Making Tax Digital, commonly known as MTD, is the UK government’s programme for moving tax record keeping and reporting onto digital systems.
It requires people and businesses within scope to keep certain financial records digitally, use compatible software and send information to HM Revenue and Customs more regularly.
The system has been introduced gradually rather than all at once. Making Tax Digital for VAT came first, while Making Tax Digital for Income Tax became mandatory for the first group of sole traders and landlords from 6 April 2026.
For people entering MTD for Income Tax, the biggest change is that tax administration becomes an ongoing process during the year rather than something dealt with mainly when the annual Self Assessment return is prepared.
Digital records must be maintained, quarterly updates must be sent and the annual tax return must be completed through compatible software.
Why Was Making Tax Digital Introduced in the UK?
Making Tax Digital was introduced as part of a wider effort to modernise the UK tax system and reduce avoidable mistakes in tax reporting.
Traditional tax administration often relied heavily on paper records, spreadsheets and information being transferred manually between different systems. That could increase the risk of incorrect figures, missing records and errors when taxpayers prepared their annual returns.
MTD aims to create a more consistent digital process by requiring taxpayers within scope to maintain business records throughout the year.
The main objectives include:
- Reducing Errors by encouraging records to be created closer to the time transactions happen
- Improving Accuracy by reducing repeated manual transfer of financial information
- Supporting Digital Record Keeping by moving qualifying businesses and landlords towards compatible accounting systems
- Improving Tax Administration by giving taxpayers a more structured way to maintain and report information
- Modernising HMRC Services: By moving more interaction between taxpayers, software and HMRC onto digital systems
For MTD for Income Tax, HMRC now describes the system as a new way for sole traders and landlords to complete Self Assessment.
What Changes Were Expected When Making Tax Digital Started?
When MTD was first developed, the broader expectation was that tax administration would gradually become more digital and less dependent on annual manual reporting.
One major planned change was continuous digital record keeping. Instead of gathering receipts, invoices and expense records shortly before a tax return was due, businesses were expected to maintain updated records throughout the year.
Another expected change was more regular reporting to HMRC. This eventually developed into the quarterly update model now used for MTD for Income Tax.
The programme was also intended to encourage greater use of accounting software. Compatible software can bring records, calculations and submissions into the same digital process, potentially reducing duplication.
The rollout, however, has taken much longer than originally expected. Implementation dates, thresholds and reporting requirements have changed several times as the government adjusted the programme.
How Has Making Tax Digital Changed Since It Was First Introduced?
The rollout began with VAT before expanding towards Income Tax.
MTD for VAT became mandatory for certain VAT-registered businesses in April 2019. It was later extended to all VAT-registered businesses from April 2022.
Income Tax followed a much longer development period. Several earlier implementation plans were delayed before the first mandatory phase eventually began on 6 April 2026.
The current Income Tax rollout is based on qualifying income and is being introduced in three stages.
| Start Date | Qualifying Income |
| 6 April 2026 | More than £50,000 |
| 6 April 2027 | More than £30,000 |
| 6 April 2028 | More than £20,000 |
The £20,000 threshold for April 2028 was formally confirmed in 2026, expanding the future scope of the system to more sole traders and landlords.
Who Has to Use Making Tax Digital in 2026?
From 6 April 2026, MTD for Income Tax applies to individuals who meet the relevant conditions.
A person generally needs to use the system if they:
- Are Registered for Self Assessment
- Receive income from self-employment, property, or Both
- Have Qualifying Income Above £50,000 Based on Their 2024 to 2025 Tax Return
This first mandatory group mainly consists of sole traders and landlords.
Limited companies are not brought into MTD for Income Tax simply because they operate a business. Different taxes and legal structures have different requirements.
People whose qualifying income does not yet exceed the applicable threshold can generally continue using the existing Self Assessment system until they become required to join or choose to participate voluntarily.
What Are the MTD Income Thresholds for 2026, 2027 and 2028?
The threshold depends on qualifying income reported in an earlier Self Assessment tax return.
For the first three mandatory stages:
- 2026: More than £50,000 of qualifying income
- 2027 More than £30,000 of qualifying income
- 2028 More than £20,000 of qualifying income
The threshold does not refer simply to someone’s final taxable profit.
HMRC instead looks at qualifying income, which broadly means total gross income from relevant self-employment and property activities before expenses and tax.
For example, a sole trader with £55,000 of turnover and £20,000 of allowable expenses could still exceed the £50,000 MTD qualifying-income threshold because the relevant figure is based on gross qualifying income rather than the resulting taxable profit.
How Is Qualifying Income Calculated for Making Tax Digital?
Qualifying income is an important part of determining when someone must join MTD for Income Tax.
HMRC generally calculates it using total gross income from:
- Self-Employment
- Property Income
- A Combination of Both
The amount is considered before deducting business expenses or tax.
If someone has several relevant income sources, these can contribute to the overall qualifying-income figure.
For example, someone with £32,000 of gross sole-trader income and £21,000 of qualifying property income could have total qualifying income of £53,000.
That would place them above the £50,000 threshold for the first mandatory phase, assuming the relevant income appeared on the tax return HMRC uses to determine eligibility.
The tax return used also matters. For the April 2026 start, HMRC looks at qualifying income shown on the 2024 to 2025 return.
What Changed With Making Tax Digital in 2026?
The most important development in 2026 was that MTD for Income Tax moved from preparation and testing into mandatory operation for the first major group of taxpayers.
From 6 April 2026, qualifying sole traders and landlords with income above £50,000 became required to follow the new digital obligations.
Several additional developments also took place during 2026.
The £20,000 threshold for the April 2028 phase was formally confirmed. HMRC also issued updated rules covering the information required in quarterly updates.
In May 2026, HMRC clarified that quarterly updates are cumulative. This means each update generally covers information from the beginning of the tax year through to the end of the relevant reporting period.
From September 2026, HMRC also began signing up some people who were required to use MTD but had not already registered themselves. This applies where HMRC records show qualifying income above £50,000 for 2024 to 2025.
What Are the Making Tax Digital Quarterly Reporting Rules?
People using MTD for Income Tax must send quarterly summaries through compatible software.
The updates are based on the digital records maintained for self-employment or property activities.
Standard quarterly deadlines are:
| Update | Deadline |
| First Update | 7 August |
| Second Update | 7 November |
| Third Update | 7 February |
| Fourth Update | 7 May |
The updates are cumulative.
For example, the second update does not only represent activity during the second three-month period. It includes information from the beginning of the relevant tax year through to the end of that update period.
Depending on the activity, HMRC may require totals for business income, turnover and different expense categories. Property businesses also have reporting categories relevant to rental income and expenditure.
Does Making Tax Digital Mean You Have to Pay Tax Quarterly?
No. Sending quarterly updates does not mean Income Tax automatically has to be paid every three months.
The quarterly submissions are primarily reporting obligations.
Taxpayers continue to complete their year-end tax process and pay the tax due according to the existing payment timetable that applies to them.
For someone using MTD from April 2026, HMRC’s current guidance shows that the tax return and tax payment for that year must generally be dealt with by 31 January 2028.
This distinction is important because quarterly reporting does not create four separate Income Tax bills simply because four updates are being sent.
What Records Must Businesses and Landlords Keep Digitally?
MTD requires qualifying taxpayers to create and preserve relevant business records digitally.
These records can include:
- Business Income
- Turnover
- Business Expenses
- Property Income
- Property Expenses
- Transaction Dates
- Relevant Adjustments and Corrections
HMRC advises taxpayers to create digital records as close to the transaction date as possible.
The required records must generally be created before the corresponding quarterly update is sent or before its reporting deadline.
If an error is discovered, taxpayers should correct their digital records as soon as reasonably possible so the information remains accurate.
What Are the Making Tax Digital Penalties in 2026?
Penalty rules need to be understood carefully because the treatment of quarterly updates during the first mandatory year is different from later years.
For the 2026 to 2027 tax year, HMRC states that there are no penalty points for missing a quarterly update deadline.
That does not mean the quarterly updates can simply be ignored. Required updates still need to be completed, and taxpayers must meet their wider tax return and payment responsibilities.
From 2027 to 2028 onwards, late quarterly updates can become part of the late-submission penalty system.
Under the points-based model, repeated missed submission deadlines can build towards a penalty threshold. For taxpayers making quarterly updates, the threshold can be four points, after which a £200 financial penalty may apply.
Late payment penalties are separate from late submission penalties, so paying tax late can create additional consequences even if reporting requirements have been met.
Who Can Be Exempt From Making Tax Digital?
Not everyone who meets the income threshold will necessarily be capable of using the digital system.
HMRC can provide exemptions in certain circumstances where it is not reasonably practical for a taxpayer to use digital tools.
Possible circumstances may include:
- Disability or Health-Related Barriers
- Serious Difficulties Using Digital Technology
- Location or Connectivity Problems
- Religious Objections to Electronic Communication
- Other Circumstances Making Digital Compliance Impractical
An exemption should not be assumed simply because someone dislikes using accounting software or prefers paper records.
HMRC considers individual circumstances when deciding whether someone qualifies.
What Future Changes Were Originally Planned for Making Tax Digital?
The original vision for Making Tax Digital was broader than the system operating today.
The government initially expected digital tax administration to expand gradually across a wider range of business taxes and taxpayer groups.
Plans over different stages of the programme included wider digital reporting for Income Tax and future changes affecting additional business structures.
Corporation Tax was also previously expected to become part of a broader MTD programme.
However, the timetable and structure changed repeatedly because of delays, consultation feedback, technical development and concerns about the burden on smaller taxpayers.
As a result, the eventual Income Tax rollout became more gradual, with qualifying-income thresholds used to bring taxpayers into the system in stages.
What Is the Current Future Plan for Making Tax Digital?
The current focus is primarily on completing the phased rollout of MTD for Income Tax.
Will MTD Expand to More Self-Employed People and Landlords?
Yes. The threshold reduces from more than £50,000 for April 2026 to more than £30,000 from April 2027.
From 6 April 2028, the threshold falls again to more than £20,000.
This means progressively more sole traders and landlords are expected to enter the system over the next two tax years.
Will Making Tax Digital Apply to Partnerships?
The mandatory 2026 Income Tax rollout is centred on individual sole traders and landlords.
Partnerships have featured in previous plans for wider MTD expansion, but businesses should not assume that the same April 2026 individual thresholds automatically place every partnership within MTD for Income Tax.
Further government decisions and implementation guidance will determine how future expansion affects partnerships.
What Happened to the Planned MTD for Corporation Tax?
Corporation Tax had previously been expected to become another major phase of Making Tax Digital.
However, the government later moved away from introducing MTD for Corporation Tax in the form that had previously been proposed.
This means businesses should not assume that the Income Tax model of quarterly digital updates will simply be copied across to Corporation Tax.
The wider direction remains towards increasingly digital tax administration, but future Corporation Tax modernisation may follow a different structure.
How Can Businesses and Landlords Prepare for Making Tax Digital?
Businesses and landlords approaching an MTD threshold should prepare before their mandatory start date rather than waiting until the first quarterly deadline.
Useful preparation includes:
- Check Qualifying Income: Review the relevant Self Assessment return to determine when MTD applies
- Choose Compatible Software: Confirm that the software can support MTD for Income Tax
- Organise Financial Records: Keep income and expense information consistently throughout the year
- Review Income Sources: Make sure self-employment and property activities are recorded correctly
- Understand Quarterly Deadlines: Build the four reporting dates into the accounting calendar
- Train Staff Where Necessary: Anyone managing bookkeeping should understand the digital process
- Speak to an Accountant: Professional help may be useful where several businesses or properties are involved
- Check HMRC Communications: Do not ignore letters or online messages about MTD registration
Preparing early should make the transition easier because the main change is not simply submitting an extra form. It requires a different approach to maintaining tax records throughout the year.
FAQs About Making Tax Digital
When Was Making Tax Digital First Introduced?
The first mandatory phase of MTD began with VAT in April 2019. MTD for Income Tax became mandatory for the first group of qualifying sole traders and landlords from 6 April 2026.
Why Did HMRC Introduce Making Tax Digital?
HMRC introduced MTD to modernise tax administration, improve record keeping and reduce errors caused by manual processes and incomplete financial information.
Is Making Tax Digital Mandatory in 2026?
Yes, for qualifying sole traders and landlords with more than £50,000 of relevant qualifying income based on their 2024 to 2025 Self Assessment return.
What Is the £50,000 MTD Threshold?
It refers to qualifying gross income from self-employment and property before expenses and tax. Those above £50,000 entered mandatory MTD for Income Tax from April 2026.
When Will the £30,000 MTD Threshold Apply?
People with qualifying income above £30,000 are scheduled to enter MTD for Income Tax from 6 April 2027.
When Will the £20,000 MTD Threshold Apply?
The threshold falls to more than £20,000 from 6 April 2028, bringing additional sole traders and landlords into the MTD system.
Do I Need MTD-Compatible Software?
Yes. People required to use MTD for Income Tax must use compatible software to maintain relevant digital records, send quarterly updates and complete the required annual tax process.
