Making Tax Digital for Income Tax went live on 6 April 2026. If you’re a sole trader earning over £50,000, you’re already in scope, and the first quarterly deadline passed on 7 August. HMRC has a penalty soft landing for 2026/27, so missing Q1 won’t cost you points. That doesn’t apply from next year.
This guide covers who’s in scope, what the quarterly updates involve, which software you need, and what happens when you miss a deadline.
What is Making Tax Digital for Income Tax?
Instead of filing one Self Assessment return per year, MTD for Income Tax requires you to keep digital records throughout the year, send a summary to HMRC every quarter, and confirm your full tax position at year end via a Final Declaration.
HMRC’s case for doing this is that more frequent reporting catches errors earlier and removes the scramble for the January deadline. Whether that’s true for you depends a lot on whether you’re already organised.
Does it apply to you?
The rollout happens in three stages:
| Phase | Income threshold | Start date |
| Phase 1 | Over £50,000 | 6 April 2026 |
| Phase 2 | Over £30,000 | 6 April 2027 |
| Phase 3 | Over £20,000 | 6 April 2028 |
The income figure that matters is your qualifying income — gross self-employment and property receipts combined, before you deduct any expenses. Employment income, pension payments, savings interest, and dividends don’t count.
So if you earn £40,000 from freelance work and £15,000 from a rental property, your qualifying income is £55,000 and you’ve been in scope since April. Whether your profit is £20,000 after expenses is irrelevant — HMRC looks at the gross figure.
⚠️ The threshold is gross income, not profit. Many sole traders underestimate whether they’re in scope because they’re thinking about what they take home, not their turnover.
What you need to do
Keep digital records
Every transaction needs to be logged electronically: the date, the amount, and the category (materials, travel, professional fees, and so on). Receipt photos on your phone don’t qualify — the data has to be in a format your software can read and submit.
If you’ve been running a spreadsheet, you can keep it. You’ll need bridging software to handle the HMRC submission, but you don’t have to move everything into a full accounting package. The key requirement is a “digital link” at every stage — you can’t manually retype figures from one system into another.
Send quarterly updates
Quarterly updates are summaries of income and expenses for each three-month period. You don’t send individual invoices — just category totals. Your software generates the submission and sends it to HMRC.
The updates are lighter than a tax return. Think of them as sending HMRC a quarterly snapshot of your books, not a detailed filing.
Submit a Final Declaration
At year end, you submit a Final Declaration instead of a Self Assessment return. This is where you add any income not covered by the quarterly updates — savings, investments, and similar — and confirm your full tax position. It’s due by 31 January. Tax is calculated the same way as before — MTD changes the reporting, not the rules.
💡 Your quarterly updates don’t replace the Final Declaration — they sit alongside it. You still have a 31 January deadline, it just covers less ground than before because you’ve already reported your main income quarterly.
The quarterly deadlines for 2026/27
| Quarter | Period covered | Deadline |
| Q1 | 6 April – 5 July 2026 | 7 August 2026 |
| Q2 | 6 July – 5 October 2026 | 7 November 2026 |
| Q3 | 6 October 2026 – 5 January 2027 | 7 February 2027 |
| Q4 | 6 January – 5 April 2027 | 7 May 2027 |
| Final Declaration (2026/27) | Full tax year | 31 January 2028 |
Each update is due on the 7th of the month after the quarter closes. Q1 closed 5 July, so the deadline was 7 August. Q2 closes 5 October, so the deadline is 7 November 2026.
⚠️ Q2 is due 7 November 2026. This is the deadline to focus on — Q1 is covered by the soft landing, but Q2 is where the habit needs to be in place.
Do you need software?
You can’t submit MTD updates manually through your HMRC online account. You need HMRC-approved, MTD-compatible software.
QuickBooks, Xero, and FreeAgent all support MTD for Income Tax. There are also cheaper dedicated MTD tools for simpler situations — if your income is from a single source without much complexity, one of those may be all you need. If you’re already on spreadsheets, bridging software lets you keep them and handles the HMRC submission separately.
The main packages vary in cost from around £12/month for basic options to £30-40/month for full bookkeeping suites. Some banks (NatWest, Mettle) offer FreeAgent free with a business account — worth checking before paying.
💡 If you use an accountant, confirm their software supports agent access before Q2 on 7 November. Most packages support this, but it’s worth a quick check now rather than on 6 November.
Penalties
HMRC’s points system for quarterly updates works like a driving licence in reverse: miss a deadline, get a point; four points triggers a £200 fine. Points reset after a period of consistent compliance.
For 2026/27, late quarterly updates won’t generate penalty points. HMRC has put a soft landing in place for the first year.
The soft landing does not cover:
- The Final Declaration (due 31 January 2028) — the late filing penalty still applies
- Late payment of tax — interest and penalties apply as normal
From 2027/28, the points system runs in full. Missing a Q1 submission in April 2027 will start accumulating points.
Exemptions
Most sole traders in scope can’t opt out. Exemptions exist for a small number of situations.
You can apply to HMRC for a digital exclusion exemption if it’s genuinely not practicable for you to use software — due to age, disability, or a remote location without reliable internet access. Religious grounds are also recognised in a narrow set of cases. If you’re in formal insolvency proceedings, you may be automatically exempt. And if HMRC doesn’t have a National Insurance number on file for you by 31 January, you’re exempt for the following tax year without needing to apply.
If you think you qualify, apply to HMRC before your registration deadline rather than simply not registering.
Multiple businesses and mixed income
If you have more than one self-employment source — freelance consulting and a side business, for example — each needs to be tracked separately in your records. Your quarterly updates can combine them, but the underlying records need to show which income came from where.
The same applies if you have both self-employment and rental property income. Both types go into your quarterly updates. You can’t submit one and omit the other.
Common questions
Not entirely, not yet. The quarterly updates cover income reporting, but the Final Declaration still exists at 31 January. HMRC intends to fold them together eventually, for now, both exist.
If you’re approaching £30,000, it’s sensible to get digital records set up before April 2027. Converting a year of paper records retroactively is a harder job than starting fresh.
Yes, most MTD software supports agent access, so your accountant can file on your behalf. But they still need digital records to work with. You can’t hand over a year of receipts and expect them to produce quarterly updates retroactively.
Nothing in 2026/27, no penalty points are being issued for late quarterly updates this year. Q2 is due 7 November. That’s the one to focus on.
At least five years after the 31 January deadline for that tax year.
No. MTD changes how and when you report income, not the tax calculation.
MTD for VAT has applied to all VAT-registered businesses since April 2022, that’s a separate scheme. MTD for Income Tax (this guide) is for self-employed people and landlords reporting income tax. If you’re VAT-registered and self-employed, you’re likely subject to both.
What to do before 7 November 2026
If you’re above £50,000 and not yet registered: register via your HMRC online account now. Choose MTD-compatible software, connect it to HMRC, and get your records in order before Q2. The November deadline is closer than it looks.
If you’re under £50,000 but heading toward the April 2027 threshold: check where your qualifying income sits this year. The £30,000 floor will bring in a significant number of additional sole traders. Starting digital records now means you won’t be scrambling next spring.
This guide covers Making Tax Digital for Income Tax (MTD for ITSA) for sole traders in the UK. Information is based on HMRC guidance current as of August 2026. For advice specific to your circumstances, speak to an accountant or tax adviser.
