Making Tax Digital for Income Tax is one of the biggest changes to Self Assessment in a generation. It moves sole traders and landlords away from a single annual tax return and towards keeping digital records and sending HMRC regular updates through compatible software. If you run a small business or let property, it pays to understand what is coming, whether it applies to you, and how to prepare so the switch feels routine rather than disruptive. This guide walks through the essentials in plain terms.
What MTD for Income Tax is
Making Tax Digital for Income Tax Self Assessment (often shortened to MTD for ITSA or simply MTD for Income Tax) is HMRC’s programme to digitise how self-employed individuals and landlords report their income. Instead of pulling everything together once a year, you keep your records digitally and submit summary figures to HMRC more frequently.
The aim is to reduce errors, give you a clearer running view of your tax position, and bring Income Tax into line with the digital approach already used for VAT. The annual paper-style return is replaced by a flow of digital submissions made directly from your software.
Who is affected and income thresholds
The rules apply to individuals with income from self-employment, property, or both. What matters is your qualifying income, which is the combined gross turnover from your trade and the gross rental income from any property, before expenses.
You are likely to be in scope if you are a:
- Sole trader running a business as an individual.
- Landlord receiving rental income from UK or overseas property.
- Individual with both trading and property income that together exceed the relevant threshold.
The programme is being introduced in stages, with the highest earners brought in first and lower thresholds following later. Limited companies are not part of MTD for Income Tax; company profits are reported separately, and you can read more in our limited company finances hub.
The rollout timeline
MTD for Income Tax is being phased in by income band rather than switched on for everyone at once. The broad shape of the rollout is:
| Stage | Who joins | Based on |
|---|---|---|
| First phase | Highest qualifying income | Combined self-employment and property income above the initial threshold |
| Second phase | Middle income band | Lower qualifying income threshold |
| Later phases | Smaller businesses and landlords | Further reduced thresholds, confirmed in due course |
Your start date depends on the qualifying income shown on a previous tax return, so HMRC can identify in advance who must join and when. Because the thresholds step down over time, it is sensible to assume you will be brought in eventually and to build good habits early. Always check the current position with HMRC or an adviser, as start dates and bands are confirmed and occasionally adjusted.
Quarterly updates and final declaration
The most visible change is the move from one annual return to several submissions a year. Under MTD for Income Tax you will typically:
- Send quarterly updates summarising your income and expenses for each trade or property business.
- Make any end-of-period adjustments, such as accounting reliefs or allowances.
- Submit a final declaration that confirms your total income and finalises your tax for the year, replacing the old Self Assessment return.
The quarterly updates are running summaries rather than precise tax calculations, so they should not feel onerous if your records are kept up to date. The final declaration is where everything is pulled together and your tax liability is confirmed. Your existing payment dates and payments on account continue to apply; see our explainer on payments on account explained so the timing does not surprise you.
Digital records required
A core requirement is keeping your records digitally. A spreadsheet on its own is not enough unless it connects to HMRC through bridging software, so most people will use proper accounting software. For each transaction you generally need to capture:
- The date of the income or expense.
- The amount.
- The category, so it maps to the right line on your return.
You must maintain a clear digital audit trail from each record through to the figures you submit. Sound habits here also support accurate expense claims; our guidance on record keeping for expenses and on digital record keeping explains what good practice looks like.
Choosing compatible software
To meet the rules you need software that is MTD-compatible, meaning it can keep your digital records and send updates and the final declaration to HMRC. When choosing a package, look for:
- Recognition by HMRC as compatible for Income Tax.
- Easy capture of income and expenses, ideally with bank feeds.
- Clear handling of separate trades and property businesses within one account.
- Support for the applicable rate of any allowances and reliefs you use.
If you already file VAT digitally, much of this will feel familiar; the principles overlap with those in our MTD for VAT checklist. For a wider comparison of options, our guide to choosing accounting software can help you weigh up features.
Landlords and combined income
Landlords are firmly within scope, and the qualifying income test combines trading and rental income. If you are both a sole trader and a landlord, you add the two gross figures together to see whether you cross the threshold, even if neither source alone would.
Jointly owned property counts at your share: if you and a partner each receive half of £36,000 of rent, your qualifying income from it is £18,000. UK property and overseas property are separate businesses for quarterly updates, and furnished holiday lets are ordinary property income since the special regime ended in April 2025.
You will usually report each property business and each trade as separate streams within your software, then bring them together at the final declaration. Property income has its own quirks around allowable costs and finance, so our landlord accounting guide is worth reviewing alongside this article if you let property.
How to prepare now
You do not need to wait for your start date to get ready. Practical steps you can take today include:
- Go digital early. Move record keeping onto MTD-compatible software so it is second nature before it becomes mandatory.
- Separate business and personal banking to make categorisation cleaner.
- Reconcile regularly rather than leaving everything to year end, which makes quarterly updates trivial.
- Set money aside for tax as you go; our guide to setting aside money for tax shows a simple approach.
- Brush up on Self Assessment, since the final declaration builds on it; see Self Assessment step by step.
The earlier you adopt clean digital habits, the smaller the change will feel. For broader context on the whole programme, visit our Making Tax Digital and software hub and the self-employed and sole traders hub.