Making Tax Digital explained: what is it and who does it affect?

If you’re a sole trader or a landlord with qualifying income over £50,000 a year, the way you have to report your earnings has changed.

Those whose income from their business or rental properties exceeds the threshold now have to report it online through HMRC’s new Making Tax Digital for Income Tax (MTD) scheme.

The system went live in April and the first quarterly update deadline saw over 436,000 taxpayers successfully use the system to report their income and expenses for the first tax quarter of 2026, according to figures from HMRC.

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However, this number is lower than the 860,000 sole traders and buy-to-let landlords that are estimated to need to sign up to Making Tax Digital by the end of this tax year.

Harvey Dhillon, founder of accountancy firm Zmartly, suggested the gap isn't people who tried and failed. It's people who hadn't started.

He said: “We took on clients who came to us in a panic in the last fortnight before the deadline, and every one of them filed on time. The fear was worse than the job.”

The good news is that as the 2026/27 tax year is the first one with the Making Tax Digital scheme, HMRC is not issuing penalties to people who fail to submit their MTD updates – but it is still a legal requirement to use the new system.

What is Making Tax Digital?

Making Tax Digital for income tax is a new way for sole traders and landlords to report their income and expenses to HMRC. 

Eligible sole traders and landlords, or your accountant if you have one, need to use recognised software to keep digital records and send HMRC light-touch quarterly updates of your income and expenses.

HMRC stresses these are not extra tax returns, and says they are instead “short summaries sent through compatible software” that “take minutes to complete”.

The software you choose will need to work with Making Tax Digital in order to: 

• create, store and correct digital records of your self-employment and property income and expenses  
• send your quarterly updates to HMRC  
• submit your tax return and pay tax due by 31 January the following year.

While quarterly MTD updates do not replace self-assessment, those in the scope of the new scheme will need to submit quarterly updates to send their tax return at the end of the tax year.

When are the Making Tax Digital deadlines?

The next deadline is 7 November 2026 for eligible sole traders and landlords.

Dhillon warns there are two things that may catch people in November.

He added: “The update is cumulative, so the one due on 7 November covers 6 April to 5 October, not July to October. Treat it as a standalone three months and you under-report by a quarter. And 7 November is a Saturday, with no working day extension in the regulations. There are no penalty points for a late quarterly update this year, but you still can't file your tax return until the updates are in. It's a blocker, not a free pass.”

Chloe Mount, director of Tunstall Accounting, says she is already speaking to clients about getting their records in earlier and identifying those who are going to need more help.

She said: “My main concern is the extra workload this creates across a whole client base. Each quarter involves checking records, dealing with queries and chasing missing information, all within the same short window. Multiply that across a practice and it is a lot of additional work.

"I think MTD is manageable, but it does mean both accountants and clients having to work differently, especially as it will become even more challenging from April 2027, when the £30,000 threshold brings many more sole traders into MTD, increasing the workload significantly.”

Who does Making Tax Digital apply to?

In the current tax year, Making Tax Digital only affects the approximately 860,000 sole traders and landlords that have a qualifying income (total income from self-employment or property) of over £50,000.

But by the 2028/29 tax year, all 2.9 million self-employed individuals and landlords with qualifying incomes over £20,000 will have to use MTD.

Individuals must comply within the following deadlines based on their income:

• April 2026: Around 864,000 individuals with qualifying income over £50,000
• April 2027: 1,077,000 individuals with income between £30,000 and £50,000
• April 2028: Approximately 975,000 individuals with income between £20,000 and £30,000

HMRC will assess your gross income (income before you deduct expenses, also called your turnover). You should also check your qualifying income yourself.

To assess your qualifying income for a tax year, HMRC will look at the self-assessment tax return you submitted in the previous tax year.

For example, your gross income could be £12,000 from rental income and £39,000 from self-employment income. This would bring your total qualifying income to £51,000, meaning you have to use MTD this tax year.

Once you start using Making Tax Digital, if your qualifying income drops below the relevant threshold for three tax years in a row, you can choose to opt out.

Only qualifying income counts towards the threshold – not PAYE (Pay As You Earn) income.

If you earn £50,000 as an employee and get an additional £10,000 from rental income, you will not need to complete Making Tax Digital because only the £10,000 you earn from being a landlord counts towards the MTD threshold.

What software do I need to use for Making Tax Digital?

There are different types of software to help you use Making Tax Digital. You can get software that either creates digital records or connects to your existing records, like those held in spreadsheets.

Some pieces of software can do everything needed for MTD within one program, meaning you can keep everything in one place.

However, if you wish you can use multiple programs – for example one to create the digital records and another to submit the information to HMRC – to complete MTD, but you must make sure the products can work together.

HMRC has a software finder tool to help you find software compatible with MTD. You’ll be asked a few questions to get a personalised list of software options depending on what you need.

All the software listed on the tool has been through HMRC’s official recognition process – but HMRC does not recommend any product or software provider.

Katie Hodge, senior tax manager at accountancy firm Albert Goodman, said: “There is no software provided by HMRC to submit the Making Tax Digital updates but there are free options out there.

“You can even use a spreadsheet, but you need to use a separate bridging software to put it in the correct format.”

What happens if I have to use Making Tax Digital in 2026?

If you are a sole trader or landlord who has an income of £50,000 or more, you will need to complete Making Tax Digital this year, giving HMRC quarterly updates on your finances.

People in this scope should read HMRC’s official guidance to MTD, choose software, and sign up on gov.uk as soon as possible. Those who use a tax agent should speak to them about preparing.

There are also webinars available for businesses and landlords on the HMRC website.

If you do not sign yourself up, HMRC will automatically sign you up before the end of the year, but it is best to do it yourself so it does not catch you by surprise.

Craig Ogilvie, director of Making Tax Digital at HMRC, said: “If you haven't yet signed up, now is the time to do so. Taking action now means you stay in control, can make sure your Making Tax Digital for Income Tax details are correct from the start, and have time to choose the software that works best for you, rather than waiting for HMRC to sign you up from September.”

Do I have to file a tax return this year if I use Making Tax Digital?

You will still need to file your tax return for the 2025/26 tax year in the usual way (with a deadline of 31 January 2027), as it includes time before Making Tax Digital began.

The first Making Tax Digital tax return, covering the 2026/2027 tax year, will be due by 31 January 2028.

Although you won’t have to complete an MTD tax return this year, you will still need to give HMRC quarterly updates.

There are no penalties for late submission of your quarterly updates this year, but from the next tax year, HMRC will give you penalty points for each late submission. Once you reach four penalty points, a £200 fine will be given.

This means occasional slip-ups won't result in immediate fines.