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Making Tax Digital (MTD) is a big step forward in how businesses and individuals report their income to HMRC. If you’re a sole trader or landlord in the UK, you may soon be required to use MTD for Income Tax.
We explain who needs to use MTD, when it starts, and what you need to do to get ready. Whether you run a small business or rent out property, understanding these rules can help you avoid penalties and stay compliant.
Making Tax Digital is a government initiative to make tax administration more efficient and easier through digital systems. It means using approved software to keep financial records and send updates to HMRC—no more paper returns or spreadsheets.
MTD is already in place for VAT-registered businesses, and now it’s being expanded to include Income Tax Self Assessment (ITSA).
You’ll need to follow the MTD rules if all the following apply:
You are a sole trader or a landlord.
You’re registered for Self Assessment
You earn income from self-employment or property (or both).
Your qualifying income is more than £20,000 per year.
Qualifying income is the total gross income you make from self-employment and/or property before expenses are deducted.
HMRC is introducing MTD for Income Tax in stages, depending on how much you earn.
If your qualifying income is £20,000 or less, you won’t need to use MTD (unless you choose to).
Not everyone needs to use the MTD system. You’re exempt if:
Your qualifying income is £20,000 or less.
You meet specific conditions for automatic exemption (such as age, disability, or no internet access).
You’ve applied for an exemption and HMRC has approved it.
In these cases, you’ll continue to file your tax returns using the current Self Assessment system.
Each year, HMRC will review your tax return and check your income level. If it’s above the relevant threshold, they’ll send you a letter confirming that you must start using MTD from the following tax year.
Even if you don’t receive a letter, it’s your responsibility to check and sign up on time.
You can use HMRC’s online tool to check your status.
If MTD for Income Tax applies to you, here’s what you should do before your start date:
You’ll need to keep digital records and send updates to HMRC using MTD-compatible software. Some popular options include:
QuickBooks
Xero
FreeAgent
Sage
Make sure the software you choose is HMRC-approved.
If you work with a tax agent or accountant, they can handle the MTD process on your behalf. You’ll need to authorise them through your HMRC account.
Once you’ve submitted your last Self Assessment return under the old system, you’ll need to register for MTD. HMRC will provide details on how to do this.
Business income and expense
Rental income
Any other qualifying income
The goal of Making Tax Digital is to:
Reduce errors from manual entry
Simplify the process of tax reporting
Encourage real-time updates instead of annual submissions
This system is designed to make tax more accurate and efficient, both for taxpayers and for HMRC.
Once MTD becomes mandatory for you, failing to sign up or file correctly could result in penalties. HMRC is expected to apply a points-based penalty system for late submissions or non-compliance, similar to how penalty points work on driving licences.
Making Tax Digital for Income Tax is a major change that will affect thousands of sole traders and landlords in the UK. If your qualifying income is over £30,000, it’s time to prepare now—especially if your start date is April 2026 or 2027.
By choosing the right software, understanding your obligations, and acting early, you can make this transition smooth and stress-free.
MTD-compatible accounting services
Software setup and training
Ongoing support for tax returns and digital submissions
