Making Tax Digital for Income Tax — What Sole Traders and Landlords Need to Know in 2026

If you're self-employed, a landlord, or earning income from a side hustle, HMRC's Making Tax Digital for Income Tax is the biggest change to how you report your earnings in a generation. It replaces the annual Self Assessment return with a system of quarterly digital submissions — and it's already rolling out.

This guide explains what MTD for Income Tax actually means, who it affects, and what you need to do.

What is Making Tax Digital for Income Tax?

Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) is HMRC's programme to move income tax reporting onto digital platforms. Instead of filing one Self Assessment return per year, affected taxpayers will need to submit quarterly updates to HMRC throughout the year, followed by a final declaration at the end of the tax year.

The goal, from HMRC's perspective, is to reduce errors, improve real-time visibility of tax liabilities, and modernise the UK tax system. For taxpayers, it means a fundamental change in how and when you report your income.

Who does it affect and when?

MTD for Income Tax is being introduced in three phases based on income thresholds:

April 2026 — sole traders and landlords with qualifying income above £50,000
April 2027 — those with qualifying income above £30,000
April 2028 — those with qualifying income above £20,000

Qualifying income means your gross income from self-employment and property combined — before expenses. If your combined gross income from these sources exceeds the relevant threshold, you will be required to comply from the corresponding date.

Partnerships are not included in the current rollout. Employees with only PAYE income are not affected. However, if you have PAYE employment income plus self-employment or rental income above the threshold, MTD applies to your non-PAYE income.

What does quarterly reporting actually involve?

Each quarter, you will need to submit a digital update to HMRC summarising your income and expenses for that period. There are four quarterly periods in each tax year, with submission deadlines shortly after each period ends.

These quarterly updates are not tax returns. They do not trigger a tax payment. They are summaries of your income and expenses that HMRC uses to build a running picture of your tax position throughout the year.

At the end of the tax year, you submit a final declaration — the equivalent of your current Self Assessment return — which confirms your figures, includes any adjustments, and triggers your tax calculation.

What software do you need?

You cannot submit MTD updates directly through HMRC's website. You must use HMRC-recognised MTD-compatible software. A range of options are available, from dedicated accounting platforms to simpler apps designed for sole traders and landlords.

When choosing software, the key questions are: Does it connect directly to HMRC for MTD submissions? Does it support the type of income you have (self-employment, property, or both)? And does it make digital record-keeping straightforward enough that you'll actually use it consistently?

What counts as a digital record?

Under MTD, you are required to keep digital records of every transaction — income received and expenses incurred — in your MTD-compatible software. This does not mean you need to scan every receipt, but it does mean you cannot keep records in a spreadsheet that isn't linked to your submission software, or in a paper ledger.

Each record must capture the date, amount, and category of the transaction. The software then uses these records to generate your quarterly updates automatically.

What are the penalties for non-compliance?

HMRC is introducing a new penalty points system for MTD. Each missed quarterly submission earns a penalty point. Once you accumulate enough points — the threshold depends on how frequently you're required to submit — you receive a financial penalty. Points reset after a period of compliance.

Late payment penalties remain separate and continue to apply in the same way as under Self Assessment.

What should you do now?

If you are approaching any of the three income thresholds, the time to prepare is now — not when your first quarterly deadline arrives. The steps are straightforward: confirm whether and when MTD applies to you, choose your software, set up your digital records, and understand what your first quarterly submission will require.

For a complete, step-by-step walkthrough of the entire MTD process — including decision trees to confirm your exact position, software setup guidance, quarterly submission checklists, and worked examples for sole traders, landlords, and mixed-income situations — the Making Tax Digital Survival Blueprint covers everything in plain English.

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This article is for informational purposes only and does not constitute legal, accounting, or tax advice. HMRC rules and MTD requirements are subject to change. Always verify current requirements with HMRC and seek professional advice where appropriate.