Making Tax Digital Self-Employed: 2026 UK Rules

Making Tax Digital for Income Tax is now compulsory for the first group of self-employed people in the UK.

From 6 April 2026, qualifying sole traders and landlords must keep digital financial records, submit quarterly updates to HM Revenue and Customs and complete their annual tax return using compatible software.

The first mandatory group consists of people whose total gross self-employment and property income was more than £50,000 in the 2024/25 tax year. The threshold falls to more than £30,000 from April 2027 and more than £20,000 from April 2028.

Making Tax Digital does not introduce a new tax, require four separate tax returns or normally require Income Tax to be paid every quarter. It changes how business records are maintained and how information is reported to HMRC.

Someone who has only recently started trading may first need to understand how to register as a sole trader and how Self Assessment applies before considering their future Making Tax Digital obligations.

What Is Making Tax Digital for Self-Employed People?

What Is Making Tax Digital for Self-Employed People

Making Tax Digital for Income Tax, commonly shortened to MTD for Income Tax or MTD ITSA, is HMRC’s digital reporting system for sole traders and landlords.

A person who is required to use it must use compatible software to:

create and maintain digital records of business income and expenses;
send summaries of income and expenses to HMRC during the tax year;
add other taxable income, gains, allowances and adjustments;
submit the final tax return; and
correct records where necessary.

The quarterly updates are summaries rather than completed tax returns. The final tax calculation is still completed after the end of the tax year, once adjustments, reliefs and other income have been included.

Making Tax Digital for Income Tax is separate from Making Tax Digital for VAT.

A VAT-registered business may already use compatible accounting software, but the owner should check whether that product also supports Income Tax reporting.

Who Must Use Making Tax Digital in 2026?

A person generally needs to use Making Tax Digital for Income Tax from 6 April 2026 where all the following conditions apply:

The person is registered for Self Assessment.
They operate as a sole trader, receive property income, or receive both.
Their total qualifying income was more than £50,000 in the 2024/25 tax year.
They are not covered by an automatic or approved exemption.

HMRC may write to affected taxpayers, but receiving no letter does not remove the individual’s responsibility to check whether the rules apply. The official Making Tax Digital eligibility checker can be used to confirm the likely start date.

People who are uncertain whether their work is treated as self-employment may find the distinction between being self-employed and operating as a sole trader useful.

MTD for Income Tax currently applies to personal sole-trader and property income rather than limited-company turnover.

What Are the Making Tax Digital Income Thresholds?

The mandatory rollout is based on qualifying gross income reported for an earlier tax year.

Qualifying income shown for	Income threshold	MTD start date
2024/25 tax year	More than £50,000	6 April 2026
2025/26 tax year	More than £30,000	6 April 2027
2026/27 tax year	More than £20,000	6 April 2028
Any relevant year	£20,000 or less	Not currently mandatory

The wording “more than” is important. Gross qualifying income of exactly £50,000 does not exceed the £50,000 threshold for the April 2026 group.

These thresholds are based on gross income rather than taxable profit. A business with £54,000 of sales and £18,000 of allowable expenses has £54,000 of qualifying income for the MTD test, even though its accounting profit may be only £36,000.

Is the MTD Threshold Based on Turnover or Profit?

Is the MTD Threshold Based on Turnover or Profit

The Making Tax Digital threshold is based principally on gross self-employment and property income before expenses, often described as turnover or qualifying income.

It is not based on:

taxable business profit;
the amount of Income Tax owed;
the owner’s take-home earnings; or
the balance remaining after deducting expenses.

For example, a self-employed consultant who receives £52,000 from clients and incurs £15,000 of business expenses has qualifying income of £52,000, not profit of £37,000.

Understanding which costs can reduce taxable profit remains important. Common deductions are covered in the explanation of expenses that may be claimed when self-employed.

Those deductions can reduce the final tax bill, but they do not normally reduce gross income for the MTD threshold.

Which Types of Income Count Towards the Threshold?

Qualifying income normally includes the gross amounts from:

sole-trader businesses;
freelance or contracting activities treated as self-employment;
UK property income;
relevant foreign property income for UK tax residents; and
multiple self-employment or property sources combined.

Suppose a person received £34,000 from freelance work and £19,000 in gross rental income during 2024/25. The combined qualifying income would be £53,000, meaning the person would generally fall within the April 2026 group.

The sources are combined even when they are maintained separately. A person cannot apply the £50,000 threshold separately to each business or property.

HMRC’s detailed rules for working out qualifying income should be checked where a person has foreign income, jointly owned property, ceased businesses, short accounting periods or unusual income sources.

Which Income Does Not Count Towards the MTD Threshold?

Other personal income does not normally count towards qualifying income.

This includes:

salary taxed through PAYE;
State Pension or private pension income;
dividends;
savings interest; and
an individual partner’s share of partnership profit.

A person earning a £35,000 salary and receiving £24,000 of sole-trader turnover would therefore have £24,000 of qualifying income for the MTD test. The salary is relevant to the final Income Tax calculation but does not push the individual over the MTD threshold.

Partnership profit does not count towards an individual partner’s qualifying income, although separate sole-trader or property income belonging personally to that partner may count.

What Digital Records Must a Sole Trader Keep?

What Digital Records Must a Sole Trader Keep

Affected taxpayers must create and retain digital records of their self-employment and property income and expenses.

A digital record should normally include:

the transaction date;
the amount received or paid; and
the appropriate income or expense category.

Records may be entered manually, imported from a business bank account, created from digital invoices or captured by receipt-scanning software.

The categories broadly follow the income and expense categories used for Self Assessment. These can include sales, fees, stock, office expenses, travel, professional costs and financial charges.

The official requirements for creating digital tax records should be checked before changing an existing bookkeeping system.

Digital record-keeping should begin from the relevant start of the reporting period. For the first compulsory group, this is normally 6 April 2026 when standard tax-year periods are used, or 1 April 2026 where calendar update periods are selected.

What Are the MTD Quarterly Deadlines for 2026/27?

Most self-employed people using standard tax-year periods will have the following update schedule:

Standard update period	Submission deadline
6 April to 5 July 2026	7 August 2026
6 April to 5 October 2026	7 November 2026
6 April 2026 to 5 January 2027	7 February 2027
6 April 2026 to 5 April 2027	7 May 2027
Final 2026/27 tax return	31 January 2028

Each quarterly submission covers the period from the beginning of the tax year to the end of the relevant update period. It is therefore cumulative rather than limited only to transactions from the most recent three months.

This arrangement allows corrections made in the accounting records to be reflected in a later update without necessarily resubmitting every earlier update. HMRC provides a full explanation of the quarterly update periods and deadlines.

Self-employed people should also continue monitoring their other Self Assessment and registration deadlines. Making Tax Digital does not cancel obligations relating to earlier tax years.

Does Making Tax Digital Mean Paying Tax Quarterly?

Making Tax Digital does not currently mean that most sole traders must pay their Income Tax four times a year.

The quarterly updates provide HMRC with summaries of business income and expenses. They are not four separate tax returns, and the figures may not include all year-end adjustments, allowances, pension contributions, Capital Gains Tax information or other income.

The final tax return and balancing payment for the 2026/27 tax year remain due by 31 January 2028. Payments on account may also apply under the usual Self Assessment rules.

A person estimating the effect of additional freelance income can use a UK side-hustle tax calculator, although any automated result should be treated as an estimate rather than personalised tax advice.

What Software Is Needed for Making Tax Digital?

HMRC does not provide full bookkeeping software for every business. A sole trader must choose commercial software recognised as compatible with Making Tax Digital for Income Tax.

There are two broad options.

Full accounting software

Full accounting software can create digital records, import banking transactions, scan receipts, categorise expenses, send quarterly updates and submit the final tax return.

This may suit a business that wants to replace spreadsheets or automate more of its bookkeeping.

Bridging software

Bridging software connects existing digital records, such as spreadsheets, to HMRC’s system.

A sole trader may therefore be able to continue using a spreadsheet, provided the records and bridging product together meet all MTD requirements. Simply saving figures in an ordinary spreadsheet without compatible submission software is not sufficient.

HMRC’s compatible software information states that some free products are available for people with simple tax affairs, although transaction limits or restricted features may apply. HMRC recognises compatible products but does not recommend one provider over another.

Before subscribing, the user should check whether the software:

supports every self-employment and property income source;
can send quarterly updates;
can submit the final tax return;
supports VAT where required;
allows an accountant or tax agent to access the records;
can report dividends, pensions and other personal income; and
provides a clear export or backup facility.

Price should not be the only consideration. A cheaper product that cannot submit the final return or accommodate multiple businesses may require an additional subscription later.

How Does a Self-Employed Person Sign Up

A person who was required to begin MTD on 6 April 2026 should sign up without unnecessary delay.

To use the online service, the taxpayer normally needs to:

Be registered for Self Assessment.
Have submitted a Self Assessment return within the previous two years.
Choose compatible software.
Gather the start dates and details for each business or property source.
Sign in using the Government Gateway credentials used for Self Assessment.
Complete any identity checks requested by HMRC.
Authorise the chosen software to communicate with HMRC.
Check that every relevant income source appears in the account.

The taxpayer may sign up personally, or an authorised tax agent may complete the process. The official MTD for Income Tax sign-up service explains the information required.

Anyone who has not yet registered their business should first complete the appropriate self-employed registration process.

Can an Accountant Handle Making Tax Digital?

A tax agent or accountant can maintain records, send quarterly updates and submit the final return where properly authorised.

However, appointing an accountant does not transfer legal responsibility for accurate records and submissions away from the taxpayer.

The business owner should still:

provide complete records promptly;
review figures before final submission;
disclose every source of taxable income;
retain invoices and receipts where required; and
confirm who is responsible for each deadline.

A written engagement letter should specify whether the accountant is handling bookkeeping, quarterly updates, year-end adjustments, the final tax return or only selected tasks.

Who Can Be Exempt From Making Tax Digital?

Some exemptions apply automatically, while others require an application.

Partnerships do not currently have to use MTD for Income Tax in their partnership capacity. People with qualifying income of £20,000 or less are also outside the current mandatory rollout.

An individual may be able to apply for a digital-exclusion exemption where it is not reasonable for them to use compatible software because of circumstances such as:

age combined with an inability to use digital systems;
a health condition or disability;
religious beliefs incompatible with electronic communications; or
an inability to obtain adequate internet access because of location.

HMRC states that unfamiliarity with accounting software, additional administrative time or software cost alone will not normally establish digital exclusion.

Other automatic or temporary exemptions can apply to particular taxpayers, returns, allowances and income arrangements. The full Making Tax Digital exemption criteria should be checked rather than assuming that an exemption applies.

An exempt person must normally continue completing Self Assessment returns under the applicable non-MTD process.

What Happens if a Quarterly Deadline Is Missed?

HMRC will not apply penalty points for late quarterly updates for the 2026/27 tax year. This is a first-year easement for the initial mandatory group.

However, the missing updates still have to be sent before the taxpayer can submit the final tax return. Penalties can still apply to a late tax return or late payment of tax.

For tax years after 2026/27, a missed quarterly update can produce a penalty point. A taxpayer who reaches four points may receive a £200 penalty, followed by another £200 penalty for each further missed submission deadline while at the threshold.

The detailed MTD penalty rules should be consulted where an update, return or payment has already been missed.

What Should Self-Employed People Do Now?

What Should Self-Employed People Do Now

A practical MTD preparation process should begin with the previous tax return rather than an estimate of current profit.

First, identify total gross self-employment and property income for the relevant threshold year. Do not deduct business expenses or include PAYE salary.

Next, list every sole-trader business and property source that needs to be maintained digitally. Check whether the current bookkeeping software is recognised for MTD for Income Tax and whether it can submit both quarterly updates and the final return.

The business should then establish a consistent routine for recording sales, fees, invoices, expenses and receipts.

Waiting until the quarterly deadline to reconstruct several months of activity increases the likelihood of missing transactions or using the wrong expense categories.

It is also sensible to:

reconcile business bank transactions regularly;
keep business and personal spending clearly separated;
check opening balances and income-source details;
confirm responsibilities with an accountant;
test the software connection before a deadline; and
maintain secure backups of accounting records.

People with side-business income should also understand the wider UK tax rules for side hustles, including the trading allowance, registration requirements, allowable expenses and National Insurance.

Common Making Tax Digital Mistakes to Avoid

Using Profit Instead of Gross Income

The mandatory threshold is normally tested against gross qualifying income before expenses, not net profit.

Counting Salary Towards the MTD Threshold

PAYE earnings affect the final tax calculation but do not normally count as qualifying income for determining when MTD starts.

Assuming Each Business Has Its Own Threshold

Income from multiple sole-trader businesses and property sources is generally combined.

Believing Quarterly Updates Replace the Tax Return

A final tax return must still be submitted after the tax year.

Assuming Tax Must Be Paid Every Quarter

Quarterly updates are reporting obligations. The normal Self Assessment payment timetable continues unless HMRC changes the rules or the taxpayer has another payment arrangement.

Buying Software Without Checking Its Functions

Some products may maintain records or send updates but may not support every income source or complete the final tax return.

Ignoring MTD Because HMRC Did Not Send a Letter

The taxpayer remains responsible for checking eligibility and signing up where required.

Final Answer

Making Tax Digital for self-employed people became compulsory on 6 April 2026 for sole traders and landlords whose combined gross self-employment and property income exceeded £50,000 in 2024/25.

Affected taxpayers must maintain digital records, submit four cumulative quarterly updates using compatible software and complete their final tax return through that software.

The first quarterly deadline for 2026/27 is 7 August 2026, while the final return and tax payment are due by 31 January 2028.

The threshold falls to more than £30,000 from April 2027 and more than £20,000 from April 2028. Because the test uses gross income rather than profit, self-employed people should check their previous returns carefully rather than relying on taxable profit or take-home earnings.

Frequently Asked Questions

Is Making Tax Digital compulsory for all self-employed people?

No. It is being introduced according to qualifying gross income. It started in April 2026 for qualifying income above £50,000, falls to above £30,000 in April 2027 and above £20,000 in April 2028.

Is the MTD threshold based on turnover or profit?

It is generally based on gross self-employment and property income before expenses. It is not based on taxable profit.

Do PAYE wages count towards the Making Tax Digital threshold?

No. Employment income does not normally count towards qualifying income, although it must still be included when the final tax position is calculated.

Does rental income count alongside self-employed income?

Yes. Gross self-employment and relevant property income are generally combined when testing the threshold.

Can a self-employed person use spreadsheets for MTD?

Potentially. The spreadsheet must be used with compatible bridging software or another recognised product capable of making the required submissions to HMRC.

Are quarterly MTD updates the same as tax returns?

No. Quarterly updates are summaries of digital income and expense records. A final tax return is still required after the end of the tax year.

Does tax have to be paid every quarter under MTD?

Not normally. The ordinary Self Assessment payment timetable continues, including the 31 January balancing-payment deadline and any applicable payments on account.

What is the first MTD quarterly deadline?

For the 2026/27 tax year, the first quarterly update is due by 7 August 2026.

Can an accountant submit MTD updates?

Yes. An authorised tax agent can maintain records and make submissions, depending on the service agreed with the client.

What happens when income falls below the threshold?

A person who is already using MTD may be able to opt out after qualifying income has remained below the relevant threshold for three consecutive tax years.

A return amendment made before or after the start of a tax year can also affect whether MTD applies, depending on its timing.

About William Carter

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