Making Tax Digital (MTD) is the biggest change to the UK tax system in a generation. If you’re a sole trader or landlord, it changes how you keep records, how you report income, and what software you use — starting from April 2026.
The good news: MTD doesn’t change how much tax you pay, when you pay it, or what you can claim. It changes how you report. This guide is the hub for everything MTD on this site — each section gives you the essentials in a few sentences, then links to a detailed guide for the deep dive.
1. What Is Making Tax Digital? (The 30-Second Version)
Making Tax Digital for Income Tax (MTD ITSA) replaces the annual Self Assessment return with digital record-keeping and quarterly updates. You record income and expenses in compatible software, send a summary to HMRC every 3 months, and submit a final declaration at year-end. The tax you owe doesn’t change — only the reporting method does.
For the full step-by-step explainer (what MTD replaces, how the three-step process works, and what stays the same), see our Making Tax Digital for income tax explained guide. (MTD for VAT is already mandatory for VAT-registered businesses above the threshold — that’s a separate regime; see our sole trader VAT registration guide for that.) For a wider list of free websites and resources to help you understand Self Assessment and MTD, see our best Self Assessment resources guide.
2. Does MTD Apply to You? (The Income Test)
MTD applies to sole traders and landlords whose qualifying income — self-employment turnover plus UK property income, gross before expenses — exceeds the threshold. PAYE, pensions, dividends, and savings interest don’t count, as set out in HMRC’s MTD eligibility guidance. If your self-employment and property income combined is below £20,000, you’re not required to use MTD at all.
To check exactly what counts as qualifying income and whether you cross the threshold, use our MTD qualifying income thresholds guide, or try our MTD qualifying income calculator directly. If you’re a CIS subcontractor, your gross CIS income counts toward qualifying income — see our CIS for subcontractors guide for how CIS deductions interact with MTD.
3. When You Need to Start: The Three-Phase Rollout
MTD phases in over three years based on income:
| Phase | Start date | Qualifying income | Who’s affected |
|---|---|---|---|
| Phase 1 | 6 April 2026 | Over £50,000 | ~900,000 sole traders and landlords |
| Phase 2 | 6 April 2027 | Over £30,000 | ~700,000 more |
| Phase 3 | 6 April 2028 | Over £20,000 | ~300,000 more |
The threshold is based on your qualifying income from the previous tax year. If you’re not sure which phase you fall into, the Making Tax Digital for income tax explained guide has worked examples for common income combinations.
4. What You Actually Have to Do Under MTD
Three things replace the old annual return: keep digital records in compatible software, send quarterly updates every 3 months (deadlines are 7 August, 7 November, 7 February, and 7 May), and submit a final declaration by 31 January. No tax is due at the quarterly stages — the updates are informational summaries, not bills.
For the full deadlines, record-keeping rules, and what each quarterly update contains, see our MTD quarterly updates guide.
5. Choose Your MTD Software (Including Free Options)
You must use HMRC-compatible software — spreadsheets alone aren’t enough. But you don’t have to pay: FreeAgent (10% off with this link) is free with a NatWest, RBS, Mettle, or Ulster Bank business account; Sage has a free sole trader tier; and Acxite bridges your existing spreadsheet to HMRC for free. Paid options typically cost £10–£30/month.
For the full comparison of every free and low-cost option, see our cheapest MTD software for sole traders guide. And yes — the cost of MTD software is an allowable expense you can deduct from your taxable income. If you’re weighing whether to move from spreadsheets to cloud accounting at all, see our cloud accounting for sole traders guide.
6. MTD for Landlords and Non-Residents
UK property income counts toward your MTD qualifying income regardless of where you live. Foreign property income doesn’t count. For jointly-owned property, each person’s share counts toward their own threshold. If you sell all your rental properties and cease rental income permanently, you can notify HMRC and stop sending quarterly updates.
For the full rules on non-resident landlords, joint ownership, letting agents, and ceasing rental income, see our MTD for landlords and non-residents guide.
7. Multiple Trades or Jobs? How Reporting Works
Under MTD, you send separate quarterly updates for each separate trade — not for each job or client. A delivery driver working for Deliveroo and Uber has one trade. A delivery driver who’s also a self-employed musician has two. Your PAYE job isn’t a trade at all, so it needs no quarterly updates. One software subscription can handle multiple trades.
For the full rules on what counts as a separate trade and how many quarterly updates you’ll send, see our MTD with multiple trades guide.
8. MTD and Payments on Account: What Changes
Nothing changes about how you pay tax. This is the single biggest source of confusion under MTD, so it’s worth stating plainly: quarterly updates are a reporting duty, not a payment duty. No money moves when you submit one.
Your payment schedule stays exactly as it is under Self Assessment:
| Payment | Deadline | What it is |
|---|---|---|
| Balancing payment + first Payment on Account | 31 January | Settles last year’s bill; first instalment toward this year |
| Second Payment on Account | 31 July | Second instalment toward this year’s bill |
The reporting cycle (4 deadlines: 7 Aug, 7 Nov, 7 Feb, 7 May) and the payment cycle (2 deadlines: 31 Jan, 31 Jul) run in parallel and never merge. After each quarterly update, your software or HMRC online account will show an estimated tax bill based on your year-to-date figures — but this is informational only. It does not trigger a payment.
What the estimate can do is help you budget. If your quarterly figures show profit rising, you can set more aside in advance of your 31 January and 31 July Payment on Account dates. If profit is falling, you may be able to reduce your Payments on Account — see our payment on account explained guide for how, and our what to do if you can’t pay your payment on account action guide if cash flow is the issue. You do this through HMRC directly, not through your MTD software.
9. The Total Cost of MTD Compliance
One question no single spoke answers: what does MTD actually cost a sole trader in total? Here’s the full tally.
Software: £0–£360/year. Free options exist (FreeAgent via bank accounts, Sage free tier, Acxite). Paid options range from £120–£360/year. The cost is an allowable expense, so the after-tax cost is 20–45% lower depending on your tax band.
Time: 15–30 minutes per quarter. Once your software is set up and bank feeds are connected, each quarterly update is a review-and-click-submit exercise. The first quarter takes longer as you categorise transactions; subsequent quarters are faster. Over a year, expect 1–2 hours total for quarterly updates, plus your usual year-end finalisation time.
Learning curve: one-off. Switching from spreadsheets or paper to software takes a few hours upfront. If you start before your mandate date (you can volunteer early), you spread this cost over a longer period with no penalty risk.
The offsetting tax saving. If you pay £20/month for software, that’s £240/year deductible — saving £48 at 20% tax or £96 at 40%. For most sole traders, the net cost of MTD compliance is under £200/year after tax relief, and it can be £0 if you use a free option.
10. What Happens If You Miss a Deadline
MTD introduces a points-based penalty system for late submissions, separate from the old fixed-penalty regime. Here’s how it works.
2026/27 tax year (soft landing): There are no penalties for late quarterly updates. You still need to submit them before you can submit your final declaration, but no points are issued and no fines apply. Penalties for late final declarations and late payment still apply as normal.
From 6 April 2027 onwards:
| Event | What happens |
|---|---|
| Miss a quarterly update deadline | 1 penalty point |
| Accumulate 4 points | £200 penalty |
| Miss another deadline after reaching 4 points | Another £200 penalty each time |
| Points expiry | Each point removed 24 months after the missed deadline (if below threshold) |
You can only get one point per deadline, even if you have multiple businesses and send multiple late updates. The system is designed to penalise persistent non-compliance, not one-off mistakes.
Late payment is handled separately under a percentage-based regime: interest is charged on overdue tax, plus penalties of 2% at 15 days, 4% at 30 days, and 4% + daily interest thereafter. This is separate from the points system.
For the full penalty detail and the 2026/27 grace period rules, see our MTD quarterly updates guide.
11. Software Won’t Link to HMRC? (Troubleshooting)
If your MTD software keeps failing to connect to HMRC with errors like “save business failed”, the problem is almost always on the HMRC authorisation side — not your software. The three most common causes: you haven’t signed up for MTD for Income Tax with HMRC yet (a prerequisite), you’re using the wrong Government Gateway credentials, or your National Insurance number doesn’t match HMRC’s records.
For the step-by-step fix (including the Starling Accounting case specifically), see our Starling Accounting MTD link failed guide — the troubleshooting steps apply to most software, not just Starling.
The Bottom Line
Making Tax Digital is not a new tax — it’s a new way of reporting. The tax you pay, when you pay it, and what you can claim all stay the same. What changes is how you keep records (digital), how often you report (quarterly), and what tools you use (compatible software).
The key things to do now:
- Check your qualifying income to find your mandate date
- Choose software — free options exist, so cost doesn’t have to be a barrier
- Start keeping digital records before your threshold date so the transition is gradual
- Remember the two separate cycles: reporting (4 deadlines) and payment (2 deadlines) run in parallel and never merge
Each section above links to a detailed guide for the deep dive. If you’re ready to actually file, see our step-by-step how to file MTD guide. Start with Making Tax Digital for income tax explained if you want the full overview, or jump straight to checking your qualifying income if you just need to know whether MTD applies to you yet.