Making Tax Digital in 2026: Deadlines, Software and Penalties

Who is in scope, and from when

From 6 April 2026, Making Tax Digital for Income Tax becomes mandatory for sole traders and landlords with qualifying income over £50,000. The threshold drops to £30,000 from April 2027, and the government has announced a further drop to £20,000 from April 2028. Qualifying income means gross income, before any expenses, from self-employment and property combined, and for the 2026 start date it is measured from your 2024-25 self assessment return.

That combined point catches people out. A part-time consultant turning over £30,000 who also collects £25,000 in rent has qualifying income of £55,000 and is in scope from April 2026, even though neither activity alone crosses the line. Limited companies are not affected; this phase covers income tax self assessment only, and general partnerships are expected to follow later.

• Add up turnover from all self-employment plus gross property income on your 2024-25 return.
• Over £50,000: you start in April 2026.
• Over £30,000: pencil in April 2027.
• Over £20,000: April 2028, as announced.

HMRC has been writing to affected taxpayers, but do not wait for a letter to plan.

What actually changes day to day

MTD for Income Tax has three practical requirements. You must keep your business records digitally in compatible software. You must send HMRC a quarterly update summarising income and expenses, due by 7 August, 7 November, 7 February and 7 May. And after year end you finalise everything in a final declaration by 31 January, which replaces the self assessment return you file today.

Two reassurances. Quarterly updates are cumulative summaries drawn from your records, not four mini tax returns; there are no accounting adjustments or tax calculations to agonise over until year end. And payment dates do not change: you still pay by 31 January, with payments on account as before.

Software for every budget

Free options

HMRC does not provide its own MTD software but publishes a list of compatible products, including free ones with basic features. FreeAgent is free in full if you hold a business account with certain banks in the NatWest Group. If you love your spreadsheet, you can keep it and use bridging software to file, though the links between spreadsheet and filing tool must be digital, not copy-and-paste.

Paid options

Sole-trader tiers from QuickBooks, Xero, FreeAgent and Sage cost a few pounds a month and add bank feeds, invoicing and receipt capture, which repay their cost in saved admin. Landlords should look at property-specific tools such as Hammock or Landlord Studio, which handle per-property income and mortgage interest neatly.

How to choose

• Confirm the product is on HMRC's compatible software list for Income Tax, not just VAT.
• Check your accountant can access it, or at least import from it.
• Prefer software with a direct bank feed; it removes most of the weekly effort.
• If you have both trade and property income, make sure one product can file updates for both.

The points-based penalty system explained

MTD replaces the old automatic late-filing fine with a points system for late submissions. Each missed quarterly deadline earns one point. When you reach four points on a quarterly schedule, you receive a £200 penalty, and every further late submission while you sit at the threshold triggers another £200. Points expire after around two years if you stay under the threshold; once you have hit it, you must file everything on time for twelve months, and bring outstanding submissions up to date, before the slate is wiped.

Late payment penalties are sharper than the old regime. There is nothing for the first fortnight, then 3 per cent of the outstanding tax at day 15, a further 3 per cent at day 30, and an annualised 10 per cent charge from day 31, with interest on top. Agreeing a time-to-pay arrangement with HMRC before day 15 stops the escalation, so the worst move is silence.

One quirk worth knowing: taxpayers who joined HMRC's testing programme early have been able to practise quarterly filing without late-submission penalties during testing, which is a strong argument for volunteering before you are forced.

Exemptions and edge cases

A small group can claim exemption as digitally excluded, where age, disability, location or religious belief makes software use impractical; you must apply to HMRC rather than self-certify. Foster carers and those without a National Insurance number are among other excluded groups. If your qualifying income later falls below the threshold, you do not drop out automatically; there is a process, and you generally remain in MTD until HMRC confirms you can leave.

If you are near a threshold, be careful with timing. Scope for April 2026 rests on the 2024-25 return you have recently filed, so you may already be committed even if this year is quieter.

Your countdown checklist for April 2026

• 1. Work out your qualifying income from the 2024-25 return today.
• 2. Choose software this summer and start keeping digital records well before April, so the habit exists before it is compulsory.
• 3. Open a separate business bank account if you still mix funds; clean feeds make quarterly updates almost automatic.
• 4. Speak to your accountant about who files what, and what their MTD fees will be.
• 5. Consider joining HMRC's testing programme to practise penalty-free.
• 6. Diarise all four quarterly deadlines plus 31 January.

The businesses that struggle with MTD are the ones that start in March 2026. Start now and it becomes a minor change of habit rather than a crisis. If your bookkeeping tools need connecting or automating along the way, our team can help.