If you are a sole trader or you let out property and your turnover sits north of £50,000, the way you talk to HMRC is about to change for good. Making Tax Digital for Income Tax — usually shortened to MTD for Income Tax, or MTD ITSA — becomes mandatory from 6 April 2026 for that first income band. After years of delays and false starts, this one is real, the legislation is laid, and HMRC has stopped using the word "proposed". The annual Self Assessment return you fill in every January does not vanish on day one, but the rhythm of your tax year does, and the software you have ignored for a decade suddenly has a deadline attached to it.
The headline is simple enough. Instead of one return a year, you send HMRC four quarterly updates plus a final declaration. But the detail underneath that sentence is where people lose money, miss filings, and collect penalty points they did not know existed. So let us walk through what actually lands in April 2026, who is caught, what it costs in real pounds, and the handful of decisions worth making before the tax year starts rather than after.
Who is caught in the first wave
The £50,000 threshold is gross income, not profit — and that catches people off guard. HMRC adds together your self-employment turnover and your gross rental income before any expenses. A landlord with £30,000 of rent and a small consultancy bringing in £25,000 is over the line at £55,000, even if the net profit on both is modest. If that combined figure for the 2024/25 tax year exceeds £50,000, you are mandated from April 2026. The threshold then steps down: £30,000–£50,000 follows in April 2027, and the £20,000–£30,000 band from April 2028.
A few people are exempt or deferred. If your only income is employment under PAYE, MTD does not touch you. Partnerships are not yet in scope. And there are exemptions on grounds of digital exclusion — age, disability, location with no reliable internet — but you have to apply for those and HMRC decides, you do not simply opt out because spreadsheets feel like enough.
What the quarterly updates actually are
This is the part that gets oversold as terrifying and is, in practice, lighter than the annual return. Each quarterly update is a running total of income and expenses for the period, pulled straight from your digital records and submitted through software. It is not a mini tax calculation, you do not pay anything off the back of it, and you are not making accounting adjustments or claiming reliefs at that stage. Think of it as a cumulative summary HMRC can see four times a year rather than once.
The standard quarters run to 5 July, 5 October, 5 January and 5 April, with each update due one month and five days after the quarter ends. You can elect for calendar-quarter dates ending 30 June, 30 September, 31 December and 31 March if that matches your bookkeeping better, which most software now defaults to. The real work — the accounting adjustments, the capital allowances, the reliefs — happens once, at the end, in the final declaration that replaces your Self Assessment return and is due by 31 January as before.
You need recognised software — and a spreadsheet alone will not do
This is the change that costs money. From April 2026 you must keep your records digitally and file through software that HMRC has recognised. A plain Excel file is not compliant on its own; it has to connect to HMRC through what HMRC calls bridging software, or you move to a full package. The recognised list includes the names you would expect — Xero, QuickBooks, FreeAgent, Sage — alongside cheaper MTD-specific tools. FreeAgent, worth flagging, comes free with a Mercantile or NatWest, RBS or Ulster business current account, which quietly solves the cost problem for a lot of sole traders who already bank there.
Budget realistically. A mainstream package runs roughly £10–£30 a month depending on tier, so call it £120–£360 a year. Bridging software that lets you keep your spreadsheet sits lower, often £30–£80 a year. If you use an accountant, expect their fee to rise — four submissions plus a final declaration is more work than one return, and most firms are repricing for it now. Get a written quote before April rather than discovering the new fee in your June invoice.
The penalty system is new, and it is points-based
MTD brings in the same points-based late-submission regime already running for VAT. Miss a quarterly deadline and you collect a point. Reach four points — which, with quarterly filing, means four missed updates in a rolling two-year window — and you get a £200 penalty, then a further £200 for each subsequent default while you sit at the threshold. Points expire after a period of compliance, but the trap is obvious: someone who treats the quarterly updates as optional admin and skips a couple will be at risk far faster than under the old once-a-year system. Late payment interest is separate and runs from the statutory due date regardless.
Digital records: what HMRC actually wants stored
The phrase "digital records" sounds heavier than it is. HMRC wants each individual transaction — every sale, every allowable expense — captured digitally and kept in software, rather than a single end-of-year total typed in from a carrier bag of receipts. The category of each entry matters too, because the quarterly update breaks income and expenses into HMRC's headings, and getting the categorisation right through the year saves a scramble at the final declaration. You can still photograph a paper receipt and let an app read it; what you cannot do is keep the underlying records on paper and only digitise the summary.
One nuance that trips people up: the "digital links" rule. Once a figure is in your digital records, it has to flow to HMRC without being manually retyped along the way. If you keep a spreadsheet and use bridging software, the bridge has to pull the numbers across by a digital link, not by you copying a cell into a box. In practice a full package handles this invisibly, which is one reason many sole traders abandon the spreadsheet-plus-bridge route after a quarter or two and move to an all-in-one tool — the spreadsheet feels free until you count the hours spent keeping the links intact.
Worth saying plainly: the annual Self Assessment return does not disappear, it changes shape. The thing you submit each January becomes the final declaration, and it is where the real tax work still happens — capital allowances, the trading allowance, pension relief, Gift Aid, anything that needs a judgement rather than a running total. The quarterly updates are deliberately dumb summaries; nobody calculates your bill off them. So if you have been picturing four full tax returns a year, relax. You have one proper reckoning, as now, plus four quick check-ins that the software does most of the work for.
Property income has its own wrinkles
Landlords are caught by MTD just as squarely as traders, but property income behaves differently and the software has to cope with it. If you let out more than one property, the quarterly update reports your property business as a whole rather than property by property, which is simpler than people fear. The complications sit elsewhere: jointly owned property, where each owner reports their share; the finance-cost restriction, where mortgage interest no longer comes off rental profit directly but gives a basic-rate tax reduction instead; and furnished holiday lets, whose favourable treatment has now been abolished, folding them back into ordinary property rules. None of these is new tax law under MTD, but the quarterly cadence means you confront them four times a year instead of once, so it pays to have the figures structured correctly from the first update.
What to actually do before April 2026
Start with your numbers, not your software. Pull your 2024/25 gross self-employment and rental income, add them, and check honestly whether you are over £50,000 — because if you are, the mandate is automatic and HMRC will write to you. If you are close to the line, that is the most uncomfortable place to be, and worth a conversation with an accountant about timing and structure.
- Pick software now and run it in parallel for the back end of 2025/26, so the April switch is muscle memory rather than a cold start.
- If you bank with NatWest, RBS, Ulster or Mercantile, claim the free FreeAgent licence before paying for anything else — plenty of people pay twice for a tool they already get bundled.
- Separate your business banking properly. MTD is far less painful when income and expenses arrive in one account the software can read directly.
- Diarise the four quarterly dates the moment your tax year opens, and treat them like VAT deadlines, not suggestions.
None of this is conceptually hard. The thing that hurts people is leaving it until the first quarter is already running, then trying to reconstruct three months of records into unfamiliar software with a penalty point waiting at the end of the runway. The over-£50,000 band has one clean window to get ready, and it closes on 5 April 2026.