If you provide professional services and operate as a sole trader, you’ve likely come across the phrase ‘Making Tax Digital’ for Income Tax’. It isn’t simply another piece of HMRC terminology to set aside. It’s changing how professional service providers report their income, and if you fall within the affected group (see below), it’s important to understand where you stand.
At BBK Accounts, we’ve been supporting clients through this transition,and this blog sets out what Making Tax Digital for Income Tax means, who it applies to, and what’s required of you.
What is Making Tax Digital for Income Tax
Making Tax Digital, or MTD, is HMRC’s initiative to move away from paper based record keeping and a single annual tax return. Affected individuals must maintain digital records using compatible software and submit updates to HMRC quarterly. At the end of the tax year, a final declaration is submitted, any tax owed must be paid, thus replacing the previous annual Self Assessment return.
This is a notable change in process, though it isn’t entirely new; MTD was first introduced for VAT, providing HMRC and taxpayers with experience of digital record-keeping and online submissions.
Who needs to change to MTD for IT, and when?
Not everyone is affected immediately. Whether you need to use MTD for Income Tax, and from when, depends on something HMRC calls qualifying income. The phased rollout, based on HMRC’s own guidance, works as follows.
- If your qualifying income from self-employment (and property if relevant) was over £50,000 gross in the 2024 to 2025 tax year, you need to have started MTD for Income Tax from 6 April 2026.
- If your qualifying income is over £30,000 gross in the 2025 to 2026 tax year, you’ll need to start from 6 April 2027
- If your qualifying income is over £20,000 gross in the 2026 to 2027 tax year, you’ll need to start from 6 April 2028
Qualifying income is the gross income from your self-employment activities before expenses are deducted. and affects sole traders and landlords only, so far. For example, a consultant generating £55,000 of gross self-employment income in the 2024 to 2025 tax year would fall within the first phase of MTD from 6 April 2026. Partnerships aren’t included yet, though HMRC has confirmed they will be brought into MTD in due course, with no date set so far.
HMRC uses information from your Self Assessment returns to determine whether you fall within the relevant threshold. Taxpayers remain responsible for understanding whether the rules apply to them. That said, the letter shouldn’t be relied upon as your only indicator. It remains your responsibility to check whether you’re affected, even before any letter arrives.
What changes in practice
Once you’re within the qualifying income group, your reporting year looks different from a single annual submission.
Digital record keeping and quarterly updates: You’ll keep records of your business income and expenses digitally, using MTD compatible software, and send HMRC a summary every three months. A spreadsheet alone generally isn’t sufficient unless linked to bridging software. The standard quarterly deadlines fall on:
- 7 August
- 7 November
- 7 February
- 7 May
Alternative reporting periods may be available depending on the software used and reporting method selected.
These quarterly updates provide HMRC with summary information throughout the year. Your final tax position is not calculated until the end-of-year process is completed.
A final declaration: After the tax year ends, you’ll submit a final declaration that brings everything together and confirms your total tax liability.
Same payment deadline: Despite the move to quarterly reporting, your tax bill remains due by 31 January after the end of the tax year, as it does currently.
The quarterly updates aren’t full tax calculations. They function as a running summary, giving HMRC a clearer in-year picture, with full reconciliation taking place at the final declaration stage.
Subscribe to our blog
What about penalties
HMRC is introducing a points-based penalty system for late submissions. Instead of receiving an automatic financial penalty every time a deadline is missed, taxpayers can accumulate penalty points for failures to comply. Once the relevant points threshold is reached, a £200 penalty may be charged, with additional penalties applying for further non-compliance.
Late payment penalties and interest remain separate and can apply where tax is not paid on time. For taxpayers entering MTD from April 2026, HMRC has announced transitional arrangements during the first year.
Under these arrangements, late quarterly updates will not initially attract penalty points, although taxpayers are still expected to maintain digital records and submit updates as required.
The soft-landing arrangements apply only to quarterly updates. Other filing and payment obligations must still be met, and penalties may apply where deadlines are missed.
Are there any exemptions
Yes. Some individuals fall outside the scope of MTD for Income Tax because their qualifying income is below the relevant threshold.
Separate exemption rules also exist for certain taxpayers, including those who are digitally excluded due to factors such as age, disability, location, or religious beliefs. In these circumstances, an application to HMRC may be required.
Where a taxpayer is not required to use MTD, reporting will continue through the existing Self Assessment system.
Why it's worth preparing ahead of the next phase
Getting ahead of it now will make life easier later. Even if you’re not yet required to join, you can sign up voluntarily before your mandatory date kicks in. That gives you time to get used to the software and sort out your digital record-keeping without the last-minute scramble everyone else will be having.
A lot of business owners end up sticking with it for another reason too, but keeping records digitally day-to-day just makes it easier to stay on top of things and see where your finances actually stand.
What this means for you, and how BBK Accounts can help
If you’re self-employed, it’s worth figuring out now whether MTD applies to you and when your sign-up date will land. At BBK Accounts we can look over your qualifying income, explain what you’ll need to do, point you toward suitable software, and get your digital record-keeping set up properly. We’ll also support you with the quarterly submissions and final declaration as they come round.
Whether you were due to join in April 2026 or just want a head start, get in touch with us to talk through your situation and get ready for Making Tax Digital.
Frequently Asked Questions
During the first year for taxpayers starting MTD from April 2026, late quarterly updates won’t initially attract penalty points under the soft-landing arrangements. You’re still expected to submit them, though, and other deadlines like the final declaration and payment aren’t covered by this leniency.
Only if it’s linked to bridging software that can send the data to HMRC. A spreadsheet on its own generally isn’t enough to meet MTD requirements. You can find information on appropriate software on the Government website.
No. Quarterly updates are just summaries sent to HMRC and they don’t trigger a payment. Your tax bill is still due by 31 January after the end of the tax year, the same as it is now.
