If you run a business or receive rental income, Making Tax Digital for Income Tax explained simply means a significant change to how you keep records and report income to HMRC. Rather than gathering everything for one annual Self Assessment return, many taxpayers will need to maintain digital records and send updates during the tax year. The final tax calculation and payment timetable do not disappear, but the way you get there will change.
For busy owner-managers, sole traders and landlords, the practical question is not just whether the rules apply. It is whether your bookkeeping, software and day-to-day processes will make the transition straightforward or create unnecessary pressure. Preparing early gives you time to choose the right approach and use more up-to-date figures to make better business decisions.
Who must use Making Tax Digital for Income Tax?
Making Tax Digital for Income Tax Self Assessment, often shortened to MTD for Income Tax or MTD ITSA, is being introduced in stages. It applies to individuals with income from self-employment, property, or both, above the relevant qualifying income threshold.
From 6 April 2026, it will be mandatory where qualifying income is more than £50,000. From 6 April 2027, the threshold reduces to more than £30,000. The government has also announced that those with qualifying income above £20,000 will be brought into the system from 6 April 2028.
Qualifying income is broadly your gross income from self-employment and property before expenses are deducted. If you are both a sole trader and a landlord, the income from those sources is added together. Salary from employment, pension income, dividends and savings interest do not count towards this particular threshold, although they may still need to be included in your final tax return information.
This distinction catches people out. A landlord receiving £32,000 in rent with substantial mortgage interest, repairs and agent fees may have a much lower taxable profit, but their gross rental income can still put them within MTD for Income Tax. Equally, a business with turnover of £55,000 and modest profit is likely to be in scope from April 2026.
Limited companies are not themselves within MTD for Income Tax because they pay Corporation Tax and submit company accounts separately. However, a director who also has a sole trade or rental property may be affected personally. General partnerships are not required to join under the initial mandatory timetable, though this is an area to keep under review as HMRC’s plans develop.
What you will need to do under MTD for Income Tax
Once you are required to join, you will keep your relevant business and property records digitally using compatible software. Spreadsheets can sometimes form part of the process, but only where they connect to HMRC through compatible bridging software. Simply typing quarterly totals into an online account will not meet the digital-record requirement.
You will then submit quarterly updates to HMRC for each business and property source. These updates provide a summary of income and expenses recorded in that period. They are not a tax bill, and they do not normally mean you need to pay tax four times a year. They give HMRC a more current view of the information being recorded.
After the end of the tax year, you will complete a final declaration. This brings together your business and property figures with other personal income, claims and reliefs, such as employment income, pension contributions, dividends or capital gains where relevant. It replaces the final stage of the traditional Self Assessment process for those in MTD.
The deadline for finalising your position remains 31 January following the end of the tax year. For example, the final declaration for 2026/27 will generally be due by 31 January 2028. Tax payment dates, including payments on account where they apply, also remain broadly unchanged.
Quarterly updates are not four tax returns
It is easy to see quarterly reporting as four extra returns. In reality, it is a different reporting rhythm. You still need to ensure the records are accurate, but the updates are intended to be less final than the year-end declaration.
There are standard quarterly periods and submission deadlines. Most updates are due one month after the end of the relevant quarter, although software and an accountant can help make the timetable manageable. The real workload depends on the quality of the records going in. If invoices, receipts and bank transactions are dealt with regularly, each update should be far less demanding than a year of paperwork dealt with at once.
Digital records: the part worth getting right now
MTD is often described as a software change. It is better understood as a bookkeeping discipline supported by software. The aim is to record transactions as they happen or shortly afterwards, categorise them sensibly and reconcile them against the bank account.
For a sole trader, that might mean raising invoices through accounting software, photographing purchase receipts and reviewing the bank feed weekly. For a landlord, it may mean separating rental income and property costs clearly, retaining supporting evidence, and ensuring repairs are not confused with capital improvements. These details matter because the quarterly updates are only as reliable as the records behind them.
The right software depends on the size and complexity of your activity. A straightforward landlord with one property has different needs from a trades business with employees, CIS deductions, VAT and several jobs running at once. Cost is a factor, but support, ease of use and how well the system fits your existing administration are often more valuable than choosing the cheapest subscription.
There can also be exceptions. HMRC may grant an exemption where it is not reasonably practical to use digital tools because of age, disability, remoteness of location or other reasons. Religious beliefs that are incompatible with electronic communication may also qualify. An exemption is not automatic, so it should be discussed and applied for rather than assumed.
A sensible preparation plan for 2026 and beyond
The businesses that cope best with MTD will not necessarily be the most technical. They will be the ones with clear routines and someone responsible for maintaining them. Before your mandatory start date, review the following areas:
- Your income streams. Confirm whether your gross self-employment and property income places you above a threshold, including income from more than one source.
- Your records. Identify where invoices, receipts, mileage logs, rental statements and bank information currently sit, and whether anything is routinely missing.
- Your software. Check that it is compatible with MTD for Income Tax and that it can deal with your actual needs, not just the minimum compliance requirement.
- Your bookkeeping routine. Decide who will post transactions, chase missing paperwork, reconcile bank accounts and review the figures each month.
- Your tax planning. Use more regular management information to set aside money for tax, monitor profit and spot cashflow issues before they become urgent.
A voluntary move before you are mandated can be useful for some people, particularly where bookkeeping is already in good order. It gives you time to learn the system without a deadline-driven rush. However, it is not always the right answer. If records are incomplete or you are changing business structure, software or bookkeeper, it can be better to put a sound process in place first.
Why this can be useful beyond compliance
No one chooses additional reporting for its own sake. Yet more regular records can be commercially useful when they are reviewed properly. Waiting until January to discover that profits were higher than expected leaves little room to plan for tax, pension contributions, investment or extraction of funds from a business.
Current figures can also reveal patterns that annual accounts may show too late: a job type that is less profitable than it appears, rising supplier costs, slow-paying customers, rental repairs that are beginning to affect returns, or a fall in available cash despite healthy sales. MTD will not solve those issues by itself, but disciplined records create the information needed to act on them.
For business owners around Manchester and beyond, this is a good opportunity to move away from compliance that happens after the fact. A regular review of the numbers can support pricing, spending and growth decisions throughout the year.
Get support before the first deadline
The change is manageable, but the details matter. Your start date depends on your qualifying income, your reporting obligations may be different across a trade and property business, and the software needs to work for you rather than add another administrative burden.
RK & Co can help you assess whether MTD for Income Tax applies, organise practical digital bookkeeping and turn the resulting figures into useful financial information. A little preparation now can make the first quarterly update routine – and give you a clearer view of where your money and business are heading.