Making Tax Digital (MTD) Update: What You Need to Know

MTD for Income Tax Self Assessment (MTD for ITSA) went live on 6 April 2026 for the first group of taxpayers, and the first quarterly update deadline has now passed. This guide explains who is affected, what the requirements are, and what happens next for those joining in later phases.

What is Making Tax Digital?

Making Tax Digital is the UK government's initiative to modernise the tax system by requiring businesses to keep digital records and submit tax information electronically. For self-employed individuals and landlords, MTD for ITSA represents the most significant change to personal tax reporting since the introduction of Self Assessment.

Under MTD, the traditional annual Self Assessment tax return will be replaced by:

• Digital record-keeping using MTD-compatible software
• Quarterly updates summarising income and expenses
• A final declaration at year-end (replacing the annual tax return)

Implementation Timeline

MTD for ITSA is being introduced in three phases based on your qualifying income (gross income from self-employment and property before expenses):

Understanding Qualifying Income

Your qualifying income is the gross income (before expenses are deducted) from:

• Self-employment (sole trader income)
• Property letting (rental income)

If you have income from both sources, they are added together to determine whether you meet the threshold.

What is NOT Included

• Employment income (PAYE)
• Pension income
• Dividends and savings interest
• Income from a limited company (Corporation Tax applies separately)

The Three Core Requirements

1. Digital Record-Keeping

Paper records are no longer sufficient. You must maintain digital records of all business income and expenses using MTD-compatible software. This includes:

• Recording each transaction (income received and expenses paid)
• Categorising transactions appropriately
• Maintaining digital copies of receipts and invoices
• Ensuring "digital links" between your records and HMRC submissions

2. Quarterly Updates

Instead of one annual return, you must submit four quarterly updates each tax year, summarising your income and expenses for each period.

Quarterly Deadlines for the 2026/27 Tax Year:

Quarter	Period Covered	Submission Deadline
Q1	6 April – 5 July 2026	7 August 2026
Q2	6 July – 5 October 2026	7 November 2026
Q3	6 October 2026 – 5 January 2027	7 February 2027
Q4	6 January – 5 April 2027	7 May 2027

The first quarterly update for 2026/27 was due by 7 August 2026. The remaining deadlines follow the same pattern each year.

Quarterly updates are cumulative, meaning each submission includes year-to-date figures. They contain income and expense totals only—detailed adjustments are made in the final declaration.

3. Final Declaration

After submitting all four quarterly updates, you must file a Final Declaration by 31 January following the end of the tax year (e.g., 31 January 2028 for the 2026/27 tax year).

The Final Declaration allows you to:

• Make year-end adjustments
• Add other taxable income (dividends, savings, capital gains)
• Claim allowances and reliefs
• Correct any errors in quarterly submissions
• Finalise your tax liability

Software Requirements

You cannot use HMRC's online portal for MTD submissions. You must use MTD-compatible software that:

• Is recognised by HMRC
• Maintains digital records of income and expenses
• Submits quarterly updates and final declarations directly to HMRC
• Provides digital links between your records and submissions

Your Options

Dedicated Accounting Software: Packages such as Xero, QuickBooks, FreeAgent, and Sage are MTD-compatible and offer features like bank feeds, automatic categorisation, and real-time reporting.

Bridging Software: If you prefer to continue using spreadsheets, you will need bridging software that connects your spreadsheet to HMRC's systems and provides the required digital links.

Agent-Managed: Your accountant can handle the entire MTD process on your behalf, including signing you up, managing digital records, and submitting all updates.

Penalty System

MTD introduces a new points-based penalty system for late submissions, replacing the previous fixed-fine structure.

Late Submission Penalties

• Each missed quarterly update or final declaration deadline earns 1 penalty point
• Points accumulate separately for each tax obligation
• When you reach the threshold (4 points for quarterly updates, 2 points for annual returns), a £200 penalty is charged
• Each further late submission while at the threshold incurs an additional £200
• Points expire after 24 months of on-time compliance

Late Payment Penalties

From April 2027, late payment penalties will be tiered based on how long payment is overdue:

Days Overdue	Penalty
1–15 days	No penalty
16–30 days	3% of amount outstanding at day 15
31+ days	Additional 3% of amount outstanding at day 30, plus 10% per annum daily interest from day 31

Exemptions

You may be exempt from MTD for ITSA if:

Digital Exclusion

If it is not "reasonably practicable" for you to use digital tools due to:

• Age or disability
• Remote location with poor internet connectivity
• Religious beliefs preventing use of electronic communications

You can apply to HMRC for an exemption.

Automatic Exemptions

• Trustees and personal representatives
• Individuals without a National Insurance number
• Non-UK residents completing the SA109 supplementary page (temporary exemption until April 2027)

What to do next

If you joined MTD in April 2026, your focus is now on the remaining quarterly updates and the final declaration. If you join in April 2027 or 2028, these are the steps to take.

Step 1: Check Your Qualifying Income

Review your most recent Self Assessment return. If your gross self-employment and/or property income exceeds the threshold for your phase, you will be mandated from the relevant start date.

Step 2: Choose MTD-Compatible Software

Research and select software that suits your needs. Consider features such as bank feeds, receipt scanning, and integration with your accountant's systems. Start using it now to familiarise yourself before MTD becomes mandatory.

Step 3: Sign Up for MTD

You can sign up for MTD for Income Tax through HMRC's online service. You must sign up before your mandated start date. You can also choose to join voluntarily before your mandatory date.

Step 4: Authorise Your Software

Connect your chosen software to HMRC by authorising it through your Government Gateway account.

Step 5: Set Up Digital Record-Keeping

Begin recording income and expenses digitally from the start of the tax year in which you are mandated. Establish processes for scanning receipts, categorising transactions, and reconciling bank feeds.

Step 6: Speak to Your Accountant

Discuss how MTD will affect your tax affairs and agree on responsibilities for quarterly submissions and the final declaration.

Summary: Key Facts at a Glance

Aspect	Details
Who is affected?	Self-employed individuals and landlords
First mandation date	6 April 2026 (income over £50,000) — now in effect
Second phase	6 April 2027 (income over £30,000)
Third phase	6 April 2028 (income over £20,000)
Quarterly update deadlines	7 August, 7 November, 7 February, 7 May
Final declaration deadline	31 January following the tax year
Penalty threshold	4 points = £200 fine
Soft landing	No quarterly penalties for 2026/27