Making Tax Digital for Income Tax: What Changes in April 2026

Who needs to use MTD from April 2026?

If your combined gross income from self-employment and property exceeds GBP 50,000, you must use Making Tax Digital for Income Tax from 6 April 2026. This is the first phase of a three-year rollout.

The threshold is based on gross turnover or rental receipts, not your taxable profit. So if your business turns over GBP 55,000 but your profit after expenses is only GBP 30,000, you are still in scope.

HMRC checks your 2024/25 tax return (the one due by 31 January 2026) to determine whether you qualify. If your combined self-employment and property income on that return exceeds GBP 50,000, you need to be registered and ready for April 2026.

What income counts towards the threshold?

Only two types of income count: self-employment income and property rental income. HMRC adds these together across all your businesses and properties.

If you have GBP 30,000 from a sole trader business and GBP 25,000 from rental income, your combined qualifying income is GBP 55,000 and you are in scope.

Income from PAYE employment, dividends, pensions, savings interest, and partnership income does not count towards the threshold. A sole trader earning GBP 40,000 from their business and GBP 60,000 from a PAYE job is not affected, because only the GBP 40,000 counts.

When does the threshold reduce?

The rollout happens in three phases. From April 2026, the threshold is GBP 50,000. From April 2027, it drops to GBP 30,000. From April 2028, it drops again to GBP 20,000.

This means that by 2028, the majority of sole traders and landlords filing Self Assessment will need to use MTD-compatible software and submit quarterly updates.

• 6 April 2026: qualifying income over GBP 50,000
• 6 April 2027: qualifying income over GBP 30,000
• 6 April 2028: qualifying income over GBP 20,000

Who is exempt?

Several groups are currently excluded from MTD for Income Tax. Partnerships and LLPs are not included in the 2026 rollout, and no date has been announced for when they will be. Trusts, estates, and personal representatives are permanently exempt.

Other permanent exemptions include individuals subject to a power of attorney, Lloyd's underwriters, ministers of religion, and those without a UK National Insurance number. Taxpayers using the remittance basis, averaging adjustments, or receiving qualifying care income are also excluded until at least April 2027.

What do you actually need to do?

There are three core requirements under MTD for Income Tax. First, you must keep digital records of your income and expenses using MTD-compatible software. Paper records and basic spreadsheets (unless paired with bridging software) will no longer be sufficient.

Second, you must send quarterly updates to HMRC through the software. These are summaries of your income and expenses for each three-month period. They are not full tax returns, just progress updates.

Third, you must submit a Final Declaration by 31 January following the end of the tax year. This replaces the current Self Assessment tax return and includes all your income sources, allowances, and reliefs.

What are the quarterly deadlines for 2026/27?

The tax year runs from 6 April to 5 April. Each quarterly update is due by the 7th of the month after the quarter ends. For the first year of MTD (2026/27), the deadlines are as follows.

• Quarter 1 (6 April to 5 July 2026): due by 7 August 2026
• Quarter 2 (6 July to 5 October 2026): due by 7 November 2026
• Quarter 3 (6 October to 5 January 2027): due by 7 February 2027
• Quarter 4 (6 January to 5 April 2027): due by 7 May 2027
• Final Declaration: due by 31 January 2028

Is there a penalty-free period?

Yes. HMRC has confirmed a soft landing for the 2026/27 tax year. No penalty points will be issued for late submission of your first four quarterly updates. This gives you time to adjust to the new process without financial risk.

However, two important exceptions apply. Late payment penalties still run on their normal schedule, so you must still pay any tax owed on time. And the Final Declaration (due 31 January 2028) is not covered by the soft landing. If you submit that late, penalties apply as normal.

What software do you need, and what does it really cost?

HMRC does not provide its own free tool for MTD Income Tax. Unlike the current Self Assessment system where you can file directly on GOV.UK, MTD requires you to use third-party commercial software that connects to HMRC through their API.

Every provider leads with introductory pricing that doubles or triples after a few months. Here is what the main options actually cost once the introductory period ends.

Full accounting software (includes MTD filing)

These platforms handle your bookkeeping, invoicing, bank feeds, and MTD submissions all in one place. They are the best option if you want a single tool for everything.

Xero Simple costs GBP 7 plus VAT per month after the introductory rate of GBP 3.50 for the first three months. It includes MTD quarterly updates, bank feeds, receipt capture through Hubdoc, and basic invoicing. It does not include payroll, which is a separate add-on starting at GBP 7 per month.

QuickBooks Sole Trader costs GBP 10 plus VAT per month after the introductory rate of GBP 1 for the first six months. It covers basic accounting and MTD compliance for sole traders.

FreeAgent costs GBP 19 plus VAT per month after the introductory rate of GBP 9.50 for six months. It is a single plan covering all features. If you have a NatWest, Royal Bank of Scotland, or Ulster Bank business current account, FreeAgent is included free for as long as you keep the account. This is the best deal available if you are willing to bank with one of those three.

Sage Standard costs GBP 26 plus VAT per month and includes MTD VAT and Income Tax submissions. The cheaper Sage Start plan at GBP 12 plus VAT does not support MTD.

Budget options (MTD filing only)

If you already manage your own records and just need something to submit quarterly updates to HMRC, these are cheaper alternatives.

QuickFile is often described as free, but the free tier is limited to 200 ledger entries per year. Most sole traders will exceed this within a few months. After that, plans start at GBP 60 plus VAT per year (around GBP 5 per month), with bank feeds costing an additional GBP 15 plus VAT per year.

GoSimpleTax costs GBP 69.99 per year including VAT for Self Assessment filing. However, their MTD for Income Tax product is handled through a sister product called Coconut, and pricing for MTD-specific features is not clearly published.

Bridging software like My Tax Digital lets you maintain your own spreadsheet and submit to HMRC through their API. This is technically free, but the company is a small IT services firm and there is no guarantee the product will be maintained long-term. For something you rely on for tax compliance, that is a risk worth considering.

What is the realistic annual cost?

For most sole traders and landlords, the realistic cost of MTD-compatible software is between GBP 84 and GBP 228 per year (GBP 7 to GBP 19 per month). If you need payroll, add GBP 84 to GBP 168 per year on top.

The exception is FreeAgent with a NatWest or RBS business account, which is genuinely free. If you are choosing a new business bank account, this is worth considering.

If you work with an accountant, many firms (including ours) provide cloud software as part of their service. Ask your accountant whether software is included in your fees before purchasing separately.

What happens if you do nothing?

If you are in scope and do not register for MTD by April 2026, you will be unable to file your income tax return through the old Self Assessment system from that point. HMRC will expect digital submissions.

The soft landing means you will not receive penalty points for late quarterly updates in the first year. But from the second year onwards, each late submission earns a penalty point. Once you accumulate enough points, you receive a GBP 200 penalty for every subsequent late submission.

Late payment penalties are separate and apply from day one. If you owe tax and pay late, HMRC charges interest plus escalating penalties at 30 days, 6 months, and 12 months.

How should you prepare now?

If your qualifying income is over GBP 50,000, start by choosing your software. If you already use Xero, QuickBooks, or FreeAgent for your bookkeeping, check whether your current plan supports MTD for Income Tax. You may need to upgrade.

Make sure your digital records are up to date. MTD requires you to record transactions digitally as they happen, not in a batch at year-end. If you currently hand your accountant a carrier bag of receipts in January, that process needs to change.

Register with HMRC for MTD for Income Tax before 6 April 2026. Your accountant can do this on your behalf if you have authorised them as your agent.

If your income is between GBP 30,000 and GBP 50,000, you have until April 2027. Use this year to get comfortable with digital record-keeping so the transition is smooth when your turn comes.

Key takeaways

• From 6 April 2026, sole traders and landlords with gross income over GBP 50,000 must use MTD-compatible software
• The threshold drops to GBP 30,000 in April 2027 and GBP 20,000 in April 2028
• Only self-employment and property income count. PAYE, dividends, and pensions do not
• You must submit quarterly updates plus a Final Declaration (replacing Self Assessment)
• HMRC does not provide free software. Realistic costs are GBP 7 to GBP 19 per month
• No penalties for late quarterly submissions in the first year (2026/27) but payment penalties still apply
• Partnerships, trusts, and LLPs are currently exempt

How we can help you

We specialise in:

• MTD-compatible bookkeeping and quarterly submissions
• Cloud software setup and training (Xero, QuickBooks, FreeAgent)
• Self Assessment and tax return filing
• Tax planning to minimise your liability
• Transition support from paper records to digital

Not sure if MTD applies to you? Contact us for a free MTD readiness check and we will confirm whether you are in scope and help you get set up.