The biggest shake up to UK income tax reporting in nearly 30 years is now live. Making Tax Digital for Income Tax began on 6 April 2026. If your qualifying income from sole trader work or property was above £50,000 then you are already in scope. The first quarterly update is due by 7 August 2026. That makes July the window to get your house in order. This matters even if you are not affected yet. The thresholds are falling fast and the direction of travel is clear. Here is what is happening. Here is who it affects. And here is what every small business owner should be doing now.
What Making Tax Digital for Income Tax actually means
For decades the deal was simple. You filed one Self Assessment return a year and paid your bill. That model is being replaced.
Under Making Tax Digital for Income Tax (often shortened to MTD for ITSA) you now need to:
Keep digital records of your business income and expenses
Use software recognised by HMRC to store and submit those records
Send a summary to HMRC every quarter rather than once a year
File a Final Declaration after the year ends to confirm your full position
HMRC calls this the most significant change to the system since Self Assessment launched. Earlier versions of the plan were delayed more than once. This time it has gone ahead. You can read the full government guidance on the Use Making Tax Digital for Income Tax page.
Who is affected right now
Phase one applies to sole traders and landlords whose qualifying income was above £50,000.
The phrase qualifying income trips people up so it is worth being precise. Qualifying income is your gross income before expenses. It combines your trading income and your property income. Picture a sole trader who invoices £40,000 and also receives £15,000 in rent. Their qualifying income is £55,000. That puts them in scope even though neither figure on its own crosses the line.
HMRC decides who is in phase one using the figures from your 2024/25 Self Assessment return. That return was due by 31 January 2026. If you are unsure where you stand you can use the official check if and when you need to use MTD for Income Tax tool.
One important point. Limited companies are not in scope. MTD for Income Tax applies to individuals. That means sole traders and landlords. Companies will follow under a separate regime later. More on that below.
The dates that matter
There are four quarterly updates each tax year. Each one is due by the seventh of the month after the quarter ends.
Quarter 1 (6 April to 5 July): due 7 August 2026
Quarter 2 (6 July to 5 October): due 7 November 2026
Quarter 3 (6 October to 5 January): due 7 February 2027
Quarter 4 (6 January to 5 April): due 7 May 2027
After the fourth update you submit a Final Declaration. For the 2026/27 tax year this is due by 31 January 2028. It confirms your full tax position and replaces the old annual return.
Two things have not changed. Your payment dates are still 31 January and 31 July. Quarterly updates do not create a new payment. They are for reporting only.
The soft landing and where it stops
HMRC knows this is a big adjustment so the first year comes with a cushion. For 2026/27 there are no penalty points for late quarterly updates if you are in the first group. That gives you room to learn the software without fear of an accidental fine.
Do not read too much into that grace. The soft landing covers one thing only. It does not cover your Final Declaration and it does not cover late payment. If you pay your tax bill late then the usual penalties still apply. A late payment can attract a 3% charge at 15 days. That rises to 6% at 30 days. Daily interest is added on top.
From 2027/28 the full points system begins. Miss a quarterly deadline and you collect one point. Reach four points and you receive a £200 penalty. Every late submission after that adds another £200. The points work a little like a driving licence. They reset only after a clean run of filing on time.
What is coming for everyone
If you are reading this and thinking it does not apply to you then look at the timeline.
April 2026: sole traders and landlords above £50,000. This is live now.
April 2027: the threshold falls to £30,000. Roughly another 970,000 people join.
April 2028: the threshold falls again to £20,000.
Government has also signalled a review of how to bring in those earning under £20,000. Limited companies are expected to move to their own version of MTD in time. A firm date has not been set.
The takeaway is simple. Quarterly digital reporting is becoming the default way the UK does tax. The only real question is which year you join. Not whether you join.
What to do now
If you are in scope for April 2026 then the next few weeks count. If you are not then this is a calm chance to prepare before the threshold reaches you. Our resources and tips hub has plenty of practical guidance to help.
Check your status. Look at your 2024/25 qualifying income. Add your gross trading income and property income before expenses.
Choose your software. You need a package recognised by HMRC. You can compare options using the GOV.UK find software tool. If you prefer spreadsheets then bridging software can connect them to HMRC. We can also help you get set up through our digital finance and software support.
Separate your banking. A dedicated business account makes digital record keeping far simpler and far cleaner.
Get into a quarterly rhythm. Set a recurring reminder for each deadline. Filing on time with estimated figures beats missing the date. You can correct your figures later.
Talk to your accountant early. Agree now who submits what. That avoids a scramble in late July.
The bottom line
Making Tax Digital is not just another form to fill in. It changes the rhythm of running a business. You move from one annual deadline to a steady quarterly habit. Handled well it can give you a clearer and more current view of your numbers throughout the year.
The first deadline lands on 7 August. Now is the time to prepare. It is not the time to panic.
Need a hand getting ready for Making Tax Digital? From choosing the right software to building a quarterly routine that suits how you work, the team at Profectus Accounting can make the change straightforward. Browse our resources and tips or get in touch and we will help you get set up with confidence.
Share this post: