Making Tax Digital (MTD)

for Income Tax

UK Guide for Sole Traders & Landlords

Making Tax Digital for Income Tax (MTD ITSA) is one of the biggest changes to the UK tax system in recent years. If you’re a sole trader or landlord, this will change how you report your income to HMRC from April 2026 onwards.

In this guide, we explain what MTD is, when it applies, who it affects, and what you need to do now.

What is Making Tax Digital (MTD)?

Making Tax Digital is a government initiative designed to move the UK tax system fully online.

For Income Tax, this means you must:

Keep digital records of income and expenses
Use MTD-compatible software (such as FreeAgent or QuickBooks)
Submit quarterly updates to HMRC
Complete a final declaration each year
This replaces the traditional once-a-year Self Assessment process.

When does MTD for Income Tax start?

MTD is being introduced in phases:

April 2026 – Income over £50,000
April 2027 – Income over £30,000
April 2028 – Income over £20,000

If your total qualifying income (before expenses) exceeds £50,000 in the 2024/25 tax year, you must comply from 6 April 2026.

Who does MTD apply to?

MTD for Income Tax applies to:

Sole traders
Landlords
Individuals with combined business and property income
It’s based on total income, not profit
If you have multiple income streams, you must submit updates for each one separately.

How does MTD work?

1. Digital record keeping You’ll need to keep your records using approved software rather than manual methods alone.
2. Quarterly updates You’ll submit income and expense summaries every 3 months:

6 April – 5 July → due 7 August
6 July – 5 October → due 7 November
6 October – 5 January → due 7 February
6 January – 5 April → due 7 May

3. Final declaration At the end of the tax year, you’ll submit a final confirmation, similar to your current Self Assessment.

What is qualifying income?

Qualifying income includes:

Self-employment income (turnover)
Rental income (before expenses)

It does not include:

Employment income (PAYE)
Dividends

Do you still pay tax the same way?

Yes.

MTD does not change your tax bill or payment deadlines.
Payments are still due by 31 January (and payments on account if applicable)
Quarterly updates are for reporting, not paying tax

What happens if you don’t comply?

MTD is mandatory, and penalties will apply for:

Missing quarterly deadlines
Not keeping digital records
Failing to use compatible software

HMRC will operate a points-based penalty system, leading to fines once thresholds are reached.

What do you need to do before April 2026?

To prepare for MTD, you should:

✔ Register for MTD You or your accountant must sign up through your HMRC account this is not automatic.
✔ Choose MTD-compatible software Options include FreeAgent (free with some UK bank accounts), QuickBooks, and others.
✔ Set up your systems early Getting organised now avoids issues later.

Benefits of MTD (when done right)

Although MTD introduces more frequent reporting, it can also:

Improve visibility of your finances
Reduce year-end stress
Provide more accurate tax estimates

How KP Simpson can help

At KP Simpson, we support clients through every stage of MTD.

We can:

Set up your accounting software
Manage your quarterly submissions
Ensure you remain fully compliant
Provide ongoing support and advice

Our goal is simple: make MTD as easy and stress free as possible.

Need help with MTD?

If you’re unsure whether MTD applies to you, or want to get ahead before April 2026, get in touch with our team today.