Last updated: April 2025

This guide has been prepared as a summary of Making Tax Digital for Income Tax (MTD) and to provide some tips on what agents can do to get their firms and their clients MTD-ready.  To jump to a specific section of the guide, please use the following links:

• What is MTD?
• Who does MTD apply to?
• When does MTD apply from?
• What will MTD involve?
• What should agents do to prepare?
• Find out more
• Summary: key readiness steps for agents 

What is Making Tax Digital for Income Tax?

MTD will require many landlords and self-employed individuals to keep digital records of income and expenditure relating to their businesses and rental properties.

Those records will form the basis of quarterly updates, which will need to be submitted digitally to HMRC. Finally, a 'digital tax return’ will need to be filed, similar to the current Self-Assessment regime, but with some key differences.

MTD will not change the due dates for paying income tax or filing the tax return.

Behind the scenes at HMRC, MTD will be supported by an upgraded computer system which promises enhanced security and better connection with other HMRC systems. This should result in greater pre-population of data already held by HMRC – for instance PAYE income.

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Who does MTD apply to?

MTD will eventually encompass self-employed individuals and landlords with gross ‘qualifying income’ of more than £20,000. Qualifying income means sole trade and property income and is measured before deduction of expenses – see When does MTD apply from for more details.

Exemptions and deferrals

Individuals who don’t have a National Insurance number on 31 January will be exempt from MTD for the following tax year. This exemption applies automatically and does not need to be claimed. Some individuals will be able to claim exemption, including the digitally excluded and those who have power of attorney. Further MTD exemptions are available, details of which can be found on GOV.UK. The method of applying for exemptions has not been confirmed yet.

Individuals required to submit residence/ remittance basis tax return pages will not be brought into MTD until April 2027, regardless of their level of income.

Outside the scope of MTD, for now

Sole-traders and landlords with turnover of £20,000 or less are not required to comply with MTD, and will remain in the current Self-Assessment regime until further notice.

Ministers of religion, Lloyd’s underwriters and recipients of Married Couples’ Allowance or Blind Persons’ Allowance won’t have to join MTD until after the current parliamentary term. Similarly, partnerships (including LLPs) are not in scope for now but are intended to be included at a later date. Individual members of a partnership are also not currently within the scope of MTD in respect of their partnership income, despite being treated as self-employed for most tax purposes.  However, any self-employment or property income outside the partnership could bring them into MTD for those non-partnership sources only, where this exceeds the relevant thresholds (see below).

MTD does not apply to companies. It is not yet known when MTD might be extended to Corporation Tax.

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When does MTD apply from?

The requirements of MTD will apply to sole traders and landlords in three phases:

• Phase 1: from April 2026 – those with gross qualifying income of more than £50,000.
• Phase 2: from April 2027 – those with gross qualifying income of more than £30,000.
• Phase 3: from April 2028 – those with gross qualifying income of more than £20,000.

Qualifying income is the gross income from sole trade and property businesses (ie sole trade and property income combined and measured before expenses). For jointly held sources of income, only the relevant share is counted – eg if a husband and wife own a rental property equally, each spouse’s qualifying income would be their share of the gross rent.

When is gross income measured?

The thresholds for the three phases of MTD mandation will be assessed against the gross qualifying income reported on the most recent tax return filed prior to the mandation date (assuming all returns are filed on time).

For instance, 2024/25 tax returns will be due for submission by 31 January 2026. If that return reports gross qualifying income of more than £50,000, that individual will have to join MTD from April 2026.

If the sole trade or property income declared by an individual relates to a new source of income which started in the year, the figure reported will need to be adjusted proportionately in order to compare 12 months’ worth of income against the MTD mandation threshold.

Further details of the MTD income thresholds are available on our website, together with worked examples and guidance on what happens if the qualifying income later drops below the relevant MTD threshold.

Reliefs and allowances

Sole trade or property income which is not reported on a tax return because it is covered by a relevant relief or allowance (such as Rent a Room relief, or the property or trading allowances) does not count towards the MTD thresholds.

However, if the taxpayer is required to join MTD anyway, they will need to comply with MTD requirements for all sources of trading and property income (including those covered by Rent a Room relief or the trading / property allowance).

Will HMRC register taxpayers for MTD?

HMRC will not register taxpayers within scope of MTD automatically. Taxpayers whose income meets the relevant threshold will need to sign up to use MTD in a similar way to how taxpayers register for Self-Assessment now.  This includes taxpayers who are already in MTD for VAT.

Agents will be able to sign their clients up to MTD, but there won’t be a bulk sign-up service, so this will be a time-consuming exercise for larger firms. The sign-up facility is expected to open well in advance of April 2026 to allow plenty of time for registrations.

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What will MTD involve?

There are three key components to MTD:

• digital record keeping,
• quarterly updates, and
• a digital tax return.

Taxpayers may need help from agents and bookkeepers to comply with some or all of these requirements.

Digital record keeping

Under MTD, individuals will have to keep digital records of the amount, category and date of income and expenses relating to their sole trade and/or property businesses. These records can be kept either in purpose-built software, or on spreadsheets.

Quarterly updates

Taxpayers within MTD will need to submit a summary to HMRC of their income and expenses each quarter, fed from their digital records.  These are not ‘mini tax returns’ as accounting and tax adjustments are optional.  Instead, they will just represent the total of each category of income and expense that quarter.

A separate quarterly update will be needed for each trade or property business – so a sole trader who also rents out a property would have eight quarterly submissions to make each year.

By default, the quarters will follow the tax year, not the accounting period of the business.  Updates must be filed by the 7^th of the month following the quarter-end. So, the first quarter will run from 6 April to 5 July, and the quarterly update will need to be submitted to HMRC by 7 August.

To better align with accounting dates, taxpayers can choose to make a ‘calendar quarters election’. This would result in the first quarter running from 1 April to 30 June, the second from 1 July to 30 September and so on. The due dates for filing quarterly updates aren’t affected, so the first quarterly update is due by 7 August, the second by 7 November and so on.

You’ll also need to ensure clients making a calendar quarters election join MTD by 1 April in the relevant year, not 6 April.

Quarterly updates will be cumulative, so if an error is discovered in a previous submission, it can be corrected the following quarter.

You can find out more about quarterly updates in our MTD FAQs.

The digital tax return

After the fourth and final quarterly update has been filed, the taxpayer will need to submit a ‘digital tax return’ to finalise their income tax position for the year.

This will have similarities with the current Self-Assessment return, but the digital tax return will be pre-populated with the income and expenses from the quarterly updates already filed. These entries will then need to be adjusted for accounting and tax purposes (eg disallowing elements of private use or capital expenditure).

At the same time, other (non-MTD) sources of income, such as bank interest and PAYE income, will need to be reported, or the pre-populated entries will need to be checked. Additionally, any capital gains must be declared and relevant reliefs claimed.

There will be no online filing service provided by HMRC under MTD. Self-employed individuals and landlords (or their agent) will have to use compatible software to file the digital tax return. That software does not necessarily have to be the same software used to file their quarterly updates.

As with ‘ordinary’ Self-Assessment, the filing deadline will be 31 January following the end of the tax year.

Digital links

From the point where business records are created in software, all transfers of data must be made digitally. This includes submitting the quarterly updates, making any corrections, and filing the digital tax return. It also includes transfers of business records, for instance between a client and agent, or a bookkeeper and agent.

Permitted digital transfer methods include emailing, importing data, and use of memory sticks. We are expecting further guidance from HMRC on permitted practices, but copying and pasting or manually retyping entries will not be allowed.

Simplification options

A number of options will be available to make MTD compliance easier for some taxpayers, including:

1. Three-line accounts

Where gross sole trade or property income is below the VAT threshold, taxpayers can choose to record each item of income and expense without having to allocate it to a specific income/expense type. The total income and total expenses can then be reported each quarter, with no additional breakdown needed. The exception to this rule is residential finance costs (eg mortgage interest) for landlords, which still have to be categorised separately.

2. Simplified expenses

Taxpayers who are sure they will use simplified expenses or will claim the property and/or trading allowance do not need to keep records of their actual expenses

3. Retail businesses

Retailers can include in their digital records a single daily gross takings figure, rather than recording each transaction individually.

4. Joint property owners

A number of simplification options will be available to accommodate the range of record keeping arrangements which can exist between joint owners of rental properties. The relevant options are explained on our MTD FAQ page.

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