Making Tax Digital (MTD) for Income Tax is HMRC's phased shift away from the traditional once-a-year Self Assessment return, towards digital record-keeping and more frequent reporting throughout the year. If you're a sole trader or landlord, it's likely to change how — and how often — you deal with your tax affairs.
What Making Tax Digital for Income Tax actually requires
Rather than filing a single annual Self Assessment return, people brought into MTD for Income Tax must:
- Keep digital records of their business or property income and expenses, using compatible software rather than paper records or a basic spreadsheet alone (a spreadsheet can still work if linked to compatible "bridging" software).
- Send quarterly updates to HMRC summarising income and expenses for each three-month period, rather than reporting everything once a year.
- Submit a final declaration after the end of the tax year, confirming and finalising the figures reported through the year and including any other income sources.
Who is affected, and when
MTD for Income Tax is being introduced in stages based on qualifying income — broadly, gross income from self-employment and/or property before expenses — with those above higher thresholds brought in first and lower thresholds following in later years. Always check the current threshold and start date that applies to your situation on GOV.UK, since these have been adjusted since the rules were first announced and further phases continue to be rolled out.
| Qualifying income level | General timing |
|---|---|
| Higher earners (self-employment and/or property income above the top threshold) | Brought in first |
| Middle-tier earners | Brought in in a later phase |
| Below the lowest threshold | Not yet required to join, though this may change in future |
If you have both self-employment and rental income, HMRC generally adds the qualifying income from both together when checking whether you meet a threshold, so it's easy to be caught even if neither source alone looks large.
How this differs from the old system
| Old Self Assessment | Making Tax Digital for Income Tax |
|---|---|
| One return a year, any time up to 31 January | Four quarterly updates plus a final year-end declaration |
| Records can be paper-based or a simple spreadsheet | Digital records kept in MTD-compatible software (spreadsheets need bridging software) |
| One annual deadline to track | Multiple deadlines through the year to track |
What compatible software means in practice
You'll need software recognised by HMRC as MTD-compatible, which can range from full accounting packages to simpler apps designed for sole traders and landlords, or a spreadsheet connected to bridging software that can transmit the required data to HMRC in the right digital format. Many providers offer options at different price points, including some free tools for very simple affairs, so it's worth comparing before your start date arrives rather than scrambling afterwards.
Common misconceptions
- "Quarterly updates mean paying tax four times a year." The updates report income and expenses; they don't necessarily change when tax is actually due, which is still primarily settled through the usual Self Assessment payment deadlines around the final declaration.
- "A spreadsheet on its own is fine." It needs to connect to bridging software that submits data digitally in HMRC's required format — a spreadsheet you fill in manually and never submit digitally isn't compliant on its own.
- "This only affects big businesses." MTD for Income Tax is aimed specifically at individual sole traders and landlords, not just larger companies, which already have separate MTD obligations for VAT and Corporation Tax.
What to do next
Check your current and projected qualifying income against HMRC's published thresholds to see which phase applies to you, and if you're likely to be brought in soon, start researching MTD-compatible software and get into the habit of digital record-keeping well before your mandatory start date, so the transition from quarterly updates to a final declaration feels routine rather than rushed.