Making Tax Digital For Income Tax: What Sole Traders And Landlords Must Do Now

Since April 2026, the way many sole traders and landlords report income tax has changed. Making Tax Digital for Income Tax is now in force, and if you've heard contradictory things about it—or only found out weeks into a live regime—you are not alone.

You have probably arrived here with one of three questions. Does this actually catch me? What do I have to do, and by when? And if I'm already behind, or I genuinely can't cope with the software, am I in trouble?

This guide answers all three. The single most important thing to hold onto is this: Making Tax Digital changes how and how often you report—digital records, regular updates through the year, a year-end return—but it does not change what you owe or when you pay. Your tax is still due on the same dates. With that anchor in place, here is the rest of the map.

What Making Tax Digital For Income Tax Is (And When It Starts For You)

Making Tax Digital for Income Tax—often shortened to MTD for Income Tax, or MTD ITSA—is a new way of reporting self-employment and rental income to HMRC. Instead of one Self Assessment return a year, you keep your records in compatible software and send HMRC four quarterly updates a year, then a year-end return.

The legal basis is the Income Tax (Digital Obligations) Regulations 2026 (SI 2026/336), which came into force on 1 April 2026, made under Schedule A1 to the Taxes Management Act 1970. (If you read older guidance referring to a 2021 set of regulations, that earlier instrument was revoked and never came into force—the 2026 regulations are the operative law now.)

The rollout is phased by income, and all three phases are now set in the regulations:

The first cohort—people whose qualifying income topped £50,000 in 2024-25—is already in, from 6 April 2026.

One point worth pinning down, because a lot of older guidance gets it wrong: the £20,000 threshold is no longer "planned" or "subject to legislation." It is now set in SI 2026/336, regulation 27. What is still future-dated is only the start date for that cohort—April 2028—not the figure itself.

Partnerships remain outside MTD for Income Tax for now, with a start date to be set later.

Are You Mandated? How Qualifying Income Works

This is where most people either panic unnecessarily or get caught out, so it is worth slowing down.

The figure that decides whether you are in is your qualifying income, and it is not your profit. It is the gross total of your trading (self-employment) and property (rental) receipts—the money coming in, before you deduct any expenses.

So a landlord with £55,000 of rent and £40,000 of mortgage interest, repairs and agent fees has qualifying income of £55,000, not £15,000. It is the top-line figure that matters, which is why people are surprised to find themselves mandated despite a modest profit.

You add your trading and property gross figures together. If the combined total is over the threshold for the relevant year, you are in.

What does not count towards qualifying income:

• Employment or PAYE salary
• Pensions
• Dividends
• Savings interest
• Your share of partnership profits (partnerships are separately out of scope for now)

Jointly-held property counts at your share: if you and a partner own a let property jointly, you each count your share of the gross rents, not the whole.

The Two-Year Look-Back

HMRC works out whether you are mandated using a two-year look-back: it tests your qualifying income two years before your start date. For the first cohort, the test year is 2024-25—over £50,000 that year, and you are mandated from 6 April 2026 (and so on for the later cohorts, as the table above sets out).

So the income that pulls you in is income you have already earned—reported on a return you have likely already filed. If you are not sure, look back at the gross trading and rental figures on your most recent returns.

Once You're In, You Generally Stay In

A quiet year does not automatically take you back out. The regulations are designed so that once you are mandated, you stay within MTD even if your income later dips below the threshold for a single year—the income exemption only re-applies after a sustained period below. The practical message: do not assume one lean year releases you. If your income falls, check the position rather than quietly stopping.

If you are below the threshold but want to join—some people prefer the rhythm of quarterly record-keeping—you can volunteer to sign up early.

The Four Things MTD Requires

From your digital start date, MTD for Income Tax asks four things of you. You can do all of this yourself with the software, or have an accountant or agent do it for you—MTD does not require you to hire anyone. Take them one at a time.

1. Keep Digital Records

You must keep your business and property income and expenses in functional compatible software—HMRC's term for software that can both store the records and talk to HMRC's systems (regulation 15). A paper ledger or a standalone spreadsheet is not enough on its own, though a spreadsheet can be made to work if it is linked to compatible "bridging" software. HMRC keeps a list of software that has passed its recognition process—ranging from paid packages to free options for people with simple tax affairs—which you can find on GOV.UK. HMRC does not recommend any one product, so you choose what suits your budget and the way you work.

2. Send Quarterly Updates

You send HMRC a summary of your income and expenses for each source, four times a year, through that software (regulation 9). For a standard tax year, the periods and deadlines are:

A calendar-quarters election lets you use neat month-ends instead (1 April to 30 June, and so on), with the same deadlines on the 7th.

The updates are cumulative—each one is a running, year-to-date total, so a later update naturally corrects an earlier one. And, crucially, they are estimates of the position so far. They do not finalise your tax.

3. Submit The Year-End Return

After the tax year ends, you submit a year-end return through the software (regulation 8). This is the submission that finalises your figures, claims your reliefs and allowances, and brings in your other income—employment, savings, dividends and the rest.

A terminology note that trips people up: the regulations call this the return, while HMRC's customer guidance and most software call it the final declaration. They are the same year-end submission, not two separate ones. It replaces your old Self Assessment tax return—and it keeps the same deadline: 31 January following the tax year.

So the quarterly updates are in addition to the year-end return, not instead of it. Four updates through the year, then one return to finalise.

4. Pay On The Same Dates As Before

MTD does not change when you pay. Your balancing payment is still due by 31 January, and any payment on account by 31 July. Nothing about the digital regime moves these dates forward. If you have read that MTD means "paying tax quarterly," that is a common misunderstanding—the quarterly updates are reporting, not payment.

Exemptions—And How To Claim One

If you genuinely cannot go digital, there is a route out. It matters to get the detail right, because some exemptions are automatic and some you have to apply for.

Automatic Exemptions (No Application Needed)

You are simply outside MTD, without applying, in a range of situations. The main ones:

• Qualifying income of £20,000 or less—below the floor, you are out.
• No National Insurance number before the start of the tax year.
• Trustees, personal representatives of someone who has died, and non-resident companies.
• A range of temporary and specialist categories—for example certain foster and kinship carers, Lloyd's underwriters, ministers of religion, and people using the residence-and-foreign-income rules—several of which are automatic at least until April 2027 if reflected in your 2024-25 return.

If one of these fits, you do not need to do anything to claim it.

The Digital Exclusion Exemption (You Must Apply)

The exemption most people are searching for is digital exclusion. The law allows it where, for any reason—including age, disability or location—it is not reasonably practicable for you to use the software or communicate digitally, or where you are a practising member of a religious society whose beliefs are incompatible with electronic communications.

How to apply:

• There is no online form (which makes sense—the whole point is that you cannot easily go online). You apply by phoning the Self Assessment helpline (0300 200 3310) or writing to HMRC.
• Give your name, Unique Taxpayer Reference (UTR), National Insurance number, the reason you cannot go digital, whether you have an agent, and any support needs.
• HMRC aims to respond within 28 days.
• A granted digital-exclusion exemption runs open-endedly, but you must tell HMRC within three months if the reason stops applying.
• If you already hold a digital-exclusion exemption for MTD for VAT, you can ask to carry it across (mention your VAT number)—except a VAT exemption granted because of insolvency does not extend to income tax.

Reasons HMRC Will Not Accept On Their Own

It helps to calibrate honestly, because a weak application wastes time you may not have. On their own, these reasons are not enough:

• You have always filed on paper before.
• You are unfamiliar with software, or do not feel confident with it.
• You keep few records, or have a simple business.
• It will cost money or take extra time.

None of these, by itself, makes it "not reasonably practicable" to go digital in the eyes of the law. A genuine barrier—age, a disability, no reliable internet where you live, a sincere religious objection—is what the exemption is for.

You Must Keep Complying While You Wait

This is the trap to avoid. Applying for an exemption does not pause your obligations. If your start date has already arrived, you must start—and keep—using MTD until HMRC actually grants the exemption. The same is true if you appeal a refusal: you carry on complying in the meantime. Stopping early, on the assumption you will be let off, risks a penalty on top of everything else.

Penalties Under MTD

If you fall behind, the penalties come from the same regime that already applies to VAT—the points-based late submission system and the percentage-based late payment system. We cover the full mechanics, including how tribunals are already applying this regime to VAT, in our guide to the new penalty regime. In short:

• Late submission is points-based. Each late update or return earns a point. As a quarterly filer, you reach the threshold at 4 points, and a £200 penalty is charged then—and for each further late submission while you are at the threshold.
• Late payment is percentage-based: 3% of the unpaid tax at day 15, another 3% at day 30, then a second penalty of 10% per annum accruing daily from day 31. A Time to Pay arrangement reached before day 15 prevents late payment penalties entirely.

Separately from penalties, interest runs on tax paid late from the original due date, and—unlike a penalty—it cannot be appealed. Our guide to interest on unpaid tax explains how it works.

If your income is still under the threshold and you are not yet in MTD, you remain on the older Self Assessment penalty rules—see self-assessment penalties.

The First-Year Soft Landing And Its Limits

There is a genuine easement for the first cohort—but it is narrow, and it is an HMRC concession, not the law. Get the scope right, because misreading it is how people end up penalised while believing they were protected.

HMRC has said it will not charge late-submission penalty points for late quarterly updates in the first year (2026-27), for the first cohort (income over £50,000). That is real, and it gives people finding their feet some breathing room on the quarterly updates. So if you have only just discovered that MTD applies to you, a quarterly update you have already missed in 2026-27 will not, by itself, cost the first cohort a penalty point.

But the soft landing is tightly bounded. It does not:

• Cover the year-end return. The 2026-27 return, due 31 January 2028, can still attract a point or penalty if it is late.
• Cover late-payment penalties. The soft landing is about filing your updates, not paying your tax—if you pay late, the late-payment penalties above still apply.
• Excuse you from filing at all. You must still submit every quarterly update, even late ones, before you can finalise the year-end return.

It is a concession HMRC has chosen to make, not a statutory grace period—so it can be described only as "HMRC has said it will not," not as a right you can hold HMRC to. And it is for the first cohort only: the £30,000 cohort joining in April 2027 does not get an equivalent quarterly-update grace year.

If You Disagree: Your Appeal Rights

There is no MTD-specific case law yet—the regime only became live in April 2026, so no tribunal has decided an MTD exemption or duty appeal. That does not leave you without rights; it means the usual direct-tax appeal architecture applies. There are three kinds of decision you might want to challenge.

A penalty. Whether it is a late-submission point, the £200 penalty, or a late-payment penalty, you have a statutory right of appeal. The process mirrors any tax appeal: appeal to HMRC within 30 days of the penalty notice, with the option of a statutory review by a different officer (around 45 days), and then, if you still disagree, the First-tier Tribunal (Tax Chamber). The usual grounds are a reasonable excuse—judged on the four-step test in Perrin v HMRC—or that the penalty was wrongly calculated or the regime wrongly applied (a real risk while old and new systems run side by side).

A refused exemption. If HMRC turns down your digital-exclusion application, you can appeal the refusal—to HMRC first, then, after a review, to the First-tier Tribunal, following the ordinary direct-tax appeal route. Remember the trap above: you must keep using MTD while that appeal is pending, because you are not exempt until HMRC confirms it.

A dispute that you are within MTD at all. If HMRC says you are mandated and you say you are not—for instance because your gross qualifying income in the look-back year was actually below the threshold, or a source is not "relevant activity"—that is ultimately a question about an appealable income-tax matter, and it follows the same route to the tribunal.

Across all three, the deadline is the same: 30 days from the decision letter, and it runs from the date on the letter, not the day you open it. Appeal in writing to HMRC, with the option of a free review, then notify the tribunal if you cannot agree. There is no fee to appeal, and most penalty appeals carry no costs risk. If you have already missed the 30 days, see late appeal to the tax tribunal—the tribunal can sometimes still let you in. For the bigger picture, our understanding HMRC appeal rights and writing grounds of appeal guides set out the framework and how to shape your case.

"It's Not Fair" Is Not A Tribunal Argument

One limit is worth stating plainly, because it catches a lot of people. The First-tier Tribunal is a creature of statute with no general "fairness" or judicial-review jurisdiction—the point settled in Hok v HMRC. If your real grievance is that MTD is burdensome, that the software let you down, or that HMRC handled your sign-up badly, the tribunal cannot fix that. Those complaints go to an HMRC complaint, then the Adjudicator, then potentially judicial review—not the tribunal.

What the tribunal can decide is whether the law was correctly applied: whether a penalty is actually due, whether you really were within MTD, whether an exemption decision was right. Aim your grounds at those questions, and the tribunal can help. Aim them at "this whole system is unreasonable," and you are in the wrong forum.

What To Do Now

A short checklist, depending on where you stand:

• Check whether you're caught. Look at your gross trading and rental income—before expenses—on your recent returns. Over £50,000 in 2024-25 means you are already in, from 6 April 2026.
• If you're in, get set up. Sign up through your Government Gateway (or have your agent do it), choose your software, and start keeping digital records. HMRC does not enrol you automatically—and because choosing and linking software takes a little time, don't leave it until a deadline is on top of you.
• Diarise the deadlines. The four quarterly dates (7 August, 7 November, 7 February, 7 May) plus 31 January for the year-end return. Set reminders—a missed update is a point.
• If you genuinely can't go digital, apply for an exemption early. Phone or write to HMRC, give the full detail, and keep complying while you wait.
• If you can't pay, contact HMRC before day 15. A Time to Pay arrangement made in time prevents late-payment penalties.
• If you're already penalised, note the 30 days clock from the date on the notice, and appeal in writing—don't let it slide while you work out the argument.

For how all of this fits into the wider dispute process, see our tax dispute timeline. And if your income comes from online platforms or side-hustles, our guide to online platform income and nudge letters covers the same sole-trader and landlord audience.

Key Legislation And Resources

Legislation

• Income Tax (Digital Obligations) Regulations 2026 (SI 2026/336)—the operative MTD regulations, in force from 1 April 2026
• Regulation 5, SI 2026/336—digital start date
• Regulation 9, SI 2026/336—the quarterly update obligation
• Regulation 15, SI 2026/336—the duty to keep digital records
• Regulation 27, SI 2026/336—the qualifying-income thresholds (£50,000 / £30,000 / £20,000)
• Schedule A1, Taxes Management Act 1970—the enabling framework and the "digitally excluded" definition
• Schedule 24, Finance Act 2021—late submission (points-based) penalties
• Schedule 26, Finance Act 2021—late payment (percentage-based) penalties

GOV.UK Guidance

• Find out if and when you need to use MTD for Income Tax
• Find out if you can get an exemption from MTD for Income Tax
• Apply for an exemption if you are digitally excluded
• Sign up your business for MTD for Income Tax
• Find software compatible with MTD for Income Tax

On This Site

• The new penalty regime—the full points-and-percentage mechanics and the early VAT case law
• Self-assessment penalties—for readers still under the threshold on the old rules
• Interest on unpaid tax—how interest runs, separately and unappealably
• What is a reasonable excuse? and Perrin v HMRC—the penalty defence and its four-step test
• How to appeal to the tax tribunal—the filing procedure
• Understanding HMRC appeal rights and HMRC internal review—the framework and the free review step
• Writing grounds of appeal—shaping your case
• Late appeal to the tax tribunal—if the 30 days have passed
• Hok v HMRC—why "it's not fair" is not a ground, and where it goes instead
• Online platform income and nudge letters—same sole-trader and landlord audience
• The tax dispute timeline—the complete roadmap

This article is for informational purposes only and does not constitute legal or tax advice. For advice specific to your situation, consult a qualified tax adviser, accountant, or solicitor.