Understanding Making Tax Digital for Income Tax
When it starts and how it works.
Making Tax Digital for Income Tax is a new way for sole traders and landlords to report their income and expenses to HMRC. Many will ask an agent, such as an accountant or bookkeeper, to act on their behalf.
As an agent, you need to know:
- which of your clients will need to use Making Tax Digital for Income Tax
- which tax year they will need to start
- what it means for your client’s business and yours
The information below is a short summary. HMRC has published comprehensive and detailed guidance which we encourage all agents to read in full.
Over the next 3 years, people with a combined gross income of more than £20,000 from self-employment and property will be required – by law – to use Making Tax Digital for Income Tax.
Not everyone will need to start in 2026 – it will depend on their qualifying income from previous tax returns.
‘Qualifying income’ is the total gross income – from self-employment and property – before expenses and tax.
| Tax year | Qualifying income | When to start using MTD |
|---|---|---|
| 2024 to 2025 | more than £50,000 | 6 April 2026 |
| 2025 to 2026 | more than £30,000 | 6 April 2027 |
| 2026 to 2027 | more than £20,000 | 6 April 2028 |
Using Making Tax Digital for Income Tax means using compatible software to:
- maintain digital records throughout the year
- submit summaries (called ‘quarterly updates’) of income and expenses to HMRC
- complete a tax return at the end of the tax year
For those who do not need to use Making Tax Digital for Income Tax, the way they submit their tax return will not change.
Every 3 months, you will need to send simple summaries of your client’s self-employment and property income and expenses.
These summaries will be generated by your software and are called ‘quarterly updates’. If your client’s digital records are kept up-to-date throughout the year, these quarterly updates can be submitted with just a few clicks.
Quarterly updates should be as accurate as possible, but you will be able to go back and correct any entry throughout the year if you become aware of an error or omission. No tax or accounting adjustments are needed for the quarterly updates.
The end of year tax return will be pre-populated with:
- summaries of income and expenses from self-employment and property (as submitted in the 4 quarterly updates)
- information HMRC holds about other personal income, such as earnings from PAYE employment or pensions
Before you submit the tax return you can:
- correct any figures that HMRC holds that you disagree with
- make any required tax and accounting adjustments
- claim any allowances and reliefs
- add information about any personal income that HMRC does not know about (for example, investment income)
Late submission penalties and late payment penalties will be different under Making Tax Digital for Income Tax.
A penalty point will be applied for each missed quarterly update, or annual tax return. Once 4 points are accumulated, a £200 financial penalty is issued. Late payment penalties will be more proportionate, with charges depending on how quickly the outstanding amount is paid.
The government introduced legislation in the Autumn Budget 2025 to 26 which means that customers joining Making Tax Digital in April 2026 will not receive penalty points for late submission of their first 4 quarterly updates.
Read more about Making Tax Digital for Income Tax and penalty reform