The Biggest Change to Self Assessment in a Generation
For most of the last thirty years, being self-employed meant one tax deadline a year. You gathered your figures, filed a Self Assessment return by 31 January, and paid the bill. Making Tax Digital ends that rhythm. From 6 April 2026 a large group of sole traders and landlords have to keep digital records and send HMRC an update every three months, using approved software, on top of a year-end submission.
If you are self-employed, let a property, or advise people who are, this is the change to understand now rather than the week before your first deadline. This guide explains what Making Tax Digital actually is, who is caught and when, exactly what you have to do each quarter, and where the traps sit. We will keep it plain and flag our own view where it helps.
What Making Tax Digital Is
Making Tax Digital, usually shortened to MTD, is HMRC's programme to move tax reporting off paper and annual filing and onto digital records and regular software submissions. The idea is a running, up-to-date picture of your tax position rather than one backward look a year later.
It rests on two obligations that apply whichever tax you are dealing with:
- Keep digital records. Your income and expenses have to be recorded in software or a spreadsheet linked to software, not written in a diary or added up from a carrier bag of receipts.
- File through compatible software. You submit directly from that software using HMRC's system. You cannot retype the figures into the HMRC website by hand.
MTD is being rolled out one tax at a time. VAT went first and is already fully live. Income tax is the phase happening right now. Corporation tax is a long way off. That staggering matters, because the rules and dates are different for each.
MTD for VAT: Already Here
The part of MTD that is fully in force is MTD for VAT. It started in April 2019 for larger VAT-registered businesses and, since April 2022, applies to every VAT-registered business regardless of turnover.
If you are VAT registered, you already live with it. You keep digital VAT records, and you file each return through software rather than keying it into the government portal. Most businesses file quarterly, with the return and payment due one month and seven days after the period ends. We cover the mechanics of the tax itself in our guide to VAT; the MTD point is simply that the filing must be digital.
MTD for VAT is worth understanding first because it is the template. Income tax follows the same logic, just with more frequent updates and a different set of thresholds.
MTD for Income Tax: The Rollout Happening Now
This is the phase that affects the most people, and it is being introduced in three annual steps based on your income. HMRC calls it Making Tax Digital for Income Tax, sometimes written MTD for ITSA (Income Tax Self Assessment).
| From | Qualifying income above | Who this catches |
|---|---|---|
| 6 April 2026 | £50,000 | Sole traders and landlords with the highest turnover |
| 6 April 2027 | £30,000 | A much larger middle group |
| 6 April 2028 | £20,000 | Most remaining self-employed and landlords |
The first date has already passed. Sole traders and landlords over the £50,000 line are in the system for the 2026/27 tax year, and their first quarterly update is due on 7 August 2026. If that is you and you have not set anything up, this is not a future problem.
Two features of this rollout catch people out, so they are worth stating clearly.
The threshold is tested on an earlier year. Whether you are mandated from April 2026 depends on the qualifying income shown on your 2024/25 Self Assessment return, the one filed by 31 January 2026. HMRC looks two years back, then writes to people it believes are caught. Do not wait for a letter to be certain, because the letter is based on your own past figures.
Partnerships and companies are not in yet. Partnerships will join at a date HMRC has said it will confirm later. Limited companies fall under a separate future scheme, MTD for Corporation Tax, which has no confirmed start date and is not expected for years. For now, MTD for Income Tax is a sole trader and landlord issue.
The Trap in "Qualifying Income"
This is the single most misunderstood part of the whole regime, so read it twice.
Qualifying income is your gross income from self-employment and property added together, before any expenses. It is turnover, not profit. It is not your taxable income after costs, and it is not your take-home.
That distinction moves people over the line who assume they are safe. A landlord receiving £55,000 in rent with a £48,000 mortgage and running costs has a tiny real profit, but £55,000 of qualifying income, so they are mandated from April 2026. A sole trader turning over £52,000 and clearing £28,000 after materials is caught too. The test ignores how thin your margin is.
It also adds your sources together. Someone with £35,000 of self-employment and £20,000 of rental income has £55,000 of qualifying income and is caught, even though neither stream on its own crosses £50,000. Employment income and dividends do not count towards the qualifying-income test, but they still have to be reported at the year end.
If you are near a threshold, work this figure out on gross income, not on the profit you are used to quoting. Getting it wrong in your head is how people miss their start date.
What You Actually Have to Do Each Quarter
Under MTD for Income Tax you replace one annual return with five submissions: four quarterly updates and a final declaration. Here is the shape of a normal year.
Four quarterly updates. Each one is a running total of the income and expenses in your digital records for that period, sent from your software. For the 2026/27 tax year the standard quarters and deadlines are:
| Quarter | Period | Submit by |
|---|---|---|
| 1 | 6 April to 5 July 2026 | 7 August 2026 |
| 2 | 6 July to 5 October 2026 | 7 November 2026 |
| 3 | 6 October to 5 January 2027 | 7 February 2027 |
| 4 | 6 January to 5 April 2027 | 7 May 2027 |
You can elect to use calendar quarters instead, ending 30 June, 30 September, 31 December and 31 March, which lines up more neatly with most bookkeeping. The submission dates stay the same.
The important thing to understand is that these updates are estimates, not mini tax returns. They are cumulative totals from your records. You do not claim reliefs, apply allowances, or finalise anything at this stage, and you will not get a tax demand off the back of a quarterly update. Nobody expects them to be perfect to the penny.
One final declaration. After the fourth quarter you submit a final declaration, which is where the real work happens. You confirm the year's figures, make any accounting adjustments, claim your allowances and reliefs, and add the income that sits outside the quarterly updates: employment, dividends, savings interest, capital gains and so on. This replaces the old Self Assessment return. For 2026/27 it is due by 31 January 2028.
Payment dates do not change. This is the reassuring part. Your balancing payment is still due on 31 January, and payments on account are still due 31 January and 31 July. MTD changes how often you report, not when you pay. You are not paying tax four times a year.
Software, Records and What Counts
You need software that is compatible with MTD for Income Tax and can send the quarterly updates. A plain spreadsheet on its own is not enough, although you can keep records in a spreadsheet if you connect it to HMRC through bridging software.
For most of our clients the sensible route is proper cloud bookkeeping software that records income and expenses as they happen and files the updates automatically from that data. We put most people on Xero for exactly this reason: if the bookkeeping is clean and current, the quarterly update is close to a non-event. The pain in MTD is never the filing. It is scrambling to reconstruct three months of records the day before a deadline.
Whatever you use has to capture each transaction digitally and keep a digital trail from record to submission. Photographing receipts into an app counts. Copying a monthly total off a bank statement into your return at year end does not.
Who Is Exempt
Not everyone in scope has to comply. Some exemptions are automatic and some you have to apply for.
- Digitally excluded. If you cannot reasonably use digital tools because of age, disability, location without reliable internet, or religious belief, you can apply to HMRC for an exemption. This is judged on your circumstances, not just a preference for paper.
- Automatic exclusions. Certain groups are outside MTD for Income Tax for now, including those without a National Insurance number at the relevant point, and some trustees and personal representatives.
- Below the threshold. The obvious one. If your qualifying income sits under the relevant figure for the tax year, you are not mandated, and you carry on with normal Self Assessment.
Exemption is not automatic just because MTD would be inconvenient. If you think you qualify as digitally excluded, apply and keep the confirmation rather than assuming.
A Soft Landing on Penalties, For Now
HMRC has signalled a lighter touch for the first year. Late quarterly updates in 2026/27 are not expected to attract late-submission penalty points while people adjust. That is a genuine concession and worth using to build the habit without fear.
Do not read it as a free pass. Late final declarations and late payments carry full penalties from the start. The penalty regime for both is now points-based for filing and escalating for late payment, and it applies to the year-end obligations immediately. The soft landing covers the new quarterly rhythm, not the parts of the system that already existed.
Our Honest Take
A few opinions from getting clients ready for this.
- Start before your mandation date, not on it. The single best thing you can do is get onto software and keep real-time records for a full year before you are forced to. If you are mandated from April 2027 or 2028, use 2026/27 as a dry run. The businesses that struggle are the ones that change their whole bookkeeping process and start filing quarterly in the same month.
- Check the threshold on gross income today. We keep meeting landlords and traders who are sure they are under the line because they are thinking about profit. Add up your turnover and rent before costs. That is the number HMRC uses.
- The quarterly updates matter less than they sound. They are estimates from your records, not four tax returns. If your bookkeeping is current, each one is a few clicks. The real reckoning is still the final declaration once a year. Do not let the word "quarterly" convince you this is four times the work if you were already keeping proper records.
- This is a bookkeeping problem, not a filing problem. Everyone focuses on the submissions. The actual cost, and the actual benefit, is in whether your records are kept as you go. Do that well and MTD is a mild administrative change. Do it badly and it turns one bad January into four bad quarters.
- Our view on MTD itself is mixed but pragmatic. It adds compliance cost, especially for people with modest profits caught by a turnover test. We would rather the threshold used profit. But the direction of travel is fixed, the digital-records habit genuinely helps most businesses see their numbers sooner, and fighting it is not a strategy. Getting organised is.
How IAK Can Help
Making Tax Digital is far less daunting when someone has set it up properly and is running the quarterly updates for you. That is straightforward work for us and a recurring worry off your plate.
We will tell you whether and when you are mandated based on your actual figures, get you onto compatible software, take over the bookkeeping so the records are always current, and file the quarterly updates and final declaration on time. If you are a sole trader weighing whether incorporating changes the picture, our guide on sole trader versus limited company is a good starting point, and it is worth a conversation before your first MTD year rather than after.
Take a look at our bookkeeping, personal tax and tax planning services, or contact us and tell us where you are. Not sure whether an accountant is worth it for this? Our piece on what an accountant actually does sets out the case.