MTD for Income Tax: what sole traders and landlords must do

HM Revenue & Customs began signing up sole traders and landlords to Making Tax Digital for Income Tax from September 2026, targeting people it believes are required to use the new system for 2026–27 but who had not registered themselves. This is a statutory UK duty under the Income Tax (Digital Obligations) Regulations 2026, which HMRC administers, not an optional upgrade, and it changes how a growing number of Self Assessment taxpayers must keep records and report income during the year, ahead of the tax return they already file.

If you are a sole trader or an individual landlord registered for Self Assessment, this affects you once your combined gross income from self-employment and property in the relevant look-back tax year exceeds a threshold that is falling in stages between April 2026 and April 2028; it is the look-back year's income, not your current income, that sets your phased start date. Being signed up automatically does not remove your own responsibility to check the position, obtain compatible software and meet the deadlines. This guide sets out who is in scope, how qualifying income is worked out, what digital records and quarterly updates involve, and where to go for HMRC's own instructions.

Who must use MTD for Income Tax, and when

MTD for Income Tax applies to a sole trader or individual landlord who is registered for Self Assessment, receives self-employment or property income, and whose qualifying income exceeds the applicable threshold for the relevant tax year, unless an exemption applies. The duty is phased in by threshold and start date, based on a look-back tax year:

HM Treasury estimates that lowering the threshold from £30,000 to £20,000 will bring approximately 970,000 additional people into scope from 6 April 2028. HMRC generally checks the Self Assessment return for the relevant look-back year to decide who is mandated, but a person remains responsible for checking their own position even if HMRC does not write to them.

Note that the underlying regulations came into force on 1 April 2026, and 1 April is also the date from which someone using calendar-based update periods can start their digital records. The mandatory duties for the first cohort, however, began on 6 April 2026. These are related but distinct dates, and it is worth keeping them separate when checking your own timeline.

How qualifying income is calculated

Qualifying income is gross income before expenses from all relevant self-employment and property sources combined. It is not profit, and it is not assessed source by source.

For example, a person with £25,000 of gross rental income and £27,000 of gross sole-trader income has £52,000 of qualifying income, because HMRC adds the two relevant sources together. That figure sits above the £50,000 threshold that applied for the 2024–25 look-back year, so someone in this position would have needed to comply from 6 April 2026.

Some income does not count towards qualifying income at all: PAYE employment earnings, pension income, dividends, and an individual partner's share of partnership profit are all excluded from the calculation, even though partnership profit share must still be reported on the annual tax return.

For jointly owned property, only the individual's share of the property income enters their own qualifying-income calculation, not the total rent collected on the property. HMRC has said that where it is only notified of a figure after expenses, it will assess that figure, so landlords should check what has actually been reported to HMRC rather than assume it reflects gross rental income.

What to do if HMRC has signed you up automatically

HMRC's managed sign-up process, which began in September 2026, relies on information it already holds — typically the most recent Self Assessment return on file. That return determines whether someone falls into the 2026–27 cohort, using the qualifying-income test for the 2024–25 look-back year, but the record of active income sources HMRC holds alongside it may be out of date: a new letting, or a source that has stopped altogether, may not yet have been reported. Growth in a business's income after the 2024–25 look-back year does not by itself bring someone into this cohort, because the mandatory start date is fixed by the applicable look-back year's qualifying income, not by current income.

Anyone signed up this way should check two separate things: whether HMRC's record of their current income sources is accurate, and separately, whether their qualifying income in the relevant look-back year in fact exceeded the applicable threshold. Someone who thinks they should have been signed up but has not heard from HMRC should not simply wait; the responsibility to check qualifying income and comply sits with the taxpayer.

What counts as a digital record

A digital record is an income or expense record created and stored in software that is compatible with MTD for Income Tax. Each record must include the amount, the transaction date, and the relevant Self Assessment category it falls under. Separate digital records — and separate quarterly updates — are required for each sole-trader business, while multiple UK properties are treated together as a single UK property business for this purpose.

Digital records are not a replacement for ordinary evidence. Bank statements, invoices and other supporting documents must still be retained under the normal Self Assessment record-keeping rules, in addition to the digital record itself.

Where more than one software product is used — for example, a spreadsheet feeding into separate submission software — the records used for submissions must be digitally linked. HMRC says that once a record has been included in an update, manually retyping it or moving it by copy and paste is not an acceptable way to transfer it into another product; the link between tools has to be a genuine digital transfer.

What a quarterly update actually contains

A quarterly update is a summary of income and expense category totals for each business — it is not a return, and HMRC does not receive individual receipts or invoices through it. Crucially, updates are cumulative: each one covers everything from the start of the tax year (or calendar update year) through to the end of that update period, rather than reporting only the latest three months in isolation.

No accounting or tax adjustments — reliefs, allowances, or other income — are required before sending a quarterly update. Those are dealt with later, when the annual tax return itself is completed in compatible software. An update is still required even where a business had no income or expenses in that period; there is no exemption for a quiet quarter.

The four recurring update deadlines are the same regardless of whether standard or calendar update periods are used:

For the first mandatory cohort's 2026–27 duties, the 7 August 2026 deadline has already passed; the next falls on 7 November 2026, followed by 7 February 2027 and 7 May 2027. Every one of these remains compulsory, even though HMRC is not applying penalty points to late quarterly updates in this first year.

Penalties, the annual return, and what changes in year one

For 2026–27, HMRC has said it will not apply penalty points for late quarterly updates. This is not the same as quarterly filing being optional: every required update still has to be sent before the annual return can be submitted, and the usual consequences for a late return or late payment continue to apply. From later tax years, missed quarterly deadlines can generate penalty points, and HMRC says a person mandated into MTD reaches a £200 penalty once they accumulate four points.

Quarterly updates do not replace the annual tax return or its payment timetable. The 2026–27 annual return, covering the full tax year, is still due by 31 January 2028, with reliefs, allowances and any other reportable income added in at that stage through compatible software. Missing return or payment deadlines can still trigger separate penalties and interest, so quarterly compliance is an addition to existing obligations, not a substitute for them.

Software, exemptions and who is not yet in scope

HMRC does not supply MTD-compatible software and does not recommend any particular product or provider. Its software finder lists products that have passed HMRC's own recognition process, and readers who need to choose software should check that finder directly rather than rely on a recommendation from elsewhere, including from FinTechPulse. Free products exist for some people with simple tax affairs, but HMRC warns that eligibility or the number of transactions they can handle may be limited.

The scale of this operational shift is visible in how the accounting software market is responding: on 15 September 2026, Sage announced a "Period Review" feature aimed at accountants and bookkeepers, intended to let them check and correct client transaction data before an MTD submission is made. This is evidence of the administrative workload MTD creates for agents and their clients; it is not something FinTechPulse can verify independently, and it should not be read as an endorsement of any product.

Not everyone has to comply digitally. A person can apply for exemption as digitally excluded where it is not reasonable for them to use compatible software because of circumstances such as age, health, disability, religious belief, or a genuine lack of usable internet access. HMRC has been clear that cost, unfamiliarity with software, or simply having few records to keep is not sufficient on its own to qualify.

Partnerships are not currently mandated into MTD for Income Tax, and HMRC has not yet set a future start date for them. This guide covers sole traders and individual landlords only; partnership and limited company obligations differ and are outside its scope.

What to check next

Given how much of this depends on individual circumstances — combined income across sources, joint ownership shares, and whether HMRC's records are current — readers should check their own position directly against HMRC's guidance rather than rely on a general summary. Start with HMRC's pages on who needs to use Making Tax Digital for Income Tax, how qualifying income is worked out, and the compatible software finder, all on GOV.UK, and check your HMRC online account to see whether you have been signed up and whether the details HMRC holds for you are correct.