Making Tax Digital for Income Tax: Where to start

Making Tax Digital (MTD) is the UK government's flagship programme that makes it easier for businesses and individuals to get their tax right.

As you might guess from the name, it does this by setting down in law a requirement to submit tax data to HMRC using digital methods.

In this blog, I answer the common questions that you may have around this, and what it means for your business finances.

What is Making Tax Digital for Income Tax?

Making Tax Digital (MTD) for Income Tax is a new law that changes how income tax is administered. It affects self-employed people and landlords who have a gross income over certain levels.

When the rules start to apply to you will depend on your circumstances. Here are the relevant dates:

• From April 2026: If you have gross income over £50,000 in the 2024/2025 tax year and subsequent threshold dates.

• From April 2027: If you have gross income over £30,000 in the 2025/2026 tax year and subsequent threshold dates.

• From April 2028: If you have gross income over £20,000 in the 2026/2027 tax year and subsequent threshold dates.

Does MTD for Income Tax affect me?

If you run your own business as an individual – so not through a limited company or a partnership – you're classed as a sole trader.

That means MTD for Income Tax could apply to you. Some examples include tradespeople and freelancers.

If you're a private landlord of any kind and tell HMRC about your rental income via annual Self Assessment tax returns, you also could be affected.

Of course, if you're both a sole trader and a landlord, you could be affected too. In this case, simply add together both sources of gross income to establish whether the rules apply.

What are the MTD for Income Tax rules?

Here's what MTD for Income Tax asks of you, as a legal requirement:

• Keep digital records: If you're a sole trader and/or a landlord, by law you must keep digital records of your income and expenses using MTD-compatible software. Effectively, this means using modern cloud accounting software such as Sage Accounting.

• Submit quarterly updates: For each business you own, you must submit digital updates to HMRC every three months (by 7 August, 7 November, 7 February and 7 May). If you're a sole trader with just one business, that will be four updates per tax year.

  But if you also let a property, for example, you'll need another set of quarterly reports solely for that income. Accounting software largely automates a lot of this process.

• Submit digital tax returns: By 31 January each year, you'll need to submit an income tax return for the tax year (again using MTD-compatible software) and pay any tax that's due. This is similar to the Self Assessment tax return and effectively replaces it.

What software does a sole trader need for MTD for Income Tax?

You'll need accounting software that's compatible with MTD for Income Tax, as you'll use it to:

• store digital records

• send quarterly updates to HMRC

• view HMRC's estimate of the final amount of tax you're liable for, and

• submit your income tax return for each tax year

Sage Accounting and the free Sage Individual are already fully MTD-compatible and HMRC-recognised.

With powerful AI in the form of Sage Copilot, not only will Sage Accounting make MTD easy, it'll also revolutionise your accounting and give you time back for what matters.

If you use desktop software, you'll need to make sure it's updated in time. You may find that some older software simply doesn't update, so you might need to move to a newer package or software provider. Allow time for this well ahead of the April 2026 date that MTD for Income Tax begins.

Can a sole trader still handwrite or print invoices under MTD for Income Tax?

Yes, you can still create paperwork. But:

• the data either must already be in your digital accounting records (for example, you're printing an invoice for posting out from within your accounting software), or

• you'll need to transfer the details to your digital accounting records as soon as possible via data automation software such as AutoEntry

Using modern accounting software such as Sage Accounting will help you keep digital accounting records.

You can issue invoices via email and include a "pay now" button, and avoid the need for paper at any stage. Your customers or clients can use Tap to Pay to make payments on their mobile phones.

Can a sole trader opt-out of MTD for Income Tax?

No, MTD for Income Tax is not optional. But you can apply to be excluded if you have a good reason.

Furthermore, some taxpayers – such as those who don't have a National Insurance number, or receive certain kinds of Carer's Allowance – don't have to use it.

Examples of people in this position are likely to be rare, however, and most will have to follow the MTD for Income Tax rules.

Start preparing now

Don't let MTD for Income Tax catch you by surprise in April 2026. Start preparing now by making sure you have the right accounting software (such as Sage Accounting) and give yourself time to adapt your accounting processes.

Relevant resources

• Five things you need to know about MTD for Income Tax

• WEBINAR: Are you ready for Making Tax Digital (MTD)?

• WEBINAR: How to submit your Self Assessment tax return with confidence

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