Making Tax Digital for Income Tax is now in force for the first group of self-employed people and sole traders. If your 2024/25 Self Assessment tax return showed qualifying income of more than £50,000 from self-employment and property, you should have started using MTD from 6 April 2026, unless an exemption applies. This guide explains what the rules mean specifically for self-employed people.
What’s Changing?
Under MTD for Income Tax, affected sole traders must keep digital records, send quarterly updates and submit their tax return using compatible software. The regime started on 6 April 2026 for qualifying income over £50,000, extends to over £30,000 from 6 April 2027 and over £20,000 from 6 April 2028.
What MTD Means for the Self-Employed
If your qualifying income was over £50,000, you should already be using compatible software and following MTD for Income Tax from 6 April 2026.
Further phases will follow:
- From 6 April 2027 – those with qualifying income over £30,000 in 2025/26 will need to use MTD
- From 6 April 2028 – those with qualifying income over £20,000 in 2026/27 will need to use MTD
Under MTD, you’ll no longer file tax returns directly through the HMRC website. Instead, you’ll:
- Keep digital records
- Send quarterly updates
- Submit your annual tax return through compatible MTD software
Benefits of MTD for Income Tax
If the switch to digital feels daunting, you’re not alone, but there are real advantages to getting on board early:
- Fewer errors
Automating data entry reduces manual input and human error. Software can automatically populate your quarterly updates, saving time and improving accuracy.
- Better visibility of your tax position
after quarterly updates are sent, your software or HMRC online services may show an estimate of your tax bill. This can help with planning, although the estimate is not your final tax liability.
- Simplified bookkeeping
While you’ll report more often, each update is lighter in detail — turning a stressful annual task into a manageable monthly or quarterly routine.
Using cloud-based accounting software can give you better visibility over your finances, simplify record-keeping and reduce the risk of mistakes.
Who Needs to Use MTD for Income Tax?
You may need to use MTD if you are registered for Self Assessment, receive self-employment or property income and your qualifying income exceeds the relevant threshold. Qualifying income is your gross turnover from self-employment and property before expenses.
Some people are exempt, including certain people who are digitally excluded. Some exemptions are automatic while others require an application to HMRC.
How to Sign Up for MTD for Income Tax
Before signing up, check that you need to use MTD and choose compatible software. You can then sign up through HMRC’s Making Tax Digital for Income Tax service. After signing up, authorise your software so it can connect to HMRC and send your updates.
What You Need to Submit
If you are required to use MTD for Income Tax, you need to:
- maintain digital records
- send quarterly updates through compatible software
- submit your annual tax return through MTD software
Quarterly updates are cumulative and do not replace your annual tax return.
How Qualifying Income Is Calculated
HMRC looks at your total gross income from self-employment and property before expenses. If you have more than one business, or both self-employment and rental income, the relevant income is combined when checking the MTD threshold.
Can You Opt Out?
Once you are required to use MTD, falling below the threshold for a single year does not normally mean you can immediately opt out. HMRC allows you to opt out where your qualifying income has been below the relevant threshold for 3 consecutive years. There are also specific rules where a previous tax return is amended below the threshold.
Choosing the Right MTD Software
You’ll need compatible software that works with MTD for Income Tax:
- Keep digital records
- Submit quarterly updates and your tax return
Look for features like:
- Built-in invoicing
- Receipt capture
- User-friendly interfaces to reduce admin time
1. Does MTD for Income Tax replace Self Assessment completely?
No — it changes how you report income under Self Assessment, not the system itself. You’ll still fall under the Self Assessment regime, but instead of filing one tax return annually, you’ll send quarterly updates and an annual tax return through MTD software.
2. Will I still need to pay tax in January and July under MTD?
Yes. MTD changes how you report income, not when you pay your tax. Payment deadlines for Income Tax, including the 31 January and 31 July payments on account, remain the same, unless HMRC introduces changes in the future.
3. Do I need separate software for each business if I have more than one?
No. If your software supports multiple income sources or businesses, you can manage everything in one place. Just ensure it allows for separate record-keeping and reporting for each business.
4. What if my income fluctuates and I dip below the threshold?
If your qualifying income remains below the relevant threshold for 3 consecutive years, you may be able to opt out of MTD.
5. Is there a penalty if I miss a quarterly update?
HMRC will not issue penalty points for late quarterly updates during 2026/27, although you must still submit the required updates before filing your tax return. From 2027/28, a missed quarterly-update deadline can result in a penalty point. The penalty threshold is 4 points; reaching it results in a £200 penalty, with a further £200 penalty for additional missed deadlines while you remain at the threshold.
6. Can I use MTD voluntarily before I am required to?
Yes. If you are not required to start until 6 April 2027, HMRC currently allows eligible taxpayers to sign up voluntarily.
7. What happens if I don’t have MTD-compatible software by the deadline?
If you are required to use MTD for Income Tax, you need compatible software to create and store digital records, send quarterly updates and submit your tax return. HMRC’s online service does not replace the compatible software requirement. Spreadsheets can still be used where they form part of an MTD-compatible software setup.
8. Is Making Tax Digital free?
There is no charge from HMRC to use MTD, but software costs vary. HMRC says free software products are available for some people with simple tax affairs.
9. Can I still use my accountant if I sign up for MTD?
Absolutely. In fact, many people rely on their accountant to manage MTD obligations. Just ensure your accountant or bookkeeper uses compatible software and is fully aware of your income sources.
10. Can You Use Spreadsheets?
Yes. Spreadsheets can be used where compatible bridging software connects the records to MTD.
11. Do You Need to Register for MTD for VAT and IT Separately?
Yes. The systems are separate. Some sole traders may need to comply with both, while others only need MTD for IT. If you’re unsure about your VAT obligations, check HMRC’s VAT guidance or speak to your accountant.
