Making Tax Digital for Income Tax: thresholds and deadlines

This page is for UK accounting practices with sole trader and landlord clients. The first MTD year is live: the first quarterly update was due on 7 August 2026, the £30,000 group joins on 6 April 2027, and penalty points for late quarterly updates start with the 2027 to 2028 tax year. While building Filyst, our case management product for immigration firms, we set every deadline to remind at 30, 14, 7 and 1 days before it falls due; MTD gives each client five deadlines a year. The sections cover who needs to join, qualifying income, exemptions, the deadlines, penalties, software and signing up clients as an agent.

What is Making Tax Digital for Income Tax?

MTD for Income Tax, sometimes called MTD for ITSA (Income Tax Self Assessment), is HM Revenue and Customs’ (HMRC’s) scheme for sole traders and landlords to keep digital records of their self-employment and property income and report it through compatible software.

It changes how Self Assessment, the annual Income Tax return system, is filed: quarterly updates are added during the year, and the return itself is submitted from the software.

HMRC’s press release of 23 July 2026says “more than 864,000 sole traders and landlords” are within scope. In the same release, Craig Ogilvie, HMRC’s Director of Making Tax Digital, said “Making Tax Digital is now a legal requirement”.

Who needs to use MTD for Income Tax, and from when?

A person needs to use MTD for Income Tax if all three conditions on HMRC’s eligibility page apply: they are a sole trader or landlord registered for Self Assessment, they get income from self-employment or property or both, and their qualifying income is more than the threshold for the tax year.

HMRC reviews each Self Assessment return and writes to people whose qualifying income is above the threshold. The eligibility page says that if no letter arrives, “it is still your responsibility to check”. Partnerships will need to use MTD for Income Tax in the future; HMRC will set out that timeline later. To sign up, a person must be registered for Self Assessment and have submitted a tax return in the last 2 years.

What counts as qualifying income?

Qualifying income is total self-employment and property income before expenses (turnover), taken from the tax return submitted for the previous tax year, according to HMRC’s qualifying income guidance. It is not profit. HMRC’s example is £25,000 of rental income plus £27,000 of self-employment income, which gives qualifying income of £52,000.

Other income does not count, including employment (PAYE) income, a share of partnership profit as an individual partner, dividends, the State Pension and private pensions; the guidance lists further exclusions. Three rules from the same page affect the test:

• Jointly owned property: only the owner’s share of the income counts.
• New sole traders: HMRC annualises income for a period shorter or longer than 12 months, so 6 months of trading is doubled; landlords annualise property income themselves.
• Falling income: once in MTD, a person whose qualifying income is below the threshold for 3 tax years in a row can choose to opt out.

Who is exempt from MTD for Income Tax?

HMRC grants two kinds of exemption: automatic exemptions, given from the information it holds, and exemptions a person applies for, such as the digitally excluded exemption. Automatic exemptions on HMRC’s exemptions page include qualifying income of £20,000 or less and having no National Insurance number before the start of the tax year; the page lists the rest, including the temporary exemptions that last until April 2027.

Exempt people still report their income and gains in a Self Assessment tax return. An authorised agent can apply for an exemptionon a client’s behalf, one client at a time, and HMRC aims to respond within 28 calendar days of receiving the application.

When are the quarterly updates due?

Quarterly updates are due on 7 August, 7 November, 7 February and 7 May, and the tax return is due by 31 January after the end of the tax year. For the first MTD year, 2026 to 2027, HMRC’s quarterly updates timeline gives these dates.

HMRC’s press release says the first update period runs from 6 April 2026 to 5 July 2026 for most customers. Some customers use calendar update periods instead, the first running from 1 April to 30 June, and the deadline is the same for both.

What is a quarterly update?

A quarterly update is a summary of business income and expenses, sent to HMRC through compatible software every three months. The software adds up the digital records into totals for each income and expense category, and one update is sent for each source of income, such as self-employment and property income.

HMRC’s press release says the quarterly update “is not a tax return”. After each update, the client sees an estimate of the tax bill for their self-employment and property income in the software or in their HMRC online services account.

What are the penalties for late MTD updates?

No penalty points are given for late quarterly updates for the 2026 to 2027 tax year.From the 2027 to 2028 tax year, everyone required to use MTD for Income Tax gets one point for each missed quarterly deadline, including people who join on 6 April 2027. HMRC’s penalties guidance sets out the rules.

• Points: one point for each missed quarterly update deadline (for tax years after 2026 to 2027) or tax return deadline, and only one point per deadline even with more than one business.
• Threshold: 4 points brings a £200 penalty, and a further £200 penalty each time another submission deadline is missed.
• Expiry below the threshold: each point is removed 24 months after the missed deadline.
• Clearing at the threshold: points are not removed one by one; all points clear once the client sends every update and return on time for 12 months and sends anything outstanding from the previous 24 months.

The new penalties apply from the tax year a person joins MTD, so for a client who joined on 6 April 2026 a late 2026 to 2027 tax return (due 31 January 2028) earns a point. Late payment penalties also change:

In the first year under the new penalties, a client has 30 days from the due date to pay in full or contact HMRC to set up a payment plan; after the first year this becomes 15 days. Late payment interest runs from the first day a payment is late.

What software does MTD for Income Tax need?

MTD for Income Tax needs commercial software that works with it. HMRC’s software guidance says the client, or an agent on their behalf, uses it to do three things:

• create, store and correct digital records of self-employment and property income and expenses;
• send quarterly updates to HMRC;
• add any other income sources and submit the tax return by 31 January the following year.

Software either creates digital records (by bank feed, receipt scanning or manual entry) or connects to existing records such as spreadsheets; HMRC calls the second kind “bridging software”. More than one product is allowed, but only one product for each separate submission. HMRC Assist is a feature in some products that highlights errors before submission. HMRC’s software finder lists products that have been through its recognition process, and “HMRC does not recommend any product or software provider”.

How do agents sign up clients for MTD for Income Tax?

An agent signs up each client individually through an agent services account, with the client’s permission. HMRC’s guidance on signing up a client says the agent services account is different from the HMRC online services for agents account.

• Authorisation: existing Self Assessment authorisations are recognised, but adding them does not sign the client up.
• Client details: full name, date of birth and National Insurance number; for a sole trader, also the business name, business address and trade.
• Income sources: a start date for any source begun within the last 2 tax years, and the tax year the client starts MTD.
• Clients not signed up: from September 2026, HMRC started to sign up people who need MTD for 2026 to 2027 and have not joined, using only the information it already holds.

Clients who join voluntarily before they have to are under a separate set of penalties for volunteers, with no penalties for missed quarterly updates while they volunteer, and an authorised agent can agree to those penalties on the client’s behalf.

How can a practice keep MTD deadlines under control?

A practice keeps MTD deadlines under control by tracking five deadlines per client in one calendar and reviewing each update before it is sent. These steps are our suggestion, not an HMRC requirement:

• Record each client’s qualifying income from the last return, and the tax year they join.
• Record every income source, since each source has its own quarterly update.
• Set reminders ahead of 7 August, 7 November, 7 February and 7 May, and flag anything overdue.
• Have a person approve each client’s records before the update is sent to HMRC.

Building Filyst taught us that a dated duty needs two signals: reminders before the date, and a separate flag once it has passed. Filyst does not file anything with HMRC; the lesson carries over to any deadline register. HMRC Assist checks a submission, and HMRC’s press release says “customers remain responsible for ensuring their return is accurate”.

Quarterly filing moves record-keeping from once a year to every three months. Bank statement extraction with a review step keeps those records current, and a person checks each extracted batch before it reaches the ledger. Where a practice uses AI for this work, our pillar guide AI for accounting practices: safe uses and review steps sets out where AI drafts and where a person signs off, and software for accounting practices describes what we build for practices.

Frequently asked questions

Sources

1. HMRC, Find out if and when you need to use Making Tax Digital for Income Tax
2. HMRC, Work out your qualifying income for Making Tax Digital for Income Tax
3. HMRC, Find out if you can get an exemption from Making Tax Digital for Income Tax
4. HMRC, Apply for an exemption from Making Tax Digital for Income Tax
5. HMRC, Quarterly updates with Making Tax Digital
6. HMRC, Penalties for Making Tax Digital for Income Tax
7. HMRC, Penalties for Making Tax Digital for Income Tax volunteers
8. HMRC, Choose the right software for Making Tax Digital for Income Tax
9. HMRC, Sign up your client for Making Tax Digital for Income Tax
10. HMRC, Deadline approaches for first Making Tax Digital quarterly update (23 July 2026)