What is Making Tax Digital? The Complete 2026 Guide
Making Tax Digital (MTD) requires UK sole traders to keep digital records and file quarterly. Learn who it affects, key deadlines, and how to prepare.
- Making Tax Digital requires sole traders to keep digital records and submit quarterly updates to HMRC
- MTD for Income Tax starts April 2026 for those earning over £50,000, with lower thresholds following in 2027 and 2028
- You will need HMRC-compatible software to file. Spreadsheets alone will not be enough.
- Starting early gives you time to choose software, organise records, and avoid last-minute stress
What is Making Tax Digital? The Complete 2026 Guide
Making Tax Digital is the biggest change to UK tax administration in a generation. If you are a sole trader, freelancer, or self-employed worker, it will affect how you report your income and expenses to HMRC.
This guide covers everything you need to know: what MTD is, who it affects, the key deadlines, and how to get ready before the rules kick in.
- Making Tax Digital (MTD)
- A UK government initiative that requires businesses and self-employed individuals to keep digital tax records and submit updates to HMRC quarterly using compatible software, replacing the traditional annual Self Assessment tax return.
What Does Making Tax Digital Actually Mean?
Making Tax Digital is HMRC's plan to move the UK tax system online. Instead of filing one annual Self Assessment tax return, sole traders will need to:
- Keep digital records of all income and expenses throughout the year
- Submit quarterly updates to HMRC summarising their financial position
- Use compatible software that connects directly to HMRC's systems
- File an End of Period Statement at the end of the tax year to finalise figures
The goal is to reduce errors, close the tax gap, and give self-employed people a clearer picture of their tax position throughout the year, rather than a single stressful deadline in January.
Making Tax Digital is the most significant change to the tax administration system in a generation.
Who Does MTD Affect?
MTD for Income Tax Self Assessment (MTD ITSA) affects self-employed individuals and landlords with qualifying income above certain thresholds.
This includes:
- Sole traders: plumbers, electricians, tutors, consultants, delivery drivers, cleaners, and every other type of self-employed worker. Read our dedicated MTD guide for sole traders for requirements specific to the self-employed.
- Freelancers: designers, writers, developers, photographers, and anyone working for themselves
- Landlords: individuals who earn rental income from property. Landlords have specific MTD considerations. See our MTD for landlords guide.
- Those with multiple income sources: if your combined self-employment and property income exceeds the threshold, you are included
If you are a limited company, MTD ITSA does not apply to you directly. Limited companies already have separate digital filing requirements through Corporation Tax.
The MTD Timeline: When Does It Start?
MTD is rolling out in phases based on your income level:
| Start Date | Gross Income Threshold | Who Is Affected |
|---|---|---|
| April 2026 | Over £50,000 | Sole traders and landlords with the highest turnover |
| April 2027 | Over £30,000 | Most full-time self-employed workers and landlords |
| April 2028 | Over £20,000 | The majority of sole traders and property landlords |
- April 2026: Sole traders and landlords earning over £50,000 per year
- April 2027: Those earning over £30,000 per year
- April 2028: Those earning over £20,000 per year
Your qualifying income is your gross turnover before expenses, not your profit. So if your business brings in £52,000 but your profit after expenses is only £30,000, you are still in the April 2026 group.
If you are close to a threshold, it is worth checking your figures carefully. HMRC will use your Self Assessment returns to determine which group you fall into.
What Changes Under MTD?
Before MTD (the current system)
- Keep records however you like: paper, spreadsheets, shoeboxes
- File one Self Assessment return per year by 31 January
- Calculate your tax liability once a year
After MTD
- Keep records digitally using compatible software
- Submit quarterly updates to HMRC (four times per year)
- File an End of Period Statement to confirm final figures
- File a Final Declaration (replacing the Self Assessment return)
The quarterly updates are not full tax returns. They are summaries of your income and expenses for that quarter. Think of them as progress reports rather than final accounts.
The move to digital record keeping will help businesses get their tax right, reducing the errors that cost the Exchequer over £8.5 billion a year.
Ready to simplify your tax filing?
Join the waitlist and be the first to know when TapTax launches.
What Are the Quarterly Filing Dates?
Under MTD, the tax year runs from 6 April to 5 April (the same as now). The quarterly deadlines are:
- Quarter 1 (6 April to 5 July): Due by 7 August
- Quarter 2 (6 July to 5 October): Due by 7 November
- Quarter 3 (6 October to 5 January): Due by 7 February
- Quarter 4 (6 January to 5 April): Due by 7 May
After all four quarterly updates, you must also file an End of Period Statement and a Final Declaration by 31 January of the following year.
What Software Do You Need?
Under MTD, you must use software that is:
- HMRC-recognised: listed on HMRC's official compatible software page
- Capable of digital record-keeping: stores your income and expense records digitally
- Able to submit to HMRC: connects directly to HMRC's API to send quarterly updates
Spreadsheets alone will not be enough. Even if you keep perfect records in Excel, you will still need compatible software to submit your updates. Some bridging software can pull data from spreadsheets and submit it, but most people will find it easier to use a dedicated MTD app.
Options range from full accounting packages like Xero and QuickBooks to simpler, purpose-built tools like TapTax that are designed specifically for sole traders who just need to file and move on. Learn more about what Making Tax Digital software does and how to choose.
What Records Do You Need to Keep?
Under MTD, your digital records must include:
- Income: the amounts you earn, the dates, and who paid you
- Expenses: what you spent, the dates, and what category each expense falls into
- Supporting documents: receipts, invoices, and bank statements
You do not need to scan every receipt from day one, but keeping digital copies of receipts is strongly recommended. HMRC can request evidence for any expense you claim, and having digital records makes this straightforward.
What Happens If You Do Not Comply?
HMRC has introduced a new points-based penalty system for late submissions. Each late quarterly update earns you a penalty point. Once you hit the threshold (four points for quarterly obligations), you receive a £200 fine, and every subsequent late submission also triggers a £200 penalty.
Late payment penalties are separate and calculated as a percentage of the tax owed. You can read more about the HMRC penalty regime.
The good news is that this is more forgiving than the old system. Missing one deadline does not immediately cost you money. But letting points accumulate can quickly become expensive.
How to Prepare for MTD
Getting ready does not need to be complicated. Here is a simple plan:
1. Check your income threshold
Look at your most recent Self Assessment return. If your gross income is above £50,000, you need to be ready by April 2026. If it is between £30,000 and £50,000, you have until April 2027.
2. Choose your software
Pick MTD-compatible software that suits your needs. If you are a sole trader who does not need invoicing, payroll, or complex accounting, a simple tool will do. If you already use Xero or QuickBooks, check that your plan includes MTD ITSA filing.
3. Start keeping digital records now
Even before MTD is mandatory for you, keeping digital records is good practice. It makes your annual Self Assessment easier and gives you a head start on the quarterly habit.
4. Organise your expense categories
HMRC expects expenses to be categorised correctly. Common categories include travel, office costs, stock and materials, professional fees, and advertising. Getting familiar with these now saves time later.
5. Set calendar reminders
Mark the quarterly deadlines in your calendar. Filing early avoids last-minute stress and reduces the risk of penalty points.
How TapTax Makes MTD Simple
TapTax is built specifically for sole traders who want to stay compliant without becoming accountants. Here is what it offers:
- One-tap quarterly filing: submit your updates to HMRC in seconds
- AI expense categorisation: swipe to sort expenses into the right HMRC categories
- Receipt scanning: snap a photo and the app extracts the details automatically
- Real-time tax estimates: know what you owe throughout the year, not just in January
- Built for mobile: because most sole traders are out working, not sitting at a desk
MTD compliance does not have to mean hours of bookkeeping. The right software turns it into a five-minute task.
Ready to simplify your tax filing?
Join the waitlist and be the first to know when TapTax launches.
