From 6 April 2026, the first group of self-employed individuals and landlords became legally required to keep digital records and send quarterly updates to HMRC using compatible software.

For many small business owners and landlords, this is one of the biggest changes to Self Assessment in years. The good news is that, with the right systems and support in place, Making Tax Digital does not need to be complicated.

What is Making Tax Digital?

Making Tax Digital for Income Tax, often shortened to MTD, is HMRC’s new system for managing Income Tax information digitally.

Instead of relying mainly on a once-a-year Self Assessment process, people within MTD must:

• keep digital records of their self-employment and property income and expenses;
• use software that is compatible with Making Tax Digital;
• send quarterly updates to HMRC; and
• complete and submit their annual tax return using compatible software.

The quarterly updates are not additional tax returns. They are summaries of the digital records maintained within your software.

Think of MTD as moving your bookkeeping and tax records towards an ongoing digital process, rather than leaving everything until the traditional January rush.

Who Needs to Use Making Tax Digital?

For the 2026/27 tax year, MTD for Income Tax applies to qualifying individuals with more than £50,000 of gross qualifying income from self-employment and property combined.

Importantly, the test is based on qualifying income before expenses, rather than taxable profit.

This can include:

• sole traders;
• self-employed individuals;
• residential or commercial landlords; and
• people who receive income from both self-employment and property.

For example, somebody with £35,000 of qualifying self-employment income and £20,000 of qualifying property income could fall within MTD because their combined qualifying income is more than £50,000.

What about limited companies?

Small limited companies themselves are not currently included in Making Tax Digital for Income Tax.

MTD for Income Tax applies to individuals. However, someone who is also a company director could separately come within MTD if they have sufficient qualifying self-employment or property income personally.

When Are the New Rules Being Introduced?

The thresholds are being introduced in stages.

From 6 April 2026
Individuals with qualifying income of more than £50,000 are required to use MTD for Income Tax.

From 6 April 2027
The threshold reduces to more than £30,000.

From 6 April 2028
The threshold reduces again to more than £20,000.

This means considerably more sole traders and landlords will enter the system over the next few years.

Even if you are not required to use MTD yet, it is worth considering whether your current bookkeeping arrangements are ready for the change.

What Do You Need to Do?

1. Use compatible software

You need software that can maintain the required digital records and communicate with HMRC.

There are a number of compatible products available, including accounting platforms such as Xero, QuickBooks and FreeAgent, although the most appropriate solution will depend on your circumstances and the features you need.

Choosing software should not simply be about complying with HMRC. A well-set-up accounting system can also provide much better information about how your business or property portfolio is performing.

2. Maintain digital records

You need to keep digital records of relevant income and expenses.

Rather than collecting together receipts, spreadsheets and bank information once a year, records should be maintained digitally throughout the year.

Getting this right from the start is important. Good bookkeeping will make the quarterly updates easier and should also make preparing the final tax return more straightforward.

3. Send quarterly updates

Every three months, your compatible software totals the relevant information from your digital records and sends a quarterly update to HMRC.

For taxpayers using the standard update periods, the quarterly deadlines for the 2026/27 tax year are:

• 7 August 2026
• 7 November 2026
• 7 February 2027
• 7 May 2027

These quarterly updates provide HMRC with summaries of income and expense information. They are not full tax returns, and you do not normally need to make all your year-end accounting or tax adjustments before sending them.

HMRC’s current system also means that quarterly updates are cumulative, covering information from the beginning of the tax year up to the end of the relevant update period.

What If You Miss a Quarterly Deadline?

There is an important point for the first year of MTD.

HMRC has confirmed that penalty points will not be applied for late quarterly updates during the 2026/27 tax year.

However, this should not be seen as a reason to ignore the deadlines. Outstanding quarterly updates will still need to be submitted before you can complete your MTD tax return.

Penalty rules will apply differently after the first year, so establishing a reliable process now is sensible.

Penalties can also still apply to late tax returns and late tax payments.

Do Quarterly Updates Replace the Annual Tax Return?

No.

You will still need to complete an annual tax return.

Once the tax year has ended, your MTD-compatible software will be used to make any necessary adjustments, include other relevant income, claims, allowances or gains, and complete your final tax return.

The normal deadline remains 31 January following the end of the relevant tax year.

For the 2026/27 tax year, that means the tax return and any balancing tax payment will generally be due by 31 January 2028.

Making Tax Digital Has Already Started

The first MTD reporting cycle began on 6 April 2026, and the first standard quarterly update deadline was 7 August 2026.

If you should already be using MTD but have not completed your setup, it is worth dealing with this sooner rather than later.

The priority should be to establish whether you fall within the rules, make sure the correct software is in place and bring your digital records up to date.

How Our Accountancy Practice Can Help

For many business owners and landlords, the difficult part of Making Tax Digital will not be the quarterly submission itself. It will be making sure the underlying bookkeeping and software are working properly throughout the year.

Our team can help make the transition straightforward.

We can assist with:

• checking whether and when MTD applies to you;
• registering and completing the appropriate HMRC setup;
• setting up suitable accounting software;
• helping you move from spreadsheets or manual records to a digital system;
• providing training and support on Xero;
• reviewing and maintaining your bookkeeping;
• preparing and submitting quarterly updates;
• completing your year-end accounts and tax return; and
• keeping you informed as HMRC’s requirements continue to develop.

Our aim is not simply to help you comply with Making Tax Digital. Used properly, digital accounting can give you more timely information about your finances and reduce the traditional year-end scramble for records.

Making Tax Digital: Act Now and Stay Ahead

MTD represents a significant change to the way many self-employed people and landlords manage their tax affairs.

If your qualifying income is above £50,000 and you have not yet dealt with MTD, now is the time to get your records and software in order.

If your income falls into one of the lower thresholds being introduced in 2027 or 2028, there is also an opportunity to prepare early rather than waiting until the rules become compulsory.

Need help with Making Tax Digital?

Contact our team to discuss your position. We can help you understand when the rules apply, set up the right systems and manage your MTD obligations so you can spend more time focusing on your business.