Understanding Making Tax Digital for Income Tax
When it starts, how it works and how it can help your clients stay on top of their Income Tax.
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
HMRC encourages all agents to read the published guidance and other useful information in full, as it provides comprehensive guidance.
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 | Start using MTD for Income Tax |
|---|---|---|
| 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:
- create, store and correct digital records of self-employment and property income and expenses
- send quarterly updates to HMRC (summaries of digital records)
- submit a tax return and pay tax due by 31 January the following 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 sent 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 tax return will be pre-populated with:
- summaries of income and expenses from self-employment and property (sent 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.
You may already be familiar with these changes if your clients are VAT registered.
Late submission penalties
The new late submission penalties are points based. A penalty point will be applied for each missed quarterly update or tax return deadline. Once 4 points are accumulated, a £200 financial penalty is issued.
This means your client will not get a penalty if there is a one-off mistake, such as sending a quarterly update or submitting a tax return late. Penalties will only apply if deadlines are repeatedly missed.
This supports taxpayers who make occasional slip ups and discourages those who repeatedly miss deadlines.
Late payment penalties
New late payment penalties are more proportionate to the amount of tax your client owes, and how long it takes them to pay it. This means the quicker they pay, the lower their penalty will be.
Penalty points for the 2026 to 2027 tax year
The government introduced legislation in the Autumn Budget 2025 to 2026 which means that HMRC will not apply penalty points for late quarterly updates for the first tax year (2026 to 2027).
Read more about penalties for Making Tax Digital for Income Tax.
Making Tax Digital for Income Tax is a new approach that’s designed to help sole traders and landlords to:
- pay the right amount of tax
- reduce the chance of making errors
- have a clear view of their finances
- plan for the future
Since April 2022, all VAT registered businesses have been required to keep digital records and send VAT returns using software that works with Making Tax Digital. It’s now the standard way to manage their VAT.
These businesses have reported benefits, including:
- time saving
- more tax confidence
- improved business operations compared to manual processes
You can read Making Tax Digital case studies from VAT registered businesses to find out more information.
Take advantage of digital records
With Making Tax Digital for Income Tax, your client will be able to replace paper based systems and upgrade their record keeping. Software that works with Making Tax Digital is designed to be accessible and simple to use, with a wide range of software choices to suit different needs and budgets.
Using this software will support your client and their business growth, as you or they will be able to:
- store and transfer all records securely, so they’re always available
- identify and avoid possible errors early, so you or your client can check and correct them before submitting a tax return
- view an up to date cash flow to help support your client’s business planning
Some software may also:
- have tailored feedback and prompts, telling you or your client about any tax reliefs and allowances they may be able to claim
- record receipts and invoices on the go — for example, create digital records directly from a bank account and avoid losing paper records
Stay on top of your client’s tax throughout the year
With Making Tax Digital for Income Tax, you or your client will use digital records to send quarterly updates to HMRC.
Sending quarterly updates will give your client a better view of the health of their business and help them estimate their tax bill. Every time a quarterly update is sent, there will be an updated in-year estimate.
In-year estimates help your client to:
- see their predicted tax bill year-round, avoiding any January surprises — this means they can better invest in their business growth
- save time and avoid errors by not having to re-enter information or manually add up invoices
- identify any changes to payments on account they might want to make
- make more informed financial decisions for their business
- get their tax right, avoiding the worry, cost and burden of extra work when things go wrong