 6 April 2026.

Related Guides

• What is MTD bridging software? - understand the difference between bridging software and full accounting packages.
• MTD for sole traders - focused guide to deadlines, thresholds, and requirements for the self-employed.
• MTD for landlords - how Making Tax Digital applies to property income.
• What MTD quarterly updates mean for your spreadsheet workflow - a practical walkthrough of the quarterly submission process.