HMRC Making Tax Digital (MTD) Income Tax Changes: 2026 and April 2028

This is not a minor tweak. It is the biggest shift in income tax compliance in a generation, and the first mandation wave is now weeks away. If you are self-employed, rent out property, or advise clients who do, this guide covers what you need to know – and what you need to do.

What is MTD for Income Tax and why is HMRC doing this?

MTD for ITSA requires individuals with business or property income above certain thresholds to keep their accounting records digitally and report summaries to HMRC every quarter using compatible software. A final declaration at year-end then replaces the traditional SA100 tax return.

HMRC's stated goals are straightforward: reduce the tax gap caused by errors and omissions in Self Assessment returns, move taxpayers towards real-time visibility of their tax position, and modernise a system that still relies heavily on once-a-year reporting. The programme builds on MTD for VAT, which has been mandatory for VAT-registered businesses since April 2019.

Importantly, MTD does not change tax rates, allowances, or payment dates. You will still pay your income tax by 31 January (with payments on account in January and July where applicable). What changes is how and how often you report your figures.

Who is affected – and when

MTD for ITSA is being rolled out in phases based on your qualifying income, which HMRC defines as gross income from self-employment and/or property before expenses are deducted. The threshold is assessed using the most recent Self Assessment return filed before each mandation date.

A few critical points on how qualifying income works:

You must combine all self-employment and property income when testing against the threshold. A freelance consultant earning £32,000 from their trade and £22,000 in gross rental income has qualifying income of £54,000 – above the £50,000 threshold for April 2026.

It is the gross figure that counts, not profit. A landlord with £55,000 in gross rents but only £30,000 in net profit after expenses is still caught by the first wave.

If you became self-employed or started renting property part-way through the year, HMRC will annualise the income reported on your return. Starting a trade on 1 January 2025 and earning £15,000 in three months translates to an annualised figure of £60,000 – above the £50,000 threshold.

HMRC will not register you automatically. You must sign up yourself or through your agent, and the sign-up facility is already open.

How reporting changes in practice

Under the current system, you gather a year's worth of records, compile a single Self Assessment return, and file it by 31 January. Under MTD, that single annual submission is replaced by a cycle of quarterly updates, adjustments, and a final declaration – all submitted through software.

Quarterly updates

Each tax year is split into four quarters. For each self-employment and each property business, you submit a summary of income and expenses to HMRC after the quarter ends. You have roughly one month after each quarter closes.

You can elect to use calendar quarters instead (ending 30 June, 30 September, 31 December, and 31 March), with the same submission deadlines.

These updates are cumulative summaries, not tax calculations. They do not trigger a tax payment and they do not finalise your liability. If you spot an error after submitting, you can correct it in the next quarterly update or resubmit the relevant period.

If you run more than one business or have both a trade and a rental property, you submit separate quarterly updates for each income source.

Year-end: adjustments and the final declaration

After the fourth quarterly update, the year-end process has two steps.

First, your software retrieves a summary of the quarterly figures from HMRC's systems. This is where you make tax and accounting adjustments – capital allowances, loss reliefs, basis period adjustments, private use apportionments, and any other entries that turn raw quarterly totals into final taxable figures. HMRC refers to this stage as the Business Source Adjustable Summary (BSAS), though some guidance still uses the older term End of Period Statement (EOPS).

Second, you complete the final declaration. This replaces the SA100 tax return entirely for those within MTD. Here you report everything else: other income sources (employment, savings, dividends), pension contributions, student loan details, Gift Aid, and any other reliefs. The deadline remains 31 January following the end of the tax year – so for 2026/27, the final declaration is due by 31 January 2028.

⚠️ Important: HMRC has confirmed it will not provide an online Self Assessment filing service for taxpayers within MTD. All submissions – quarterly updates and the final declaration – must go through commercial MTD-compatible software. The existing HMRC online tax return will remain available only for those outside MTD's scope.

Digital records and digital links

MTD requires you to maintain digital records of all business and property transactions. This does not necessarily mean buying accounting software from day one – a spreadsheet can be acceptable – but there is a strict requirement that no data is manually rekeyed between systems.

Every transfer of data, from the point it enters your records to the point it reaches HMRC, must happen through a "digital link": a direct electronic transfer such as an API connection, a CSV import, a linked cell in a spreadsheet, or a bank feed. Copying a figure by eye from one system and typing it into another breaks the chain and is not compliant.

In practical terms, this means:

• If you use a spreadsheet for bookkeeping, you will need bridging software that can read your spreadsheet electronically and submit the data to HMRC via its API.
• If you use a full accounting suite (such as Xero, FreeAgent, QuickBooks, Sage, or similar), the software will handle both record-keeping and submissions, provided it is MTD-recognised.
• Bank feeds, receipt-scanning apps, and mileage trackers are all acceptable as long as the data flows digitally into your records without manual rekeying.

HMRC maintains a list of recognised software on GOV.UK. Before committing to a product, check that it supports not just quarterly updates but also the year-end adjustments and final declaration – some products handle only part of the process.

Penalties under MTD

HMRC is introducing a points-based penalty system alongside MTD, replacing the old fixed penalties for late Self Assessment returns.

Late submission penalties: Each late quarterly update or late final declaration earns one penalty point. Once you reach a set threshold – four points for quarterly submissions, two for the annual return – a £200 penalty is triggered. Every further late submission while you remain at the threshold incurs another £200. Points can be reset to zero after a period of full compliance: 12 months of on-time submissions for quarterly obligations, or 24 months for annual returns.

Late payment penalties: If a balancing payment is more than 15 days overdue, HMRC charges a penalty of 3% of the outstanding amount. At 30 days, an additional 3% is charged. After 30 days, interest continues to accrue at 10% per annum until the balance is cleared.

✅ Soft landing for 2026/27: HMRC has confirmed that taxpayers mandated into MTD from April 2026 will not receive penalty points for late quarterly updates during the first year (2026/27). However, this grace period does not apply to the final declaration due 31 January 2028 – a late annual return will still earn a point. The soft landing is expected to apply only to the first cohort, not to those joining in April 2027 or later.

What the April 2028 phase means – and what's still uncertain

From April 2028, sole traders and landlords with qualifying income above £20,000 will be brought into MTD. This significantly expands the population – many part-time freelancers and small-scale landlords who currently have relatively light administrative burdens will need to adopt digital record-keeping and quarterly reporting.

Beyond the £20,000 threshold, several areas remain unsettled.

Partnerships: HMRC has confirmed its commitment to extending MTD to general partnerships, but no mandation date has been set. Limited liability partnerships and those with corporate partners are further behind. Partners in affected partnerships should monitor developments but do not need to act yet.

Complex cases: Taxpayers who file the SA109 (residence, remittance basis) pages are deferred from the first wave and will not be required to join MTD until at least April 2027, to allow time for changes to the taxation of non-UK domiciled individuals to bed in. Other complex scenarios – trusts, certain types of foreign income, Lloyd's underwriters – remain under review.

Sub-£20,000 income: HMRC has not signposted any plans to bring those with income below £20,000 into MTD in the near term. Voluntary sign-up remains available.

The best way to stay current is to monitor GOV.UK announcements, the professional bodies (ATT, CIOT, ICAEW, and AAT all publish regular MTD updates), and your software provider's release notes.

Getting ready: a practical preparation path

Choose your software

Your first decision is whether to use a full accounting suite or a spreadsheet with bridging software. For most sole traders and landlords with straightforward affairs, a cloud accounting package in the £10–£30 per month range will handle everything: digital records, bank feeds, quarterly updates, adjustments, and the final declaration. Those with very simple income and a strong spreadsheet habit may prefer a bridging tool, though this requires more discipline around digital links.

When evaluating software, check that it can handle multiple income sources if you have them (a trade and a rental property, for instance), supports the year-end adjustment and final declaration process (not all products do yet), and is listed on HMRC's recognised software page. Many providers offer free trials – take advantage of these well before April 2026.

Sign up with HMRC

You will need a Government Gateway user ID linked to your Self Assessment record. If you use an accountant or tax agent, they will need to be authorised through HMRC's Agent Services Account to act on your behalf for MTD. The sign-up process is already live; there is no advantage in waiting until the last moment.

Clean up your records

Migrating to a new system is a good excuse to tidy your records. Map your existing income and expense categories to the chart of accounts your software uses. Set up bank feeds so transactions flow in automatically. If you have been mixing personal and business spending through one bank account, now is the time to separate them – it will make quarterly reporting far simpler.

Build a quarterly workflow

Decide who will be responsible for each step: capturing receipts and invoices as they arise, reconciling bank transactions before each quarterly deadline, reviewing and approving the update, and pressing submit. If you work with an accountant, agree early on who handles what. Some practices are moving towards a model where the client maintains records in shared software and the accountant reviews and submits – but this only works if both sides know their role.

Budget for the transition

HMRC's own impact assessment estimates an average transitional cost of roughly £285–£350 per business, with ongoing additional costs of around £110–£115 per year. These figures cover software subscriptions, time spent learning the new process, and any additional bookkeeping. Businesses already using digital tools or MTD for VAT will likely find the incremental cost minimal; those moving from paper records or basic spreadsheets will feel it more.

Special situations worth knowing about

Landlords with multiple properties. HMRC treats all UK rental income as a single property business. You do not submit separate quarterly updates for each property – you submit one update covering all UK property income together. However, you should still keep records at a property level for your own management and to support any HMRC enquiry.

Jointly owned property. Each co-owner reports their share of the rental income. If you and your spouse own a property 50/50, you each include 50% of the income and expenses in your own quarterly updates. Both co-owners need MTD-compatible software (or an agent submitting on their behalf).

Non-resident landlords. If you live abroad but receive UK rental income, you remain within scope for MTD if your qualifying income exceeds the threshold. The SA109 deferral mentioned above applies to those filing residence and remittance basis pages, which will delay mandation to April 2027 at the earliest.

Construction Industry Scheme (CIS). Subcontractors in construction should ensure their software captures CIS deductions accurately and feeds them through to the year-end declaration. The gross payment figure reported to HMRC in quarterly updates should reconcile with CIS statements received from contractors.

Interaction with MTD for VAT. If you are already within MTD for VAT, you will need to comply with MTD for Income Tax separately. The two regimes use different software submissions and different penalty point totals. However, if your accounting software already handles VAT returns digitally, much of the infrastructure – bank feeds, digital records, software familiarity – will carry across.

Digital exclusion. HMRC recognises that some taxpayers genuinely cannot use digital tools – for reasons of age, disability, remoteness, or religious belief. If you believe you qualify for exemption, you must apply to HMRC (by phone on 0300 200 3310 or in writing). If you already hold an exemption from MTD for VAT, contact HMRC to confirm whether it extends to MTD for Income Tax. An exemption is not automatic.

Common pitfalls to avoid

Misjudging qualifying income. The most common mistake is looking at profit rather than gross income. A landlord spending heavily on repairs might have modest profits but gross rents well above £50,000. Similarly, forgetting to combine income across sources – a trade plus a rental – can lead to an unpleasant surprise.

Breaking the digital link. It is surprisingly easy to break compliance by copying a figure from a bank statement and typing it into a spreadsheet, or by exporting data from one system and manually adjusting it in another before import. Every step in the data chain must be electronic. Audit this end to end before your first submission.

Assuming your accountant handles everything. Your accountant can still file on your behalf, but MTD demands more frequent engagement. Handing over a carrier bag of receipts in January will no longer work. Agree a quarterly rhythm with your accountant now – and if you are doing it yourself, build the habit of keeping records up to date week by week rather than quarter by quarter.

Ignoring the final declaration. The quarterly updates get much of the attention, but the final declaration is where your actual tax liability is calculated. It is also the submission that carries penalty points from day one, with no soft landing. Treat it with the same seriousness as your current Self Assessment return.

A sample schedule: 2026/27 tax year

For a sole trader mandated from April 2026 using standard tax-year quarters:

If the same sole trader also has a rental property, they will submit separate quarterly updates for the property business on the same deadlines – eight submissions across the year, plus the single combined final declaration.

Useful resources

GOV.UK – The primary source for eligibility criteria, sign-up instructions, recognised software lists, and penalty details. Search for "Making Tax Digital for Income Tax" on GOV.UK for the latest guidance.

Professional bodies – The Association of Taxation Technicians (ATT), ICAEW, CIOT, and AAT all publish detailed FAQs, webinar recordings, and practical guides. The ATT's MTD FAQ page is particularly thorough.

Your software provider – Most recognised providers are publishing readiness updates, onboarding guides, and support timelines. Check their MTD-specific pages for product-level detail.

Benefits and trade-offs

It would be misleading to present MTD as nothing but a burden. For businesses that embrace it, there are real advantages: better real-time visibility of income and expenses, fewer year-end surprises, cleaner records that make mortgage and loan applications easier, and a reduced risk of the errors that currently account for a meaningful share of the tax gap.

The trade-off is more frequent administration, a new software cost for those not already using digital tools, and a steeper learning curve in the first year. The businesses that will find the transition smoothest are those that already reconcile their books regularly and use cloud accounting software. Those running on paper, annual spreadsheets, or memory will feel the change most acutely – but will also arguably benefit the most from adopting better habits.

The single most effective thing you can do is start early. Sign up, set up your software, run a trial quarter using real data, and iron out the problems before April 2026 when it counts.

FAQ

Will my accountant still be able to file everything for me?

Yes. Your agent can submit quarterly updates and the final declaration on your behalf, provided they are authorised through HMRC's Agent Services Account and use MTD-compatible software. You will still need to maintain digital records or give your accountant timely access to your transaction data.

Do I need to keep paper receipts?

HMRC accepts digital copies – scanned or photographed – provided they are legible and stored securely. You do not need to retain the paper originals, though some advisers recommend keeping them for high-value items until the record retention period expires (generally five years from the 31 January filing deadline for the relevant tax year).

What if my income drops below the threshold after I join?

You must remain within MTD until your qualifying income falls below the relevant threshold for three consecutive tax years. A single year below the line does not release you from the obligations.

Can I use different software for bookkeeping and submissions?

Yes, as long as data passes between them through a digital link – no manual rekeying. One common approach is to maintain records in a spreadsheet or basic bookkeeping tool and use a separate product to submit to HMRC, with the data transferred electronically.

How do I correct a quarterly update after submission?

You can either amend the original submission or include the correction in your next quarterly update, since updates are cumulative. Corrections do not attract penalties provided the final figures are accurate by the time the year-end declaration is submitted.