In this article
Making Tax Digital for Income Tax, often shortened to MTD, is the biggest change to self assessment in a generation. It began on 6 April 2026 and will reach more sole traders and landlords each year. If you run a business on your own or let property in London, it's worth understanding now, even if it doesn't apply to you yet.
Who has to join, and when
Whether you're in depends on your qualifying income: your total turnover from self-employment and property, before expenses.
| Qualifying income | Must use MTD from |
|---|---|
| Over £50,000 | 6 April 2026 |
| Over £30,000 | 6 April 2027 |
| Over £20,000 | 6 April 2028 |
HMRC uses the tax return from two years earlier to decide. For April 2026, it looked at your 2024/25 return. For April 2027, it will look at your 2025/26 return, the one due by 31 January 2027.
A few points that often catch people out:
- it's turnover, not profit. A London landlord with £35,000 of rent but high mortgage costs still counts as £35,000
- self-employment and property income are added together
- if you own a property jointly, only your share of the rent counts
- salary, pensions, dividends and savings interest don't count towards the threshold
What actually changes
If you're in MTD, three things are different from the old self assessment routine:
- Digital records. You keep records of your income and expenses in compatible software.
- Quarterly updates. Every three months, the software sends HMRC a summary of your income and expenses.
- A final declaration. After the tax year ends, you confirm your figures and add any other income. This replaces the old tax return and is due by 31 January.
Quarterly update deadlines
For the standard quarters, updates are due on:
- 7 August for 6 April to 5 July
- 7 November for 6 July to 5 October
- 7 February for 6 October to 5 January
- 7 May for 6 January to 5 April
You can choose calendar quarters instead (to 30 June, 30 September and so on) if that fits your bookkeeping better. The deadlines stay the same.
What doesn't change
Quarterly updates are not tax payments. You still pay income tax on the usual dates: the balancing payment and first payment on account by 31 January, and the second payment on account by 31 July. The quarterly figures don't need to be perfect either; adjustments can be made in the final declaration.
Penalties under MTD
MTD comes with a points-based system for late submissions. Each missed deadline earns a point, and a financial penalty applies once you reach the threshold for your filing frequency. Late payment penalties are separate and depend on how late the tax is paid. The simplest protection is a routine that keeps your records current every month, not just every quarter.
How to get ready
- Work out your qualifying income from your latest tax return, adding self-employment and property turnover together.
- Choose software that is recognised by HMRC for MTD. Xero is one of the most widely used options.
- Connect your bank feeds so transactions come in automatically.
- Use a separate bank account for your business or your rental income. It makes everything simpler.
- Set a monthly routine to categorise transactions and file receipts, so each quarter is a quick check rather than a scramble. Our monthly bookkeeping checklist is a good starting point.
- Decide who will file. You can send updates yourself or authorise an agent to do it for you.
Can you be exempt?
Some people can apply for an exemption, for example if they can't use digital tools because of age, disability, location or other reasons. HMRC decides each application individually, so it's worth taking advice if you think this applies to you.
Should you form a limited company instead?
MTD alone isn't a reason to incorporate. Companies have their own filing obligations, and the right structure depends on your profits, plans and personal tax position. It is, though, a good moment to review how your business is set up.
How Liberty Financial can help
We help London sole traders and landlords move to MTD-ready software, keep their records current and send their quarterly updates, so the final figures hold no surprises. If you're not sure whether MTD applies to you, ask us and we'll check your position. If the bookkeeping is the problem, see our outsourced bookkeeping service.
Thresholds and dates are based on HMRC guidance at the time of writing. They can change, so check the latest position before acting.
Frequently asked questions
Does Making Tax Digital for Income Tax apply to limited companies?
No. It applies to individuals with self-employment or property income. Limited companies pay corporation tax, which is not part of Making Tax Digital for Income Tax. Company directors are only affected if they also have their own self-employment or rental income above the threshold.
Is the threshold based on turnover or profit?
Turnover. HMRC looks at your total gross income from self-employment and property before any expenses are taken off. Employment income, pensions and dividends do not count towards it.
Do I have to pay tax every quarter under MTD?
No. Quarterly updates are summaries of your income and expenses. Payment dates stay the same: 31 January and 31 July, as with self assessment now.
Can I keep using spreadsheets?
You can, as long as you use bridging software that connects the spreadsheet to HMRC. Many people find it simpler to move to accounting software that sends the updates directly.
Want this handled for you?
Our Southwark team keeps London businesses' books, tax and deadlines on track, with a dedicated account manager.
Written by
Peter Leshinsky
Founder, Liberty Financial, a firm of chartered accountants in Southwark supporting owner-managed businesses across London.
