Making Tax Digital for Income Tax: What Sole Traders and Landlords Need to Know

Making Tax Digital for Income Tax is now a reality for some sole traders and landlords.

From 6 April 2026, certain people with income from self-employment or property are required to keep digital records and send quarterly updates to HMRC using compatible software.

Others will be brought into the system from April 2027 and April 2028 as the income threshold reduces.

If you are self-employed, receive rental income, or both, this guide explains when the rules apply and what you will need to do.

What is Making Tax Digital for Income Tax?

Making Tax Digital for Income Tax, often shortened to MTD for Income Tax, changes how some sole traders and landlords keep their records and report information to HMRC.

If you are required to use it, you will generally need to:

• Keep digital records of your self-employment and/or property income and expenses
• Use software that is compatible with Making Tax Digital
• Send quarterly updates to HMRC
• Submit your tax return using compatible software after the end of the tax year

Importantly, the quarterly updates do not replace your annual tax return. They are summaries of information from your digital records, rather than four additional tax returns each year.

Who needs to use MTD for Income Tax?

The rules are being introduced in stages.

This means that someone with qualifying income of exactly £30,000 would not be brought into MTD from April 2027 under the £30,000 threshold. Their qualifying income needs to be more than £30,000.

What counts as qualifying income?

This is an important point because the thresholds are not based on your taxable profit.

Broadly, qualifying income is your gross income from self-employment and property before expenses and tax.

For example, suppose you are a sole trader with:

• Turnover of £38,000
• Allowable business expenses of £15,000
• Taxable trading profit of £23,000

For MTD purposes, it is the £38,000 of gross trading income that is relevant when considering qualifying income, rather than the £23,000 profit.

If you have both self-employment and property income, the relevant gross income is combined.

For example:

• Self-employment income: £24,000
• Gross rental income: £12,000
• Total qualifying income: £36,000

Subject to the other conditions applying, that £36,000 total would put the individual above the £30,000 threshold for April 2027.

Important

The MTD thresholds are based on qualifying income, not profit. Deducting your business or property expenses does not reduce your qualifying income for this purpose.

Does employment income count towards the threshold?

Not generally.

The qualifying-income test is concerned with gross income from self-employment and property.

So, for example, somebody earning £40,000 from employment and £15,000 from self-employment would not simply add those together and say they have £55,000 of qualifying income.

Other income and gains may still need to be included when the person’s annual tax return is completed, but they do not necessarily form part of the MTD qualifying-income calculation.

What if I have more than one business or rental property?

Your qualifying income is not considered separately simply because it comes from different relevant sources.

For example, somebody might have:

• £20,000 gross income from one sole-trader business
• £10,000 gross income from another sole-trader business
• £15,000 gross property income

Their combined qualifying income would be £45,000.

However, MTD record keeping and quarterly reporting also needs to reflect the relevant income sources. Depending on your circumstances, separate digital records and updates may therefore be required for different businesses or property businesses.

This is one reason it is worth getting the software and bookkeeping structure right from the outset rather than waiting until a quarterly deadline approaches.

What records need to be kept digitally?

If you are within MTD, compatible software needs to be used to create, store and correct digital records of your relevant self-employment and property income and expenses.

The purpose isn’t simply to type four totals into HMRC’s website every year. Your underlying records need to be maintained digitally as part of the MTD process.

Compatible software is then used to send the required information to HMRC.

At Baldwin’s Accountancy Services, we work with cloud accounting software including Xero, QuickBooks and FreeAgent. The appropriate setup will depend on the business, the records being maintained and the level of bookkeeping support required.

What are the quarterly updates?

Once within MTD, you need to send HMRC updates based on the information in your digital records.

For people using the standard update periods, the deadlines are:

These updates are cumulative. For example, the second update covers the period from the beginning of the tax year through to 5 October, rather than containing only the three months since the first update.

Calendar update periods can instead be used in relevant circumstances, for example where the accounting period runs from 1 April to 31 March. The filing deadlines remain 7 August, 7 November, 7 February and 7 May.

Important

A quarterly update is a summary of the information held in your digital records. It is not another Self Assessment tax return.

Do I still need to complete a tax return?

Yes.

MTD does not remove the annual tax return.

After the end of the tax year, your compatible software is used to complete the tax return. This is where any necessary adjustments can be made and other income, gains, allowances or reliefs can be dealt with.

Your tax liability also continues to be payable under the normal Self Assessment timetable.

For somebody who entered MTD on 6 April 2026, their 2026/27 tax return and tax payment are due by 31 January 2028.

What happens if HMRC has signed me up automatically?

This has become particularly relevant from September 2026.

HMRC is now beginning to sign up people who it believes were required to use MTD from 6 April 2026 but who had not already signed themselves up.

HMRC is doing this based on the information it already holds and is contacting affected taxpayers after they have been signed up.

If this happens, don’t assume that everything HMRC holds is necessarily up to date.

For example, your circumstances may have changed since the tax return HMRC used to determine whether you were within the rules.

You should check that the self-employment and property income sources HMRC holds are correct and make sure you have suitable compatible software and digital records in place.

If you believe HMRC has signed you up when you should not be within MTD, this should be addressed rather than simply ignoring the notification. HMRC’s current guidance says taxpayers who believe they do not need to use the service should contact HMRC.

Are there exemptions from MTD?

Yes.

Some people are automatically exempt, while in other circumstances an exemption needs to be applied for.

For example, an exemption may be available where somebody is digitally excluded and it would not be reasonable for them to use compatible software to keep digital records and meet their MTD obligations.

An exemption from MTD does not mean that the person’s income no longer needs to be reported. They would generally continue reporting their income and gains through Self Assessment in the normal way.

HMRC also provides for temporary exemptions in certain circumstances.

What happens if I miss a quarterly update?

There is an important transitional rule for the first year of mandatory MTD.

HMRC says it will not issue penalty points for missed quarterly update deadlines during the 2026/27 tax year.

That does not mean the quarterly updates can simply be ignored. Digital records still need to be maintained and the required quarterly updates need to be submitted before the tax return can be completed through MTD.

Normal consequences for late tax returns and late payment of tax also continue to apply.

From 6 April 2027, the points-based penalty regime is due to apply to missed quarterly update deadlines.

Can my accountant deal with MTD for me?

Yes. An accountant or tax agent can deal with relevant parts of the MTD process on your behalf where they are appropriately authorised.

Depending on the service you agree with your accountant, this could include:

• Checking when you are required to join MTD
• Helping you choose and set up suitable software
• Maintaining or reviewing your digital bookkeeping records
• Submitting quarterly updates
• Preparing your annual Self Assessment tax return
• Helping you understand what information is required and when

Existing Self Assessment agent authorisations can also be recognised for MTD purposes, although the agent needs to have the appropriate Agent Services Account arrangements in place.

What should I do now?

If your qualifying income was more than £50,000 in 2024/25, MTD may already apply to you and you should make sure your records and software are compliant.

If your qualifying income was more than £30,000 in 2025/26, you should start preparing for MTD ahead of 6 April 2027 rather than waiting until the first quarterly deadline.

And if you are not sure whether the rules apply, checking now gives you time to get the right bookkeeping and software arrangements in place.

Baldwin’s Accountancy Services can help sole traders and landlords understand when MTD applies, get their records ready and manage the ongoing accounting and tax requirements.