What Is Making Tax Digital? A Plain-English Guide for 2026/27
By Marina Jahan ·
Reviewed by Shamayun Chowdhury, CIMA ·
Tax year 2026/27 · Last reviewed [20 September 2026]
Quick answer
Making Tax Digital (MTD) is HMRC’s move to online tax reporting: you keep business records in software and send figures to HMRC digitally during the year. It has covered VAT since 2019. For Income Tax, sole traders and landlords with qualifying income over £50,000 joined on 6 April 2026, over £30,000 join in April 2027, and over £20,000 in April 2028.
Why trust this guide
- Checked against the law itself. Every threshold, deadline and penalty is traced to GOV.UK or to the regulations on legislation.gov.uk, and linked where it appears.
- Written by people who file MTD updates. MTDFix is a UK accountancy practice, part of Major Accountancy Limited, that sends quarterly updates to HMRC for sole traders and landlords.
- Reviewed and dated. Shamayun Chowdhury, a CIMA-qualified accountant, reviewed this page on the date shown above. We re-check it whenever HMRC changes the rules.
- No paid software placements. We don’t take payment to recommend any software product.
What is Making Tax Digital?
Making Tax Digital is the HMRC initiative that moves tax records and reporting off paper and into software. Businesses inside it keep their records in software and send their figures to HMRC through that software, rather than copying totals onto a form once a year. VAT has run this way for years, and on 6 April 2026 the first wave of self-employed people and landlords followed for Income Tax.
You will see it written several ways: MTD, HMRC MTD, the Making Tax Digital scheme, or simply “make tax digital”. They all mean the same government programme. What it is not is a new tax. The rates, allowances and allowable expenses stay exactly as they were. Only the way you keep records and report them changes.
What does Making Tax Digital mean for your tax year?
If you are a sole trader or landlord who has been brought into the system, three things are different about your tax year:
- Every transaction lives in an app rather than a ledger or folder. Each sale and each expense is logged digitally as the year goes on.
- HMRC gets a short summary from you once a quarter. Your software sends a short summary of income and costs for each quarter.
- You still finish the year with a tax return. By 31 January you pull everything together: other income, reliefs and the finished numbers.
For a business that is not yet inside the system, nothing changes until its start date, but getting records into software early makes the switch far less painful.
For individuals who are only employed and pay tax through PAYE, Making Tax Digital does not apply at all. The Income Tax rules are aimed at self-employment and property income, not wages or pensions.
Making Tax Digital so far: from VAT to Income Tax
The government launched the idea in 2015, aiming to modernise a tax system whose paper forms go back to the Inland Revenue era. The first plan was far more ambitious than what followed: VAT went first, and the Income Tax stage was postponed several times before finally starting in 2026.
| Date | What happened | Status |
|---|---|---|
| April 2019 | MTD for VAT becomes compulsory for businesses with taxable turnover above £85,000 | Done |
| 1 April 2022 | MTD for VAT extended to every VAT-registered business, whatever its turnover | Done |
| July 2025 | HMRC’s Transformation Roadmap says it does not intend to bring in MTD for Corporation Tax | Done |
| 6 April 2026 | MTD for Income Tax starts for qualifying income over £50,000 | In force |
| September 2026 | HMRC begins signing up people who should already be using MTD but have not registered | Under way |
| 6 April 2027 | Threshold falls to qualifying income over £30,000 | In law |
| 6 April 2028 | Threshold falls to qualifying income over £20,000 | In law |
| No date | General partnerships | Not announced |
Sources: HMRC press release on the VAT rollout; SI 2026/336, regulation 27; CIOT commentary on HMRC’s July 2025 roadmap.
Is Making Tax Digital going to happen?
It already has. VAT has been inside the system since 2019, and Income Tax since April 2026. The £30,000 and £20,000 stages are written into the 2026 regulations, so they are no longer just announcements. If an article tells you MTD “only applies to VAT” or that Income Tax is “still a pilot”, it was written before 2026 and should not be relied on.
Using the VAT Annual Accounting Scheme? You are still inside MTD for VAT. You file your single annual VAT return through MTD-compatible software, in the same way quarterly filers do.
Does Making Tax Digital apply to you, and from when?
You have to use Making Tax Digital for Income Tax if you are self-employed, a landlord or both, and your qualifying income on an earlier tax return is above the threshold for that year. HMRC does not look at what you are earning now. It looks back at a return you have already filed, which is why many people are caught out by a letter they were not expecting.
The qualifying income test
HMRC’s test adds your gross takings from self-employment to your gross rent, and it ignores every cost you paid out. It is money in, not profit. A job, a pension, dividends and savings interest are ignored. If you own a property with someone else, only your share of the rent counts, because that is the figure on your own return.
| Return HMRC checks | Qualifying income over | You start |
|---|---|---|
| 2024/25 | £50,000 | 6 April 2026 |
| 2025/26 | £30,000 | 6 April 2027 |
| 2026/27 | £20,000 | 6 April 2028 |
| Any year | £20,000 or less | Not in scope for that year |
Source: SI 2026/336, regulations 22 to 27; HMRC’s sign-up guidance on GOV.UK.
Illustrative example: how will Making Tax Digital affect me?
Aisha is a mobile hairdresser. Her 2025/26 return shows turnover of £27,500, rent of £9,000 from a flat she lets, and a salary from two days a week in a salon.
- Hairdressing turnover: £27,500
- Rent received: £9,000
- Salary: ignored
- Qualifying income: £36,500
That is over £30,000, so Aisha starts on 6 April 2027, even though her profit after costs is far lower. Figures are invented to explain the rule. Aisha is not a real client.
Making Tax Digital for small businesses: three situations that trip people up
CIS subcontractors. Construction workers paid under CIS count what they billed, not what was left after the contractor’s deductions. The deductions still count against your tax bill in the usual way, but they do not lower your qualifying income.
Scotland, Wales and Northern Ireland. Making Tax Digital applies across the whole UK. Scottish taxpayers pay Scottish Income Tax rates, but the digital record-keeping and reporting rules are identical.
Joining is easier than leaving. A single slow year won’t release you: from 2029/30 onwards, you can only exit after three straight years at or under the limit.
Who is not affected
- People whose only income comes from a job or a pension
- Limited companies. Making Tax Digital for companies applies only to VAT, not Corporation Tax. A director is caught only if they personally have self-employment or rental income over the threshold
- General partnerships, until HMRC announces a date
- Anyone whose qualifying income is at or below the threshold for that year
Can you get an exemption?
Yes, in some circumstances. The 2026 regulations list them.
- No National Insurance number. This exemption is automatic.
- Specific groups, including ministers of religion, Lloyd’s underwriters, and people whose tax affairs are run under a power of attorney or by a court-appointed deputy.
- Certain allowance claimants: anyone who claims Blind Person’s Allowance or Married Couple’s Allowance.
- 2026/27 only: foster carers claiming qualifying care relief, farmers and creative artists who average their profits, and some non-residents and trust beneficiaries.
- Digital exclusion. If age, disability, where you live or another reason makes using software unreasonable for you, you apply to HMRC, and HMRC decides.
Apart from the automatic ones, you cannot simply decide you are exempt. Read HMRC’s exemption guidance on GOV.UK first, and keep preparing until you have a decision.
How does Making Tax Digital work in practice?
At its heart, MTD is a direct line between your bookkeeping app and HMRC’s systems. You, or an accountant acting as your agent, record transactions in HMRC-recognised software, and the software sends your figures to HMRC. There is no separate Making Tax Digital portal to log in to. You can still see what HMRC has received in your HMRC online account.
Here is how the Income Tax year works for someone inside the system:
| Period covered | What you send | Deadline |
|---|---|---|
| 6 April – 5 July | Quarterly update 1 | 7 August |
| 6 July – 5 October | Quarterly update 2 | 7 November |
| 6 October – 5 January | Quarterly update 3 | 7 February |
| 6 January – 5 April | Quarterly update 4 | 7 May |
| The whole tax year | Tax return | 31 January after the year ends |
Each business and each property income source gets its own update, all due on the same date.
Would month-end dates suit you better? Your software can switch you to “calendar quarters”, closing on 30 June, 30 September, 31 December and 31 March. The deadlines stay the same. You make this choice in your software before sending your first update for the year.
Sources: SI 2026/336, regulations 11 to 13; HMRC’s penalty guidance on GOV.UK.
What can HMRC see in your updates?
A quarterly update is a summary: total income and a total for each category of expense for that period. HMRC does not receive your individual invoices, receipts or bank lines. Those stay in your records. Hold on to them: HMRC can ask to see them later.
Do you need a separate bank account?
No. Making Tax Digital does not require sole traders to open a business bank account. Keeping business money apart still makes every quarter quicker, and most software can read transactions directly from a bank feed.
The Making Tax Digital requirements, rule by rule
The requirements for Making Tax Digital come down to four things: digital records, compatible software, digital links between any programs you use, and on-time submissions.
1. Keep digital records
Every item of business income and expense has to be recorded digitally, with its amount, date and category. Each record must be entered no later than the update it belongs to is sent. Photographing receipts is optional. What the law insists on is that each entry is made in software.
2. Use HMRC-recognised software
The law calls it “functional compatible software”: software that can keep your records, send updates and your return, and receive messages from HMRC. HMRC does not supply its own. It publishes a list of compatible products, some of them free for simple cases. See HMRC’s list of compatible software.
3. Keep the digital links unbroken
You can use more than one program, for example a spreadsheet plus bridging software. The data must then move between them digitally, without being typed in again. Copying totals by hand from one system to another breaks the rules.
4. Submit on time, and correct mistakes
You send four updates and a tax return. Finished early? An update can go in as much as 10 days ahead of the quarter’s last day. If you later spot an error, you correct it in your software, normally by the next update. The “End of Period Statement” that appeared in early plans has been scrapped, so ignore any guide that still lists it.
Making Tax Digital legislation: where the rules come from
- Finance (No. 2) Act 2017 created the legal power for Making Tax Digital.
- Finance Act 2026 updated that power to reflect later policy changes.
- The Income Tax (Digital Obligations) Regulations 2026 (SI 2026/336) set out the detailed Income Tax rules, thresholds and exemptions. These rules took legal effect on 1 April 2026.
- HMRC directions and guidance fill in the practical detail, such as what each update must contain and how records must be kept.
For day-to-day questions, HMRC’s guidance on GOV.UK is the practical version of these regulations. It is the best place to check anything you read elsewhere, including on social media.
If you hit technical difficulties
If your software or HMRC’s service fails near a deadline, keep evidence: screenshots, error messages and the time it happened. Contact your software provider first. A genuine technical problem can count as a reasonable excuse for a late submission, but only if you can show what went wrong.
Getting help with Making Tax Digital
You don’t need an accountant for Making Tax Digital. The law only requires compatible software. Plenty of people handle it themselves. Which route fits comes down to your spare time, the number of income streams you juggle and your confidence with numbers.
| Doing it yourself | Using an accountant | |
|---|---|---|
| Digital records | You keep them | Kept for you from your paperwork |
| Quarterly updates | You send them | Sent for you as your HMRC agent |
| Tax return | You prepare it | Prepared and checked for you |
| Cost | Software (free to paid) plus your time | A fixed fee, usually with software included |
| Best suited to | Simple affairs, confident with numbers | Several income sources, little time, or already behind |
If you’d rather hand the whole job over, MTDFix is a Making Tax Digital accountant for sole traders, landlords and small companies across the UK. Our fixed fees are published below.
Self Assessment plan
£7.50 a month
For people who haven’t joined MTD yet
- Tax return prepared and filed
- Expenses reviewed
- Support all year
MOST CHOSEN
Making Tax Digital plan
£15 a month
Built for sole traders and landlords already inside MTD
- Software set up and included
- Digital records kept for you
- Quarterly updates sent to HMRC
- Year-end tax return
Limited Company plan
£25 a month
For directors
- Year-end accounts
- The CT600
- Companies House filing
Check if Making Tax Digital applies to you
Tell us your rough turnover and whether you have rental income. We’ll confirm your start date and agree a fixed fee before any work begins.
📞 0116 403 0595 |
📧 mtdfix@yahoo.com |
🌐 mtdfix.com
MTDFix, 6 Egginton Street, Leicester, LE5 5BA · Serving clients across the UK
Making Tax Digital FAQs
Do I have to use Making Tax Digital?
Yes, if your qualifying income on the relevant tax return is over the threshold and no exemption applies. It is a legal requirement, not an opt-in scheme. Preferring paper records is not grounds for staying out.
Can an accountant handle Making Tax Digital on my behalf?
Yes. Once you authorise an accountant as your HMRC agent, they can sign you up, keep your records, send every quarterly update and file your tax return. You don’t have to log in to HMRC or learn the software yourself.
Is Self Assessment being replaced by Making Tax Digital?
No. Self Assessment is still the system that calculates and collects your tax. Making Tax Digital changes how you feed information into it: digital records and quarterly updates during the year, then a tax return at the end.
Is Making Tax Digital free?
HMRC doesn’t charge anything to sign up or to receive your updates. What you pay for is software, if you choose a paid product, or an accountant. A few products on HMRC’s approved list cost nothing if your affairs are simple.
From what date do landlords have to use Making Tax Digital?
Landlords follow the identical timetable to the self-employed. That is 6 April 2026 if your qualifying income was over £50,000, 6 April 2027 if over £30,000, and 6 April 2028 if over £20,000. Rent counts in full before costs, and only your share of a jointly owned property is included.
My income has fallen under the threshold. Can I leave MTD?
Not immediately. The 2026 regulations only let you exit, from 2029/30, after three consecutive years at or below the limit.
Is a spreadsheet still allowed under Making Tax Digital?
Yes, as long as the spreadsheet is connected to HMRC through bridging software and figures pass between them digitally. Typing totals from the spreadsheet into another program by hand isn’t allowed.
Will Making Tax Digital change how much tax I pay?
No. Tax rates, allowances and the expenses you can claim are unchanged. The only difference is how you keep records and when you report them.
This guide to Making Tax Digital is general guidance for 2026/27 and isn’t tailored tax advice. For anything complicated, talk to an accountant.
Sources
- UK legislation: SI 2026/336, the 2026 Income Tax digital obligations regulations
- HMRC guidance on who must sign up and when (GOV.UK)
- HMRC guidance on late-submission points and penalties (GOV.UK)
- HMRC’s list of compatible software (GOV.UK)
- HMRC guidance on exemptions (GOV.UK)
- HMRC press release on the VAT rollout (GOV.UK)
- ICAEW summary of the MTD legislation
- CIOT commentary on HMRC’s July 2025 roadmap