Last updated: January 2026 | Reading time: 12 minutes
Covers: MTD for Income Tax thresholds, quarterly deadlines, and how to prepare for each phase
| Key Takeaways April 2026: MTD mandatory for qualifying income over £50,000 April 2027: Threshold drops to £30,000 — affecting an additional 900,000+ taxpayers April 2028: Threshold drops to £20,000 — near-universal coverage for self-employed and landlords Your threshold is based on gross income, not profit — expenses don’t reduce your qualifying figure |
What Is Making Tax Digital for Income Tax?
Making Tax Digital for Income Tax (MTD for IT) is HMRC’s mandatory digital reporting system replacing traditional Self Assessment for sole traders and landlords. Instead of filing one annual tax return, you’ll need to submit quarterly updates of your income and expenses using HMRC-recognised software.
The system is being phased in over three years based on your qualifying income. Understanding which threshold applies to you — and when — is essential for staying compliant and avoiding penalties.
This guide explains each threshold in detail, with practical timelines and preparation checklists for each phase.
How Qualifying Income Is Calculated
Your qualifying income determines when you must start using MTD. It’s calculated by adding together:
- Gross self-employment income (turnover, not profit)
- Gross rental income (total rent received, before expenses)
Important: This is gross income, not taxable profit. Your business expenses and allowable deductions don’t reduce your qualifying income figure.
| Example: Calculating Your Qualifying Income Sarah is a freelance graphic designer who also rents out a flat: Freelance income (gross): £38,000 Rental income (gross): £14,000 Qualifying income: £52,000 Even though Sarah’s taxable profit after expenses might be £35,000, her qualifying income of £52,000 means she must use MTD from April 2026. |
What’s NOT included in qualifying income:
- Employment income (PAYE)
- Pension income
- Savings interest and dividends
- Capital gains
- Limited company income (corporation tax applies instead)
Phase 1: £50,000+ Threshold (April 2026)
| STATUS: ACTIVE — If your 2024/25 qualifying income exceeded £50,000, you must already be using MTD from 6 April 2026. |
Who’s Affected?
This phase affects sole traders and landlords whose combined gross self-employment and property income exceeded £50,000 in the 2024/25 tax year. HMRC estimates this covers approximately 780,000 taxpayers.
Typical profiles:
- Established freelancers and consultants
- Landlords with multiple properties or high-value rentals
- Tradespeople with strong turnover (plumbers, electricians, builders)
- IT contractors and professional service providers
Key Deadlines for 2026/27 Tax Year
| Date | Requirement |
|---|---|
| 6 April 2026 | Start keeping digital records using MTD-compatible software |
| 7 August 2026 | First quarterly update (Q1: 6 April – 5 July) |
| 7 November 2026 | Second quarterly update (Q2: 6 July – 5 October) |
| 7 February 2027 | Third quarterly update (Q3: 6 October – 5 January) |
| 7 May 2027 | Fourth quarterly update (Q4: 6 January – 5 April) |
| 31 January 2028 | Final declaration (replaces Self Assessment) + pay tax due |
Phase 2: £30,000+ Threshold (April 2027)
| STATUS: PREPARE NOW — If your 2025/26 qualifying income exceeds £30,000, you must use MTD from 6 April 2027. |
Who’s Affected?
This phase significantly expands MTD coverage to include an estimated additional 900,000 taxpayers. It affects sole traders and landlords with qualifying income between £30,000 and £50,000.
Typical profiles:
- Part-time freelancers with solid side income
- Landlords with 1-3 buy-to-let properties
- Self-employed people working alongside employment
- Growing small businesses approaching the VAT threshold
Key Deadlines for 2027/28 Tax Year
| Date | Requirement |
|---|---|
| 31 January 2027 | Final Self Assessment return for 2025/26 (traditional method) |
| 6 April 2027 | Start keeping digital records using MTD-compatible software |
| 7 August 2027 | First quarterly update (Q1: 6 April – 5 July) |
| 7 November 2027 | Second quarterly update (Q2: 6 July – 5 October) |
| 7 February 2028 | Third quarterly update (Q3: 6 October – 5 January) |
| 7 May 2028 | Fourth quarterly update (Q4: 6 January – 5 April) |
| 31 January 2029 | Final declaration + pay tax due for 2027/28 |
Preparation Checklist for April 2027
If you’re in this threshold band, use this checklist to prepare:
- Calculate your qualifying income — add gross self-employment + gross rental income for 2025/26
- Choose MTD-compatible software — compare options at least 3 months before April 2027
- Open a separate business bank account — simplifies bank feed integration
- Digitise existing records — scan receipts and organise historical data
- Sign up for MTD — register through HMRC’s online service before April 2027
- Set up software and connect bank feeds — test the system before go-live
- Brief your accountant — confirm how you’ll work together under MTD
Phase 3: £20,000+ Threshold (April 2028)
| STATUS: PLAN AHEAD — If your qualifying income exceeds £20,000, you’ll need MTD from 6 April 2028. |
Who’s Affected?
This final announced phase brings near-universal MTD coverage for self-employed individuals and landlords. It captures those with qualifying income between £20,000 and £30,000 — a significant number of smaller operations and part-time earners.
Typical profiles:
- Side hustlers and gig economy workers with meaningful income
- Single-property landlords with modest rental income
- Part-time self-employed people transitioning to retirement
- Small-scale Etsy sellers, eBay traders, and online businesses
Key Deadlines for 2028/29 Tax Year
| Date | Requirement |
|---|---|
| 31 January 2028 | Final Self Assessment return for 2026/27 (traditional method) |
| 6 April 2028 | Start keeping digital records using MTD-compatible software |
| 7 August 2028 | First quarterly update (Q1: 6 April – 5 July) |
| 7 November 2028 | Second quarterly update (Q2: 6 July – 5 October) |
| 7 February 2029 | Third quarterly update (Q3: 6 October – 5 January) |
| 7 May 2029 | Fourth quarterly update (Q4: 6 January – 5 April) |
| 31 January 2030 | Final declaration + pay tax due for 2028/29 |
What If Your Income Is Below £20,000?
If your qualifying income is below £20,000, you’re not currently required to use MTD for Income Tax. You’ll continue submitting traditional Self Assessment returns.
However, consider:
- Voluntary sign-up: You can opt into MTD early to get familiar with digital record-keeping
- Future expansion: HMRC may lower thresholds further in coming years
- Business growth: If your income grows past £20,000, you’ll need to comply — better to be prepared
Once You’re In MTD, Can You Leave?
Once you’re mandated for MTD, you cannot opt out simply because your income later falls below the threshold. HMRC’s guidance is clear:
| “If a customer is mandated to be in MTD, they will not be eligible to opt out.” — HMRC MTD Service Guide |
The only exception is if your qualifying income drops to £20,000 or below for at least two consecutive tax years. Even then, you may need to complete at least two full MTD years before HMRC’s annual review removes you from the mandated population.
Practical implication: Once you start MTD, plan to continue using it long-term. Choose software you’re happy to use indefinitely.
MTD Penalties: What Happens If You Miss Deadlines?
From April 2026, HMRC is introducing a new points-based penalty system for late submissions — designed to be fairer than the old fixed-penalty approach.
Late Submission Penalties
- Each missed deadline = 1 penalty point
- Threshold for quarterly submitters = 4 points
- Reaching the threshold = £200 penalty
- Each subsequent missed deadline after reaching threshold = additional £200 penalty
Points expire after 24 months of compliance, and you can reset your points to zero by meeting all submission obligations for a set period.
Late Payment Penalties
Late payment penalties are proportionate and based on when you pay:
- Up to 15 days late: No penalty (but interest accrues)
- 16-30 days late: 2% of tax owed
- 31+ days late: 2% + additional 2% + 4% annual rate on outstanding amount
Choosing MTD-Compatible Software
HMRC doesn’t provide software for MTD — you must choose from commercial options. All software must be HMRC-recognised to submit quarterly updates and final declarations.
Key features to look for:
- HMRC recognition: Verify the software appears on HMRC’s official compatible software list
- Bank feed integration: Automatically imports transactions from your bank account
- Receipt scanning: Mobile app to capture and categorise receipts
- Quarterly submissions: Direct submission to HMRC from within the software
- Accountant access: Ability to share access with your accountant or bookkeeper
- Pricing transparency: Clear monthly or annual costs with no hidden fees
Popular MTD Software Options
| Software | Best For | Price (approx.) | Key Strength |
|---|---|---|---|
| Sage | Most small businesses | From £18/month | AI copilot features |
| QuickBooks | Freelancers & SMEs | From £12/month | Strong integrations |
| Xero | Growing businesses | From £15/month | 1,000+ app ecosystem |
| FreeAgent | Sole traders | Free with NatWest | Tax-focused features |
| Hammock | Landlords | From £10/month | Property-specific |
| QuickFile | Budget-conscious | Free | No-cost option |
Frequently Asked Questions
Does MTD apply to limited companies?
No. MTD for Income Tax only applies to individuals filing Self Assessment — sole traders and landlords. Limited companies pay Corporation Tax, which is a separate tax regime. If you run your business through a limited company, you’ll continue filing company accounts and Corporation Tax returns as normal.
What about partnerships?
Partnerships are not yet included in MTD for Income Tax. HMRC has confirmed they will be brought into scope in the future, but no specific timeline has been announced. For now, partnerships continue using traditional Self Assessment.
Can I continue using spreadsheets?
You can use spreadsheets to keep records, but you’ll need ‘bridging software’ to submit updates to HMRC. This software connects to HMRC’s systems and transmits data from your spreadsheet. However, most people find it easier to use full MTD software that handles everything in one place.
What if I have both rental income and self-employment income?
You’ll need to keep separate digital records for each income source and submit separate quarterly updates for self-employment and property income. However, these all feed into a single final declaration at year-end.
Can I get an exemption from MTD?
Exemptions are available for those who are digitally excluded — meaning it’s not reasonable for you to use digital tools due to age, disability, health condition, location, or religious beliefs. You’ll need to apply to HMRC for an exemption. Standard reluctance to use technology is not grounds for exemption.
Summary: Which Threshold Applies to You?
| Qualifying Income | MTD Start Date | Action Required |
|---|---|---|
| Over £50,000 | 6 April 2026 | You should already be using MTD |
| £30,001 – £50,000 | 6 April 2027 | Prepare now — choose software and digitise records |
| £20,001 – £30,000 | 6 April 2028 | Plan ahead — transition during 2027 |
| Under £20,000 | Not yet required | Continue Self Assessment (voluntary MTD available) |
Making Tax Digital represents the biggest change to UK tax administration in decades. The phased rollout gives you time to prepare — use it wisely. Start by calculating your qualifying income, choose software that fits your needs, and begin digitising your records well before your deadline.
| Disclaimer: This article is for informational purposes only and does not constitute tax advice. Tax rules change frequently. Always verify current requirements on GOV.UK and consult a qualified accountant for advice specific to your circumstances. |