What Is Making Tax Digital for Income Tax? A Plain English Guide

What Is Making Tax Digital for Income Tax? A Plain English Guide

Making Tax Digital for Income Tax (MTD for ITSA) is HMRC's plan to move self-employed individuals and landlords from annual tax returns to quarterly digital reporting. If you earn more than £50,000 a year from self-employment or property, this affects you from April 2026. Here's what it actually means in plain English.

The Core Idea

Instead of filing one Self Assessment tax return each January, you'll need to:

• Keep digital records of your income and expenses throughout the year
• Send quarterly updates to HMRC summarising your figures
• Submit a final declaration at the end of the tax year (replacing the traditional tax return)

The quarterly updates aren't full tax returns — they're year-to-date summaries of income and expenditure. Think of them as progress reports rather than final submissions.

Who's Affected?

MTD for ITSA is being rolled out in phases based on qualifying income (your gross income before expenses):

• April 2026: Self-employed individuals and landlords with income above £50,000
• April 2027: Those with income above £30,000
• April 2028: Those with income above £20,000

If you have both self-employment and rental income, it's the combined total that counts. Partnerships, companies, and trusts are currently excluded.

What Are Quarterly Updates?

Each quarter, you'll submit a summary of your business income and expenses to HMRC using compatible software. The quarterly periods and filing deadlines for the 2026/27 tax year are:

• Q1 (6 April – 5 July 2026) — file by 7 August 2026
• Q2 (6 July – 5 October 2026) — file by 7 November 2026
• Q3 (6 October – 5 January 2027) — file by 7 February 2027
• Q4 (6 January – 5 April 2027) — file by 7 May 2027

You can elect to use calendar quarters instead (ending 30 June, 30 September, 31 December, and 31 March), which some people find simpler.

The Digital Records Requirement

HMRC requires you to maintain digital records of all business transactions. This doesn't necessarily mean abandoning your spreadsheet — but a plain Excel file on its own won't meet the requirement. Your records must be kept in, or linked to, MTD-compatible software that can communicate with HMRC's systems.

If you want to keep using spreadsheets, you'll need bridging software that takes your spreadsheet data and submits it to HMRC via their API. The key requirement is that the digital link between your records and HMRC must be unbroken — no manual retyping of figures.

What Happens at Year End?

After your four quarterly updates, you'll make year-end adjustments (such as capital allowances, pension contributions, and other reliefs) and submit a final declaration by 31 January following the end of the tax year. For the 2026/27 tax year, that means 31 January 2028. This replaces the traditional Self Assessment return.

Penalties

HMRC is introducing a new points-based penalty system. Each missed quarterly deadline earns you a penalty point. Once you accumulate four points (for quarterly submissions), you'll face a £200 fine — and every subsequent late submission also incurs £200. However, for the first year of MTD (2026/27), HMRC has confirmed that no penalty points will be charged for the first four quarterly updates, giving taxpayers time to adjust.

What You Should Do Now

If you're in the £50,000+ bracket, the clock is already ticking. Here's what to do before April 2026:

• Check your qualifying income — look at your 2024/25 tax return to see if you're above the threshold
• Review your record-keeping — are your records digital and categorised consistently?
• Choose your software — you'll need MTD-compatible software or a bridging tool
• Do a test run — try preparing a quarterly summary now so you're not scrambling in July

If you currently track your income and expenses in spreadsheets, tools like TaxPrepUK can help clean and prepare your data for MTD-compatible bridging software — without changing your existing workflow.

The good news? Your spreadsheet doesn't have to die. It just needs a bridge to HMRC. For a closer look at whether your current setup is ready, see our guide on why your spreadsheet isn't MTD-ready (yet).