Guide

Prepare for Making Tax Digital

How to get ready for Making Tax Digital for Income Tax, including when you must join, what software you need, and expected costs.

Manufacturing & EngineeringConstruction & PropertyRetail & Consumer GoodsTechnology & Digital UK-wide Sole Trader

Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) is changing how sole traders and landlords report their income to HMRC. Instead of filing one annual Self Assessment tax return, you will need to keep digital records and submit quarterly updates using compatible software.

MTD is being introduced in phases based on your income level. Understanding when it applies to you and preparing early will help you avoid last-minute stress and potential penalties.

Who must join Making Tax Digital

MTD for Income Tax applies to self-employed sole traders and landlords. It does not apply to limited companies (which have separate Corporation Tax rules) or employees with no self-employment or rental income.

The key question is whether your qualifying income exceeds the threshold for your rollout year.

How qualifying income is calculated

Qualifying income means your gross income (turnover) from self-employment and property rental combined - not your profit after expenses.

Example: You run a consultancy with £45,000 turnover and also receive £8,000 in rental income from a buy-to-let property. Your qualifying income is £53,000 (£45,000 + £8,000), which means you would need to join MTD from April 2026.

If you have multiple self-employed businesses, add all their turnovers together. The same applies if you have multiple rental properties.

What MTD requires you to do

Once MTD applies to you, you must:

  • Keep digital records - using MTD-compatible software, not paper ledgers or basic spreadsheets
  • Submit quarterly updates - within one month of the end of each quarter (April-June, July-September, October-December, January-March)
  • Submit a final declaration - by 31 January following the tax year end (this replaces the traditional Self Assessment return)

You will still pay tax at the same times as now - 31 January and 31 July if you make payments on account.

Choosing MTD-compatible software

HMRC does not provide software for MTD. You must choose commercial software that is compatible with MTD for Income Tax. Options include:

  • Full-service accounting software - such as Xero, QuickBooks, FreeAgent, or Sage. These create your records and submit updates to HMRC
  • Bridging software - connects your existing spreadsheets to HMRC's systems. Useful if you want to keep your current record-keeping method

HMRC maintains a list of compatible software on GOV.UK. Check that your chosen software specifically supports MTD for Income Tax (not just MTD for VAT, which is a separate requirement).

When to start preparing

Allow at least 3-6 months to prepare for MTD. If you are currently using paper records or basic spreadsheets, the transition to digital record-keeping takes time.

Preparation timeline:

  • 12 months before: Review your current record-keeping and research software options
  • 6 months before: Choose and set up your software. Start entering transactions digitally
  • 3 months before: Ensure you are comfortable with the software. Practice running reports
  • 1 month before: Link your software to HMRC (you will need your Government Gateway credentials)

HMRC will contact affected taxpayers 6-12 months before they must join MTD.

If your income fluctuates around the threshold

The threshold is assessed based on your qualifying income in the previous tax year. If your income fluctuates around the threshold level, you may move in and out of MTD requirements.

Once you exceed the threshold: MTD becomes mandatory. If your income later drops below the threshold, you can choose to leave MTD and return to traditional Self Assessment.

If you are close to a threshold, it may be worth joining MTD voluntarily to avoid switching systems back and forth.

Getting help with MTD

You do not have to manage MTD yourself. Your accountant can:

  • Act as your agent and submit quarterly updates on your behalf
  • Help you choose appropriate software
  • Assist with the transition from paper or spreadsheet records
  • Handle the final declaration

If you use an accountant, discuss MTD preparations with them well in advance of your mandatory start date.

  1. Check your qualifying income

    Add together your gross income from self-employment and property rental. This determines which rollout phase applies to you.

  2. Research compatible software

    Visit GOV.UK for the list of MTD-compatible software for Income Tax. Consider cost, features, and ease of use.

  3. Set up your chosen software

    Allow time to learn the software. Enter your opening balances and start recording transactions digitally.

  4. Link your software to HMRC

    Connect your software to your HMRC account using your Government Gateway credentials.

  5. Submit your first quarterly update

    Within one month of the end of your first quarter after MTD applies to you.

SOLE TRADER Requirement

MTD for Income Tax applies to sole traders

As a sole trader, you report your business profits through Self Assessment. Once MTD for Income Tax applies to you, you will submit quarterly updates instead of one annual tax return.

If you are considering incorporating as a limited company, note that MTD for Income Tax does not apply to limited companies. However, limited companies have other digital reporting requirements and Corporation Tax obligations.

Comparison to other structures:

MTD for Income Tax is designed for unincorporated businesses (sole traders and partnerships) and landlords. Limited companies are not included in this scheme.
Making Tax Digital for Income Tax guidance
THRESHOLD 4 quarters per year

Quarterly update deadlines under MTD

quarterly reporting threshold: 4 quarters per year

Once MTD applies to you, you must submit quarterly updates to HMRC using your MTD-compatible software. Each update summarises your business income and expenses for that quarter.

This is in addition to your final declaration (which replaces the traditional Self Assessment return).

Above threshold:

Quarterly deadlines (one month after quarter end):

  • Q1: 6 April - 5 July, update due by 5 August
  • Q2: 6 July - 5 October, update due by 5 November
  • Q3: 6 October - 5 January, update due by 5 February
  • Q4: 6 January - 5 April, update due by 5 May

Final declaration: Due by 31 January following the tax year end (same deadline as current Self Assessment).

Below threshold:

Until MTD applies to you, continue filing one annual Self Assessment tax return by 31 January (online) or 31 October (paper).

Strategic considerations: Quarterly reporting requires you to keep records up to date throughout the year. This reduces the year-end rush and can help you manage cash flow by tracking income regularly.
Compliance timeline: Quarterly (within one month of quarter end), plus final declaration by 31 January
Sign up for Making Tax Digital (GOV.UK)

Sign up for Making Tax Digital for Income Tax

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