Heather Rogers is the founder and owner of Aston Accountancy and This is Money's tax columnist.

Making Tax Digital affects hundreds of thousands of landlords and self-employed sole traders.

If you have an income of more than £50,000 a year from self-employment or rental income, or both combined, you must register.

HMRC is implementing the Making Tax Digital policy in phases, and the first involved VAT-registered businesses – MTD for VAT - in April 2019.

MTD for income tax and self-assessment, known as ITSA, was introduced from 6 April for those with the largest incomes from self-employment or rent or both. 

Those with income from these sources which totals over £30,000 will have to sign up from April 2027, and those receiving over £20,000 from April 2028.

MTD applies to landlords and self-employed sole traders only. 

Partnerships are not yet required to use it, although that is planned at some point in the future. MTD for corporation tax has been scrapped.

Some self-employed individuals and landlords will turn to an accountant for help tackling the process, but you can do it yourself.

If you do have an accountant, then even if you plan to make MTD filings yourself, it is worth having a chat with them before you start, especially if your circumstances are complex.

Here is what you need to know, and see also my six-point action plan below. 

What does Making Tax Digital mean?

Taxpayers who are affected must file quarterly returns about their income and expenses using compatible software.

You can use a software package, on which more below. If you prefer to keep your records on spreadsheets, you can use what is known as a 'bridging software' to make the filing using the figures in your spreadsheet.

You can find approved software on Gov.uk here: Find software that works with Making Tax Digital for Income Tax

If you have FreeAgent as part of your business banking package, you can use this for MTD for income tax.

Those who signed up to MTD for VAT still need to register for MTD for income tax - the two government MTD systems are NOT linked.

That means taxpayers have to submit quarterly returns for both income tax and VAT, as well as a final filing – the MTD tax return - meaning VAT registered businesses will have to submit nine filings a year.

Those who are not VAT registered will have to submit five filings a year.

When must you file quarterly MTD for income tax?

Individuals must provide HMRC with quarterly updates of their income and expenses for each trade or property business.

For example, all UK properties are a single UK property business, and all overseas properties form a single overseas property business.

Each sole tradership forms a separate business, so you may need to complete more than one filing each quarter.

These are cumulative – so each covers the tax year to date. The standard quarterly update calendar is as follows.

Taxpayers may opt instead to use calendar quarters for their quarterly updates.

They cannot choose to make this switch during a tax year after the due date for submission of the first quarterly update for the tax year concerned.

Once a calendar quarter election is made, it remains in place for each subsequent tax year until it is revoked. Calendar quarters are below.

What information do you need to include?

If you are not VAT registered, then you can include a summary of total income and total expenses.

If you are VAT registered, then your expenses will need to be broken down into categories which are dictated by HMRC in the same way as they are for your tax return, although there are some minor differences.

You can line up your VAT quarters to make them the same as for the MTD for income tax quarters.

However, you still need to file both MTD for income tax and MTD for VAT.

VAT-registered businesses can make a request to change their quarterly filing date using their online account. Or you can ask your accountant to do it for you, if you have one.

There is more information on this here: Changing your VAT details.

Do you have to pay tax each quarter following a filing?

No. The payment dates for self-assessment are not changing and will remain the same: January and July. However, your software may give you a tax estimate for the tax year so far.

You don’t need to include any other income not covered by MTD, so unless your software allows you to enter this, your tax liability estimate may not be correct.

After the final quarterly filing for a tax year in question, HMRC will have a full record of all the business transactions in the tax year.

However, these must then be updated for error correction, accounting adjustments and to claim any tax relief, for example capital allowances, in a final MTD return.

The taxpayer will also need to provide information on this MTD return about income which is not relevant to MTD income tax – from employment, dividends, interest and so on.

Taxpayers can submit their final MTD tax return using the same MTD-compatible software as for their quarterly return, but they can also use other software for this stage.

The MTD return incorporates a final declaration by the taxpayer, that the information provided is complete and correct, and that the income tax position for the year has been finalised.

The filing deadline is 31 January following the end of the tax year as normal and the taxpayer makes their tax and NI payments as normal.

What was required by the 6 April deadline?

If your gross income from self-employment and or rental income (before expenses) or the two combined exceeded £50,000 in 2024/25, you should have registered for MTD for income tax from 6 April 2026.

Around 864,000 affected taxpayers were required to register from 6 April 2026.

If you have not yet done so, sign up immediately if you are eligible for MTD.

You are responsible, so check your gross income from your 2024/25 tax return. Remember to include gross income from all your self-employment businesses, if you operate more than one. If you have rental income too, make sure you also include this in your totals.

You can use this HMRC tool to check your status: Find out if and when you need to use Making Tax Digital for Income Tax

You can then register here: Sign up for Making Tax Digital for Income Tax

If you use an accountant you can ask them to register you instead.

You must then make your first MTD for income tax by 7 August 2026.

What records do you need to keep?

The MTD for income tax record-keeping requirements are in addition to, rather than replacing, existing self-assessment record-keeping rules.

Taxpayers required to use MTD for income tax must keep separate digital records for each relevant business, and for each property business they run.

As explained above, all UK properties are a single UK property business, and all overseas properties form a single overseas property business.

The records may be kept in MTD-compatible software, or using spreadsheets with ‘bridging’ software to export the information into a compatible format ready to be filed at HMRC.

Some people use this method for their MTD VAT returns.

A digital record of each transaction (income or expense) must include the date and amount of the transaction, as well as the relevant category the income or expense falls into.

The record for each transaction must be created on or before the submission deadline for the quarterly period in which the transaction falls.

The digital records must be kept for five years after the filing deadline for submitting the tax return for the year in question.

For example, for the tax return for 2026-27 which must be submitted by 31 January 2028, the digital records for that year must be kept until 31 January 2033.

What if your income is too low to register in April 2026?

The requirement to register will be always based on the previous year’s filing, so for those whose relevant income exceeds £30,000 in 2025/26, they will be required to register from 6 April 2027.

Similarly, those whose relevant income exceeds £20,000 in 2026/27, will be required to register from 6 April 2028.

More information can be found on Gov.uk about calculating your gross income: Work out your qualifying income for Making Tax Digital for Income Tax.

If your income goes over the £50,000 threshold during a tax year, you will not have to use MTD until the following tax year, and will submit your self- assessment tax return as usual.

If your relevant income drops below the threshold mid-year, then you have to continue to file MTD returns until your qualifying income has been below the MTD threshold for three consecutive years.

At this point you can opt out. You will still need to file a self-assessment tax return though.

If you have stopped trading, so your only source of qualifying income has ceased, you will need to notify HMRC.

You will need to file an MTD return for the tax year in which the income ceased.

Are there exemptions from registering for MTD?

If HMRC are satisfied that someone is ‘digitally excluded’, that person will not have to use MTD for income tax at this time.

Taxpayers must apply to HMRC for this exemption, which will be decided on a case by case basis, but criteria can include age, health condition, disability, religion and internet access.

There are also exemptions for the following.

- Taxpayers who cannot complete the necessary identity verification procedures to sign up, those without an NI number for example

- Trustees – including those of charitable trusts or the trustees of exempt unauthorised unit trusts

- Executors or administrators of deceased persons

- Taxpayers without mental capacity

- Lloyds members in relation to their underwriting business

There are also a number of deferrals to the mandatory start dates, as follows.

- Non-UK residents – deferred until April 2027

- Taxpayers receiving qualifying income from a trust or estate – deferred until April 2027

- People receiving income from qualifying care deferred, for example foster carers - deferred until April 2027.

- Those who use averaging adjustments, for example farmers and those with artistic income - deferred until April 2027

- Non-UK resident foreign entertainers and sportspeople – deferred until April 2027

- Lloyds members with self- employment or rental income - deferred until at least April 2028 but no firm date has been given for this deferral to end

- Ministers of Religion of any faith or denomination - deferred until at least April 2028 but no firm date has been given for this deferral to end

- Recipients of the Married Couples Allowance for those born before 6 April 1935 or Blind Person’s Allowance - deferred until at least April 2028 but no firm date has been given for this deferral to end

Full details can be found on Gov.uk about all the exemptions and whether you need to claim or if it is automatic: Find out if you can get an exemption from Making Tax Digital for Income Tax

What penalties can be charged?

HMRC will be waiving penalties for the first year of MTD for income tax. However, from April 2027 you should expect to be charged penalties.

From then onward, taxpayers will receive a penalty point every time they miss a MTD income tax filing deadline.

Note that although a separate quarterly submission may be required for each business they operate, there will be only one penalty point across all businesses each time the quarterly updates are submitted late (not one point for each business).

The maximum number of points that can be imposed is four points, and provided the taxpayer remains below the four-point threshold, points will expire after 24 months.

If the taxpayer reaches the threshold of four penalty points, then (a) they will be charged a penalty of £200 for that failure to meet a filing deadline; and (b) these four points will not expire automatically after 24 months.

For each subsequent failure to meet an MTD filing while the points total remains at four points, there will be a further £200 penalty, but no further penalty points.

Where the four-point threshold is reached, the points will be reset to zero only once the taxpayer has submitted all MTD for income tax quarterly updates and tax returns due within the last 24 months, and have complied with filing deadlines for 12 months.

Penalties will not be charged where there is a reasonable excuse, but this would only apply in limited circumstances - it does not include taxpayers not understanding the rules, or failure by an agent such as your accountant. There is also a right of appeal.

And finally...

I am sure we will all get used to MTD for income tax, in the same way that MTD VAT returns have become the norm.

However, one wonders what the real benefit is for either HMRC or the taxpayer.

In my view, it is a shame that so many filings are needed by relatively small businesses and landlords.

This adds a burden to those who are already struggling with rising costs and working long hours to try and keep their heads above water.