Making Tax Digital (MTD) was first introduced by HM Revenue and Customs as part of a wider plan to modernise the UK tax system.
The rollout started with VAT in 2019, and now it’s expanding to Income Tax Self Assessment (MTD for ITSA), with key changes beginning from April 2026.
The goal behind MTD is to reduce errors, improve accuracy, and make tax reporting more efficient. HMRC estimates that billions are lost each year due to avoidable mistakes in tax returns, often caused by manual record-keeping. Moving everything into digital systems aims to fix that.
There are also practical benefits for taxpayers. Digital records make it easier to track income, manage expenses, and get a clearer view of your finances throughout the year instead of scrambling at the end.
Making your tax digital can feel confusing at first, but don’t worry, this guide will walk you through what to expect and how to prepare so you can stay on track without the stress.
Who Needs to Follow MTD?
MTD for Income Tax applies based on how much you earn from self-employment, property, or a combination of both. The rollout is being introduced in stages, so not everyone will be required to follow the rules at the same time. What matters here is your total qualifying income, not profit, which means the threshold is based on your gross earnings before expenses.
If you earn income from renting out property, running a business, or both, you’ll need to check where you fall. Even if you’re not included in the first phase, it’s likely you’ll be brought in later as the system expands.
Start Date
Who It Applies To
Income Threshold (Annual Gross Income)
Type of Income Included
What You’ll Need To Do
April 2026
Self-employed individuals and landlords
Over £50,000
Self-employment income, property rental income, or combined
Keep digital records and submit quarterly updates plus a final declaration
April 2027
Self-employed individuals and landlords
Over £30,000
Self-employment income, property rental income, or combined
Same requirements as above
Future phase (TBC)
Smaller earners
Likely below £30,000
Same income types as above
Expected to follow the same structure once implemented
Excluded (for now)
Partnerships and limited companies
N/A
Business income through partnerships or companies
Different reporting rules apply outside MTD for ITSA
6 Steps on How to Prepare for Making Tax Digital
Preparing for MTD is mostly about understanding the rules and setting up the right system early.
Here are six steps to help you get ready and stay compliant:
1) Check when MTD applies to you
Start by confirming your total qualifying income. MTD for Income Tax applies to individuals earning over £50,000 from self-employment, property, or a combination of both from April 2026. This threshold is based on gross income rather than profit, which means expenses are not deducted when calculating eligibility.
From April 2027, the threshold drops to £30,000, bringing more taxpayers into scope. If your income is close to either level, preparing early gives you more time to adjust before the rules take effect.
2) Understand the new MTD rules and reporting requirements
MTD changes how you report your income to HMRC. Instead of submitting one Self Assessment return each year, you’ll need to keep digital records and send updates throughout the year.
You’ll be required to submit quarterly updates covering your income and expenses, followed by a final declaration at the end of the tax year.
In total, this means at least five submissions annually. The quarterly updates give HMRC a running estimate of your tax position, while the final declaration confirms the full picture.
3) Use HMRC-compatible software
To comply with MTD, you’ll need software that connects directly to HMRC. This is often referred to as MTD-compatible or bridging software.
Most modern accounting platforms can automatically import bank transactions, organise expenses, and provide real-time updates on your income. This reduces the need for manual entry and helps lower the risk of mistakes.
4) Understand how quarterly reporting works
Quarterly reporting is one of the biggest changes under MTD. Instead of waiting until the end of the tax year, you’ll need to submit updates every three months.
Each update will include a summary of your income and allowable expenses for that period. Deadlines are usually set one month after the end of each quarter. For example, if your reporting period ends in June, your submission will be due by early August.
Although these updates don’t confirm your final tax bill, they help you stay aware of your position throughout the year. This can make it easier to plan ahead and avoid unexpected costs.
5) Get ready to register for MTD
Before you can begin submitting updates, you’ll need to register for MTD through HMRC. This involves linking your accounting software to your HMRC account and making sure your records are set up correctly.
You’ll also need access to your Government Gateway account and accurate details about your income sources. Going through this process early gives you time to fix any issues before reporting becomes mandatory.
6) Work with a professional accountant
If you want to save time and reduce the risk of errors, working with a professional can make things easier. A trusted team of Making Tax Digital accountants, like LJS Accounting Services, can help you set up your system, manage your submissions, and keep everything aligned with HMRC requirements.
They can also support you before MTD applies, helping you get organised early and prepare for the changes ahead without unnecessary stress.
What Happens If You Don’t Comply?
Failing to follow MTD rules can lead to penalties, but HMRC is moving away from instant fines and instead using a points-based system for late submissions. Each time you miss a deadline, you receive a penalty point. Once you reach a certain number of points, a £200 fine is issued.
The threshold for penalties depends on how often you’re required to submit. Since MTD involves quarterly reporting, you can build up points faster if you fall behind. After reaching the penalty limit, every additional missed submission can result in another £200 charge.
There are also penalties for late payment of tax. HMRC may charge interest from the due date, and further penalties can apply if the delay continues. On top of that, inaccurate records or incorrect submissions can lead to additional charges, especially if HMRC considers the errors avoidable.
Beyond the financial side, non-compliance can create ongoing issues. Late or incorrect submissions can affect your tax record, trigger further checks, and make future reporting more complicated.
Staying Compliant with Making Tax Digital for Income Tax
Making Tax Digital for Income Tax is a shift in how tax reporting works, but it’s manageable once you understand what’s required. Keeping digital records, staying consistent with updates, and using the right tools all make a difference.
Preparing early gives you time to adjust before deadlines start to matter. It also helps you stay aware of your tax position throughout the year rather than dealing with everything at once.
Taking a bit of time now to set things up properly can save you stress later. The right approach can help you stay compliant and handle MTD seamlessly.