Making Tax Digital: A Guide to What’s Changing, Deadlines, and How To Apply

HMRC is changing how self-employed people and landlords report their income. Making Tax Digital (MTD) is the new system for reporting income and filing an annual tax return.

While the HMRC MTD income tax changes might feel like a big shift, it’s a great opportunity to get your business admin in peak condition. 

Find out exactly how it works, when it starts, and how to register.

Making Tax Digital: at a glance

• What is it? — A move to digital record-keeping and quarterly tax updates instead of one yearly return. It will eventually replace the current self-assessment tax return.
• When does it start? — The first big deadline is 6 April 2026 for those with a qualifying income over £50,000.
• Who does it affect? — Initially, sole traders and landlords. It’s already compulsory for VAT-registered businesses.

What is Making Tax Digital?

MTD, which stands for ‘Making Tax Digital’, is a new process starting from 6 April 2026 that involves digitally reporting income tax and expenses to HMRC. It’ll replace the old self-assessment tax returns process that required paper-based filing. 

If MTD applies to your business, there are three main things you’ll need to do:

1. Keep digital records — You must record all your income and expenses using HMRC-compatible software. This can be an app on your phone, accounting software on your laptop, or even a spreadsheet — provided it’s linked to HMRC.
2. Send quarterly updates — Instead of one big year-end job, your software will send a summary of your income and spending to HMRC every three months.
3. Submit a final declaration — By 31 January each year, you’ll submit your final figures for the year through your software to finish your tax return.

MTD doesn't actually change how much tax you pay or how it’s calculated, and the key payment dates (31 January and 31 July) stay exactly the same.

The traditional self-assessment tax return portal on the GOV.UK website will be gradually phased out. HMRC won't provide its own software to help you file, so you'll need to choose a third-party software provider that connects directly to their systems. Currently, MTD doesn’t apply to partnerships. 

We previously found that nearly a third (31%) of business owners didn’t know which tax band their business falls into. MTD aims to clear this confusion by providing a more real-time view of what you owe.

When does MTD for self-assessment start?

The MTD for self-assessment starts on 6 April 2026. However, some people will be exempt as the Making Tax Digital timeline has been spaced out to give everyone a chance to get ready.

HMRC is rolling out the system in three main phases based on your qualifying income. This is the total gross income (the amount you earn before any expenses are taken off) from your self-employment and any rental properties combined.

Here are the key Making Tax Digital deadlines you need to mark in your calendar:

• From 6 April 2026: Sole traders and landlords with income over £50,000.
• From 6 April 2027: Sole traders and landlords with income over £30,000.
• From 6 April 2028: Sole traders and landlords with income over £20,000.

The MTD 2026 timeline and tax cycle for sole traders  

If you fall into the first group starting in April 2026, you'll need to follow a new quarterly reporting schedule. You’ll still pay your tax bill by 31 January as usual with a self-assessment tax return, but you’ll send digital updates to HMRC by the following dates:

• 31 January 2026: Deadline to submit a self-assessment tax return for the 2024 /25 tax year.
• 6 April 2026: When sole traders must start using MTD for Income Tax software.
• 7 August 2026: Deadline for your first quarterly update (covering 6 April 2026 – 5 July 2026).
• 7 November 2026: Deadline for your second quarterly update (covering 6 July 2026 – 5 October 2026).
• 31 January 2027: Deadline to submit a self-assessment tax return for the 2025/26 tax year.
• 7 February 2027: Deadline for your third quarterly update (covering 6 October 2026 – 5 January 2027).
• 7 May 2027: Deadline for your fourth quarterly update (covering 6 January 2027 – 5 April 2027).
• 7 August 2027: Deadline for your first quarterly update (covering 6 April 2027 – 5 July 2027).
• 7 November 2027: Deadline for your second quarterly update (covering 6 July 2027 – 5 October 2027).
• 31 January 2028: Deadline to submit a tax return directly from Making Tax Digital for Income Tax software for the 2026/27 tax year.
• 7 February 2028: Deadline for your third quarterly update (covering 6 October 2027 – 5 January 2028).
• 7 May 2028: Deadline for your fourth quarterly update (covering 6 January 2028 – 5 April 2028).

Is Making Tax Digital compulsory?

Yes, MTD is compulsory for sole traders, self-employed individuals, and landlords with a total gross income of over £50,000. You must legally use the new system if you fall into this category. 

Making Tax Digital will become compulsory for those with less total earnings over the next few years.

Who is exempt from Making Tax Digital?

HMRC has confirmed that certain businesses and individuals will be exempt from the new scheme. Some of these are automatic exemptions, while others are based on your personal circumstances and require an application.

Automatic exemptions:

• If your qualifying income is £20,000 or less
• If you don’t have a National Insurance number (for example, if you’re a non-UK resident or you’ve recently moved to the UK and are in the process of applying for a NI number)
• If you’re filing on behalf of a non-resident company
• If you’re a trustee 
• If you’re the personal representative of someone who has died 

Exemptions you need to apply for:

• If your age, health, or a disability prevents you from using a computer, tablet, or smartphone to keep records or send quarterly updates
• If you’re a practising member of a religious society or order whose beliefs are incompatible with using digital communications or keeping digital records
• If you can’t get internet access to your home or business because of your location, and you can’t access an alternative location

You can apply for an exemption from MTD for Income Tax here.

How to register for MTD

HMRC won't automatically sign you up for MTD; it's something you (or your accountant) need to do. Make sure you don’t leave it until the last minute, as you’ll need to have your digital records ready to go from day one of your first MTD tax year.

Here is a simple step-by-step to getting MTD-ready:

1. Check your income
   Look at your previous tax returns to see when Making Tax Digital applies to you.
   
   
2. Choose your software
   Since HMRC isn't providing a free tool to file your updates, you’ll need to pick a third-party software provider that is MTD-compatible. The GOV.UK website has a tool that you can use to search for MTD-suitable software.
   
   
3. Sign up via GOV.UK
   You'll need your Government Gateway ID and password, your National Insurance number, and your Unique Taxpayer Reference (UTR). You can sign up on the GOV.UK site here.
   
   
4. Link your software
   Once you’ve signed up with HMRC, you’ll need to authorise your chosen software to send your data directly to them.
   
   
5. Start your digital record-keeping
   Log your sales and expenses as they happen. If you use a smart POS system, this part is often done for you, as the data is captured automatically at the point of sale.

What counts as a digital record?

One of the biggest misconceptions about MTD is that you need to scan and save a PDF of every single receipt you get. While keeping your paper receipts is always a good idea for your own records, the Making Tax Digital changes are actually more focused on the data.

A digital record is a piece of information about a transaction that is created and stored electronically using HMRC-compatible software. 

For MTD to work, the data must have a ‘digital link’ between your records and HMRC — this means no manual typing or cutting and pasting figures from one spreadsheet to another.

What digital records do I need to keep?

You have to keep the same information that you would’ve kept if you were completing a self-assessment tax return. MTD only changes the way you store and submit the information.

Your software must record these three key bits of information:

• The date when the income was received, or the expense was incurred.
• The total value of the transaction.
• What the money was for (e.g., travel, rent, or stock).

If you’re a retailer, you don’t necessarily have to record every single coffee or sandwich sold as an individual digital record. HMRC allows you to record a single daily gross takings figure instead, which makes life much easier for busy shops and cafes.

Making Tax Digital penalties

What are the penalties for late submission?

The old system of an automatic £100 fine for a missed Self Assessment deadline is being replaced by a new, points-based penalty system.

Under the new rules, every time you miss a submission deadline, you’ll receive one penalty point. When you reach a certain number of points, you’ll receive a £200 fine. 

Every late submission after you’ve reached the threshold will result in another £200 fine, but you won’t be charged with more points.

The penalty thresholds vary based on submission type:

• Annual — 2 points
• Quarterly — 4 points
• Monthly — 5 points

You can also be fined up to £400 for each return filed with incompatible software.

As the Making Tax Digital changes are quite significant, the government announced that it’s introducing a grace period for anyone who’s required to start using MTD for Income Tax from 6 April 2026. HMRC will not apply penalty points for late quarterly updates for the first tax year (2026/27), but this doesn’t apply to the final tax return due on 31 January 2028.  

What are the penalties for late payment?

It’s important to remember that filing late is different from paying late. If you miss a tax payment, including advance payments on account, the charges are still percentage-based and can add up quickly:

• 1-15 days late — No penalty, but you'll pay interest.
• Day 16 — A 3% penalty on the amount you owe.
• Day 31 — The penalty increases to 6% total, plus a daily interest charge (currently 10% per annum).

How small businesses can stay Making Tax Digital compliant

Here are practical pointers from Ryan Harper, Finance Director at takepayments, on how small businesses can navigate these changes.

1. Build a ‘digital paper trail’ at the point of sale

"The biggest mistake I see is business owners thinking they need to manually input data into accounting software at the end of the week. That’s just creating more work," Ryan says.

"Instead, use your payment technology as the front line of your record-keeping. If you use an integrated POS system, every transaction is recorded digitally the moment it’s made. 

While takepayments POS systems aren't MTD-compatible on their own, they can link to HMRC-approved accounting software. Creating this digital link means that all transactions, VAT, and tax information are automatically recorded, so you don’t need to enter or import them manually.

By the time you come to your quarterly update, 90% of your sales data is already captured and ready to be synced. It turns a massive admin task into a five-minute review."

2. Don’t ignore the State Pension

Previous takepayments survey data found that 34% of sole traders aren’t aware they can voluntarily pay Class 2 NICs. This is a small detail that could have a huge impact on your future.

"If your earnings are below the small profits threshold, you aren't required to pay National Insurance," Ryan explains. 

"However, paying voluntary Class 2 NICs — which is just £3.50 a week for 2025/26 — protects your entitlement to the State Pension and maternity allowance. In the new MTD world, your software will show you exactly where your profits sit, making it easier to decide if you should make that voluntary payment to secure your future benefits."

3. Consider the ‘Voluntary VAT’ win

Our research also revealed that 41% of sole traders aren't aware of the benefits of voluntary VAT registration. While it means more paperwork, it can actually help your cash flow.

"If you're investing in equipment, stock, or a new business location, being VAT registered allows you to reclaim the VAT on those purchases," says Ryan. 

"It can also give your business more 'weight' and credibility with larger suppliers. Since MTD for VAT is already mandatory, registering for VAT now can help you get used to digital filing before your income tax deadline arrives."

4. Separate your bank accounts now

"Make sure you have a dedicated business bank account before you sign up for MTD," Ryan advises. 

"If you mix personal and business spending, you’ll spend hours unpicking transactions when you’re trying to file your quarterly update. Most MTD software can 'bank feed' directly into your records, so keeping a clean, separate account means your expenses are categorised automatically."

5. Know your income sources

It’s not uncommon for self-employed people to have multiple side hustles, but under MTD, these aren’t always grouped together.

"If you run two separate businesses as a sole trader — say, you're a plumber but also run a small online craft shop — HMRC treats these as two separate income sources," Ryan warns. "You have to sign up for each trade or side hustle separately, and submit separate quarterly updates for both. However, if you’re a landlord, all your UK rental properties are classified as one property source.”

“This even applies to students with side hustles. Whether you’re tutoring, dog walking, or selling clothes online, the new rules apply to you if your total gross income from these activities exceeds the MTD thresholds,” explains Ryan. “While most students currently fall under the £1,000 trading allowance and don't need to declare anything, those running more successful ventures that cross the £20,000 qualifying income mark by 2028 will be legally required to join the MTD system.”

 “Before you register, map out every way you earn money to ensure you haven't missed a stream that needs its own digital record."

6. Support those who aren’t tech-savvy

For those who have done paper filing for decades, the digital shift can feel like a mountain to climb.

"We know that some sole traders might feel left behind by digital-first laws," Ryan says. 

"If you’re worried about the tech, remember that you don't need to become an IT expert overnight. You can hire a professional to handle your digital filing, but if an accountant isn't in the budget, look for bridging software. Bridging software is designed for businesses that don’t want to change how they keep records. It acts as a ‘bridge’ between existing, non-compatible records (like an Excel spreadsheet) and HMRC’s systems. This lets you keep your records in a simple spreadsheet you’re comfortable with, which then sends the data to HMRC with one click."

Ready to streamline your business finances?

At takepayments, we’re all about making the boring bits of running a business easy. Whether you’re preparing for the HMRC MTD income tax changes or just looking for a faster way to serve your customers, the right technology is the best place to start.

Our POS systems, card machines, and online payment solutions help you keep track of your sales in a breeze. 

Contact our friendly team of experts today.

 

The information provided by Takepayments Limited regarding Making Tax Digital (MTD) is strictly for general guidance only and does not constitute, nor should it be misconstrued as, professional tax, legal, or accounting advice.

Please note, the guidance provided in this document is based on the UK Government’s announced "Making Tax Digital" (MTD) roadmap and HMRC regulations as of March 2026.

Tax regulations are complex and subject to change, with every business and individual’s tax situation being unique; therefore, you should seek independent advice from a qualified tax professional or chartered accountant regarding your specific circumstances.

Takepayments Limited is a payment service provider, regulated by the Financial Conduct Authority (“FCA”), not a tax advisor, and accepts no liability for any reliance placed on this information.

**Tax legislation, qualifying income thresholds, and implementation deadlines are subject to change by the UK Government at any time. Takepayments Limited does not undertake to update this document to reflect subsequent changes in law or HMRC policy. You are responsible for verifying the current status of MTD requirements via **GOV.UK** or your professional tax advisor before taking any action.**