Making Tax Digital 2026/27: What Self-Employed People Need to Know

Making Tax Digital (MTD) is HMRC's programme to modernise the UK tax system by moving it online. If you're self-employed or a landlord, this is one of the biggest changes to how you report your income in decades. From April 2026, many sole traders and property landlords will need to keep digital records and send quarterly updates to HMRC using compatible software — replacing the traditional annual Self Assessment tax return process.

What Is Making Tax Digital?

Making Tax Digital is the government's long-term plan to digitise the tax system, making it easier for individuals and businesses to get their tax right and reducing errors. The programme has been rolling out in stages:

April 2019: MTD for VAT became mandatory for VAT-registered businesses above the £85,000 threshold
April 2022: MTD for VAT extended to all VAT-registered businesses, regardless of turnover
April 2026: MTD for Income Tax Self Assessment (ITSA) begins for self-employed individuals and landlords

MTD for Income Tax is the next major phase. It affects how you report your self-employed or property income — not how much tax you pay. The tax rates, bands, and Personal Allowance all remain exactly the same.

Who Is Affected and When?

MTD for Income Tax is being introduced in phases based on your qualifying income (your gross income from self-employment and/or property, before expenses):

From	Who Must Comply	Income Threshold
6 April 2026	Self-employed individuals and landlords	Over £50,000
6 April 2027	Self-employed individuals and landlords	Over £30,000
6 April 2028 (proposed)	Self-employed individuals and landlords	Over £20,000

The income threshold is based on your combined gross income from self-employment and property — not your profit after expenses. If you have a salaried job as well, your employment income doesn't count towards this threshold, but your self-employed and rental income does.

What About Partnerships?

General partnerships were originally expected to join MTD for Income Tax from April 2025, but this has been postponed indefinitely. The government has committed to including partnerships in a later phase but has not confirmed a date. If you're in a partnership, you should still prepare — but you won't be required to use MTD until further notice. Check GOV.UK for the latest updates.

Who Is Exempt?

You may be exempt from MTD for Income Tax if:

Your qualifying income is below the current threshold
You're digitally excluded (for example, due to age, disability, or location making it unreasonably difficult to use digital tools)
You have a religious objection to using computers

If you think you're exempt, you can apply for an exemption through HMRC.

What You'll Need to Do Under MTD

Under Making Tax Digital for Income Tax, your obligations change from filing one annual tax return to an ongoing digital reporting process throughout the year:

1. Keep Digital Records

You must use MTD-compatible software to record your income and expenses digitally. Spreadsheets alone won't be enough — your software needs to be able to communicate with HMRC's systems via their API. You'll need to record each transaction (income received, expenses paid) as it happens, rather than totting everything up at year end.

2. Send Quarterly Updates

Four times a year, your software will send a summary of your income and expenses to HMRC. These are not quarterly tax returns — they're summaries of your business transactions for the period. You don't need to calculate any tax at this stage. Think of them as digital check-ins.

3. Submit an End of Period Statement (EOPS)

After the end of the tax year (5 April), you'll confirm that the quarterly updates you sent are complete and accurate for each source of income. This is your opportunity to make any adjustments, such as accounting adjustments or year-end corrections.

4. Submit a Final Declaration

The Final Declaration replaces the Self Assessment tax return. This is where you bring together all your income sources (including employment income, savings, dividends, etc.), claim any reliefs or allowances, and confirm your tax position for the year. The deadline for this remains 31 January after the end of the tax year — the same as the current Self Assessment deadline.

The Quarterly Update Schedule

The tax year is divided into four quarters, each with a submission deadline roughly one month after the quarter ends:

Quarter	Period	Deadline
Quarter 1	6 April – 5 July	7 August
Quarter 2	6 July – 5 October	7 November
Quarter 3	6 October – 5 January	7 February
Quarter 4	6 January – 5 April	7 May

These deadlines are fixed. Unlike the current Self Assessment system where you have until 31 January to report an entire year's income, MTD requires you to keep on top of your records throughout the year.

Compatible Software

To use MTD for Income Tax, you'll need software that's been recognised by HMRC as compatible. Your software must be able to:

Create and store digital records of your income and expenses
Send quarterly updates to HMRC
Submit your End of Period Statement and Final Declaration

HMRC maintains an official list of compatible software for MTD for Income Tax. Well-known options include:

FreeAgent — Popular with freelancers and sole traders, integrates with many UK banks
Xero — Widely used by small businesses and accountants
QuickBooks — Established accounting software with a self-employed tier
Sage — Long-standing UK accounting software provider

Free and lower-cost options are also available for simpler cases. If you're already using accounting software for MTD for VAT, check whether your current provider also supports MTD for Income Tax — many do or are adding support ahead of April 2026.

How MTD Affects Your Tax Bill

Here's the most important thing to understand: Making Tax Digital does not change how much tax you pay. It only changes how you report your income to HMRC.

Income tax rates and bands remain the same — see our salary calculator for current rates on employed income
National Insurance thresholds and rates are unchanged
Allowable expenses, the trading allowance, and other reliefs still apply
Pension tax relief works the same way
Payments on account still apply if your tax bill exceeds £1,000

The government's stated aim is to reduce tax errors and make it easier to stay on top of your tax position — not to increase anyone's tax bill. In theory, having a clearer, more up-to-date picture of your income throughout the year should help you plan better and avoid surprises at year end.

Penalties for Non-Compliance

MTD for Income Tax introduces a new penalty regime that replaces the current Self Assessment penalties. There are two types:

Late Submission Penalties (Points-Based)

The new system works on a points basis:

Each time you miss a quarterly update or tax return deadline, you receive one penalty point
When you reach 4 points, you receive a £200 penalty
Each further missed deadline after reaching 4 points also triggers a £200 penalty
Points can be removed by submitting on time for 12 consecutive months and catching up on any outstanding submissions from the previous 24 months
Below the 4-point threshold, individual points are automatically removed 24 months after the missed deadline

Late Payment Penalties

Late payment penalties are proportionate to how long it takes you to pay:

How Late	2026/27 Tax Year	2027/28 Tax Year Onwards
Up to 15 days	No penalty	No penalty
16–30 days	3% of tax owed at day 15 (no penalty in first year)	4% of tax owed at day 15 (no penalty in first year)
31+ days	3% at day 15, plus 3% at day 30, plus 10% per year on outstanding amount from day 31	4% at day 15, plus 3% at day 30, plus 10% per year on outstanding amount from day 31

Late payment penalties do not apply to payments on account — only to balancing payments and amounts due following amendments.

A Soft Landing for the First Year

HMRC has confirmed that for the 2026/27 tax year (the first year of mandatory MTD for those with income over £50,000), no penalty points will be applied for late quarterly updates. You'll still need to submit your quarterly updates before you can file your Final Declaration, but you won't be penalised for missing the quarterly deadlines during this first year. This gives you time to adjust to the new system.

How to Prepare Now

Even though MTD for Income Tax doesn't become mandatory until April 2026, there are steps you can take right now:

1. Check If You're Affected

Look at your gross self-employed and/or property income (before expenses) for the 2024/25 tax year. If it's over £50,000, you'll need to comply from April 2026. If it's over £30,000, you have until April 2027. You can check your position using HMRC's eligibility checker.

2. Sign Up Through Your HMRC Account

You can sign up for MTD for Income Tax through your Government Gateway account. You'll need to be registered for Self Assessment and have submitted a tax return within the last 2 years. Signing up early lets you get familiar with the process before it becomes mandatory.

3. Choose Compatible Software

Research and choose software that suits your needs and budget. Consider whether you want something simple for basic record-keeping or a more full-featured package. Many providers offer free trials, and some have free tiers for simpler businesses.

4. Start Keeping Digital Records Now

Don't wait until April 2026. Start recording your income and expenses digitally now. This means logging each transaction as it happens — every invoice, every receipt, every bank payment. Getting into this habit now will make the transition much smoother.

5. Talk to Your Accountant

If you use an accountant, discuss how MTD will affect your working relationship. Your accountant can submit quarterly updates on your behalf, but they'll need access to your records throughout the year rather than just at year end. Some accountants may adjust their fees to reflect the additional work involved.

MTD and Employed Income

If you have both employed and self-employed income, MTD only applies to the self-employed and property income side. Your employment income will continue to be taxed through PAYE as normal. Use our salary calculator to check your take-home pay from employment, and refer to our self-employed tax guide for a full breakdown of how your business profits are taxed.