Making Tax Digital for Income Tax in 2026: What Businesses Need to Know

What is Making Tax Digital for Income Tax?

MTD for Income Tax changes how self-employment and property income are reported to HMRC.

Instead of keeping records in whatever format works for you and submitting one Self Assessment return at the end of the year, you will:

• Keep digital records of income and expenses
• Use compatible software to maintain those records
• Send quarterly summary updates to HMRC
• Complete end-of-year steps to finalise your tax position

The aim is simple. Fewer year-end surprises, more consistent reporting, and clearer visibility of your numbers throughout the year.

Who needs to comply from April 2026?

The first mandatory group starts from 6 April 2026.

You’ll need to use MTD for Income Tax from that date if your qualifying income is over £50,000, based on the tax year HMRC uses to assess eligibility.

What counts as qualifying income?

HMRC looks at your combined gross income before expenses from:

• Self-employment
• Property income

What if you’re below that threshold?

The rollout continues in stages:

• Income over £30,000 is expected to come in from April 2027
• Income over £20,000 is planned for April 2028

Even if you’re not in the first wave, it’s worth getting your systems ready early, especially if your income is growing.

What you’ll have to do under MTD for Income Tax

MTD for Income Tax has three main requirements.

1. Keep digital records

You, or your accountant or bookkeeper, must keep digital records of income and expenses for each business activity, such as self-employment or rental income.

2. Send quarterly updates

Every quarter, you submit summary totals from those digital records to HMRC. You don’t submit every receipt or invoice line.

You can submit more often if you want, but quarterly updates are the standard requirement.

The quarterly cycle follows the tax year. For example, the first quarter typically runs from 6 April to 5 July, with a submission deadline of 7 August.

3. Finalise your year-end position

MTD doesn’t remove year-end reporting. You still need to confirm your final figures and submit a final declaration. The difference is that your records are already digital and up to date, which makes the process far smoother.

Penalties: What’s Flexible in 2026 and What Isn’t

A common assumption is that penalties won’t matter because quarterly updates are new. That’s only partly true.

If you’re mandated from April 2026, HMRC has confirmed that penalty points won’t apply for late quarterly updates during the first tax year (2026 to 2027).

However, penalties can still apply for:

• Late end-of-year submissions
• Late payment of tax due

So there’s breathing room in year one, but only for part of the process.

What software do you need?

You’ll need software that works with MTD for Income Tax.

There are generally two routes.

1. Full accounting or tax software

This is the all-in-one option. Digital records, categorisation, reporting, and submissions all happen in one place.

2. Bridging software

If you currently use spreadsheets and they work well for you, bridging software can connect those records to HMRC and submit updates.

Which option works best depends on how you run your business:

• If you invoice regularly, track multiple expenses, or want real-time insight, full software is usually simpler long-term
• If your finances are straightforward and your spreadsheet discipline is strong, bridging software may be enough

What to do now to prepare?

Preparation makes the biggest difference.

1. Check whether you’re in the first wave

If your combined self-employment and property income is close to £50,000, check early. A strong year or a new contract could bring you into scope.

2. Separate business and personal finances

If you’re still mixing business and personal spending, MTD will make things messy quickly. A dedicated business account keeps records cleaner and reduces errors.

3. Build a simple bookkeeping routine

MTD doesn’t demand perfection. It demands consistency.

A workable routine might look like this:

• Weekly: capture receipts and categorise expenses
• Monthly: reconcile bank transactions
• Quarterly: review totals and submit updates

4. Choose software that fits how you work

Avoid paying for features you won’t use. Focus on ease of use, clear reporting, and smooth submissions.

5. Align with your accountant

Agree upfront who maintains records, who submits quarterly updates, and who finalises the year-end submission. Clear roles prevent confusion later.

Bottom Line

MTD for Income Tax in 2026 isn’t just a compliance change. It’s an operational one.

The businesses that handle it best won’t be the most complex. They’ll be the most consistent.

Start small. Get your records digital, choose the right tool, and build a routine you can stick to. By April 2026, you’ll feel prepared rather than pressured.