Making Tax Digital: what you need to know in 2026
Who has to use Making Tax Digital for VAT and Income Tax, the £50,000, £30,000 and £20,000 thresholds, quarterly deadlines, penalties and how to get ready.
PFC Accountants and Business Advisors
The short answer
Making Tax Digital (MTD) means keeping your business records digitally and sending them to HMRC through compatible software. Every VAT‑registered business has had to use MTD for VAT since April 2022, unless exempt. Since 6 April 2026, sole traders and landlords with more than £50,000 of self‑employment and property income must also use MTD for Income Tax. The threshold falls to £30,000 in April 2027 and £20,000 in April 2028.
What is Making Tax Digital?
Making Tax Digital is HMRC’s programme to move tax records and reporting online. Instead of paper records, or typing figures into HMRC’s website once a year, you keep digital records in software and the software sends the information to HMRC.
It changes how you keep records and report them, not the tax rules themselves. What you can claim and the rates you pay stay the same.
MTD for VAT
Since 1 April 2022, every VAT‑registered business, whatever its turnover, must follow MTD for VAT unless HMRC has agreed it’s exempt. That means keeping digital VAT records and filing VAT returns through MTD‑compatible software. If you’re VAT registered, you should already be doing this.
MTD for Income Tax: who it applies to and when
MTD for Income Tax applies to sole traders and landlords who pay Income Tax through Self Assessment. Whether you’re in depends on your qualifying income: your total self‑employment and property income before expenses, so turnover and rent received, not profit.
| From | Qualifying income above | Based on your |
|---|---|---|
| 6 April 2026 | £50,000 | 2024/25 tax return |
| 6 April 2027 | £30,000 | 2025/26 tax return |
| 6 April 2028 | £20,000 | 2026/27 tax return |
Only self‑employment and property income count towards the threshold. Wages, pensions, dividends, savings interest and your share of partnership profits do not. If you have both a business and rental property, the two are added together.
Example
A sole trader with £22,000 of sales and £12,000 of rent received has £34,000 of qualifying income. They’re below £50,000 so weren’t required to join in April 2026, but if their 2025/26 return shows the same, they’ll need to join from April 2027.
Not covered yet: limited companies (they don’t pay Income Tax on their profits) and partnerships, which the government has said will join later with no date set. Individual partners are still in scope if their own self‑employment or property income is over the threshold.
What you’ll need to do
- Keep digital records of your business and property income and expenses, in MTD‑compatible software or spreadsheets linked to it with bridging software.
- Send a quarterly update to HMRC for each business and for your property income. It’s a summary of income and expenses, not a tax return.
- Submit your tax return through the software by 31 January after the end of the tax year, adding any other income such as wages, pensions or dividends.
| Update covers (standard periods) | Due by |
|---|---|
| 6 April to 5 July | 7 August |
| 6 April to 5 October | 7 November |
| 6 April to 5 January | 7 February |
| 6 April to 5 April | 7 May |
Penalties
MTD for Income Tax uses a points system for late submissions. You get one point for each missed deadline, and a £200 penalty once you reach four points, with another £200 for each later miss. Points expire after 24 months. Once you reach four, you need 12 months of on‑time submissions, with nothing outstanding from the previous 24 months, before they’re cleared.
There’s a soft landing for the first year: HMRC has said no penalties will apply for late quarterly updates in the 2026/27 tax year. You still need to keep digital records and send the updates, and the easing doesn’t cover a late tax return or paying late: late payment penalties apply from the 2026/27 tax year.
Can you be exempt?
You can apply for an exemption if it isn’t reasonable for you to use digital tools, for example because of your age, a disability or health condition, where you live, or religious beliefs that are incompatible with using them. HMRC grants some exemptions automatically from its records; others you apply for with supporting information. There are also exemptions for some specific circumstances, so check GOV.UK if you think one might apply.
How to get ready
- Check your qualifying income on your latest tax return to see when you’ll need to join.
- Choose software: HMRC’s software finder lists compatible products. Popular options include Xero and QuickBooks.
- Open a separate bank account for the business if you haven’t, so the bank feed only shows business transactions.
- Start keeping records digitally now, before you have to, so your first quarter isn’t a scramble.
- If an accountant files for you, authorise them for MTD so they can send your updates.
How PFC can help
We set up MTD‑compatible software, move your records across, and can send your quarterly updates and tax return for you, so all you need to do is keep receipts and invoices coming. As a Xero Gold Partner we work with Xero every day, and we also support QuickBooks and FreeAgent. See our Making Tax Digital page or book a free consultation.
Common questions
Does MTD for Income Tax change how much tax I pay?
No. It changes how you keep records and report them. The tax rules, allowances and rates are the same, and you still pay by the usual Self Assessment deadlines.
Is the threshold based on turnover or profit?
Turnover. Qualifying income is your total self‑employment and property income before expenses, so a business with high sales but low profit can still be in scope.
Do I have to join if I’m a limited company director?
Not for your company. Limited companies aren’t covered by MTD for Income Tax, and director’s salary and dividends don’t count towards the threshold. You’d only be in scope if you also have self‑employment or property income over the threshold.
Can I keep using spreadsheets?
Yes, as long as you use bridging software to send the information to HMRC from them. Many businesses find full accounting software quicker in the long run, because it reads bank transactions automatically.
What happens if I miss a quarterly update?
You get a penalty point, and a £200 penalty once you reach four points. In the 2026/27 tax year, HMRC has said there are no penalties for late quarterly updates, but a late tax return or late payment can still be penalised.
Is there a date for Corporation Tax?
Not at the moment. MTD currently covers VAT and Income Tax for sole traders and landlords.
Sources
- GOV.UK — Penalties for Making Tax Digital for Income Tax (updated 30 March 2026)
- GOV.UK — Send quarterly updates (Making Tax Digital for Income Tax)
- GOV.UK — Choose the right software for Making Tax Digital for Income Tax
- GOV.UK — Find software that works with Making Tax Digital for Income Tax
- Making Tax Digital for Income Tax — frequently asked questions (HMRC)
- LITRG — Who does Making Tax Digital apply to? (updated 6 April 2026)
This article is general information, correct as at 25 October 2026. It isn’t advice for your circumstances, and tax rules change. Please speak to us before acting on it.
