What MTD for Income Tax actually is
Making Tax Digital for Income Tax replaces the single annual Self Assessment return with digital record keeping, four quarterly updates and one final declaration, and it applies to landlords above the income threshold from 6 April 2026. That is the whole change in one sentence. The rest of this guide is about who is caught, what the five filings involve and what to do before the first quarter closes.
Most landlords we onboard at LOYALS find out about it the same way. A letter from HMRC arrives, the words "quarterly digital filing" appear, and the question becomes "does this actually apply to me?". For roughly six in ten of the London landlords with more than one property who come to us, the answer is yes. If you have been filing a normal return for years, the shift is bigger than it sounds, because the rhythm of your tax year changes from one deadline to five.
The mechanics are simple in principle. You keep your rental records in software during the year, send HMRC a summary of income and expenses every three months, and at the end of the tax year you finalise the position with a declaration that pulls in any other income (employment, savings, dividends, capital gains) and works out the bill. HMRC sets out how the quarterly updates and final declaration work in its guidance. One filing turns into five. Five turns into nine if you also have self-employment income, because each source is reported separately each quarter, then rolled up at year end. Our landlord accountants page covers the wider picture for buy-to-let owners, and the MTD for Income Tax service page explains how we run the cycle end to end.
The £50,000 threshold rule for landlords: gross, not net
The MTD threshold is tested on gross qualifying income before any expenses, so a landlord with £55,000 of rent and £20,000 of costs is inside MTD even though the profit is only £35,000. That single word, gross, is why the threshold catches more people than the headline suggests. Mortgage interest, repairs, agent fees and insurance all come off later in the year-end calculation, but none of them come off for the entry test.
Two further details matter. First, rental and self-employed income are added together. A freelancer with £30,000 of consultancy and £25,000 of rent has qualifying income of £55,000 and is caught. Second, the test looks at the most recent finalised tax year, so for April 2026 entry the test year is 2024/25, which means the return you filed by 31 January 2026 already settled whether you are in or out.
A higher-rate London landlord with one well-let two-bed in Zone 2 can clear £50,000 of gross rent on a single property. Property count is irrelevant. If you have been testing yourself against profit rather than rent, redo the sum.
The phasing then steps down over three years, and HMRC has now confirmed all three dates. Above £50,000 you are in from 6 April 2026. Between £30,000 and £50,000 you join from April 2027. Between £20,000 and £30,000 you join from April 2028, a threshold confirmed at the Spring Statement in March 2025. Below £20,000 there is no entry date yet. HMRC's guidance on when MTD for Income Tax applies is where to confirm your own year.
Should I incorporate or stay an individual landlord under MTD?
Incorporation takes you out of MTD for Income Tax entirely, because the rules apply to individuals filing Self Assessment and not to companies, but it is rarely the right decision for MTD alone. The £50,000-plus landlords who ask us this in the run-up to April 2026 are usually weighing three things at once: MTD admin, the Section 24 mortgage interest restriction, and the separate property income rates arriving in April 2027.
Section 24, the mortgage interest restriction that started in April 2017 and fully bedded in by 2020/21, already stopped individual landlords deducting mortgage interest as an expense and replaced it with a basic-rate tax credit. HMRC explains the mechanics with worked case studies. From 6 April 2027, property income in England, Wales and Northern Ireland gets its own rates of 22 percent, 42 percent and 47 percent, roughly 2 percentage points above the equivalent bands for other income, which lifts the effective rate on the rental slice for higher-rate landlords again. Our Section 24 impact calculator shows what the restriction alone is costing you today.
A limited company landlord avoids both. The company pays Corporation Tax on rental profit at 19 to 25 percent, gets full mortgage interest relief, files a CT600 rather than a Self Assessment return, and never sees a quarterly MTD update. The trade-offs are the extraction tax when you take cash out as dividends or salary, mortgage portability, and the CGT and SDLT that transferring existing properties can crystallise unless incorporation relief and the partnership SDLT rules apply. In our experience the maths tips towards a company for higher-rate landlords with £20,000 or more of mortgage interest, and stays with the individual route for most basic-rate landlords and anyone who would have to refinance to move.
The five filings and the 2026/27 deadlines
Staying individual means four quarterly updates and one final declaration, with the quarters ending 5 July, 5 October, 5 January and 5 April and each update due by the 7th of the following month. The final declaration for 2026/27 is due by 31 January 2028. Each quarterly update is a summary of rental income and expenses, broken down by property where you have several, using a fixed category list (rent received, repairs, insurance, mortgage interest, agent fees, professional fees, utilities and so on). The figures are cumulative, so each quarter restates the year to date rather than just the latest three months, and the software does that for you.
The final declaration is the one that matters. It is where the adjustments happen (capital allowances, private use, accruals, the Section 24 finance cost restriction), where any other untaxed income is reported, and where the actual liability is worked out. Nothing in the four quarterly updates is binding until the final declaration ties it together. For a plain-English walk through one specific deadline, read what goes into the quarterly update due 7 November 2026.
Payment dates do not change. The balancing payment and first payment on account are still due 31 January, the second payment on account 31 July. MTD changes the reporting rhythm, not the paying rhythm.
Software: what HMRC accepts and what we actually use for landlord clients
HMRC will only accept MTD submissions through recognised software, and the four products most of our landlord clients use are FreeAgent, Xero, QuickBooks Online and 123 Sheets. Spreadsheets are still acceptable in principle if they connect to HMRC through approved bridging software, but in practice most landlords find that route more painful than a proper bookkeeping app.
FreeAgent comes free with NatWest, Royal Bank of Scotland and Mettle business banking, which makes it the cheapest option for small portfolios. Xero is the strongest for portfolios above five properties and links well with most letting agents' export feeds. QuickBooks Online sits between the two. 123 Sheets suits landlords who already keep everything in Excel and want to bridge into MTD without changing their workflow. Whichever you pick, the software must keep the digital records itself (no manual retyping from a bank statement), send all four quarterly updates and file the final declaration. We compare the three main apps head to head in our MTD software comparison.
MTD penalties for landlords: the first-year rule most people miss
For the first MTD year, 2026/27, HMRC will not charge a penalty for a late quarterly update, although you still have to file it. From 2027/28 the points-based system switches on properly, mirroring the VAT regime HMRC introduced in January 2023: one point per missed quarterly or final deadline, a £200 penalty once you reach 4 points, then a further £200 for each later miss until the points clear after 24 months of compliant filing. HMRC's penalties guidance for MTD for Income Tax confirms both the no-penalty first year and the thresholds.
Late payment is a separate matter, and it can bite in year one. Interest runs from day one throughout, at 7.75 percent as at January 2026 (the Bank of England base rate plus 4 percentage points, per the HMRC interest rates page). HMRC gives a longer grace in the first year on the penalty side: 30 days from the due date to pay or agree a Time to Pay before any late payment penalty applies, dropping to 15 days from the second year. After the grace, a first penalty of 3 percent of the unpaid tax applies, a further 3 percent at day 30, and a 10-percent-per-year charge then accrues daily.
The first-year grace covers late quarterly updates, not late payment. You can be inside the no-penalty year for a missed update and still face interest and a late payment penalty if the tax itself is paid late. In 2026/27 the dates that cost you money are the payment dates.
Here is how the three common approaches actually compare for a landlord going into MTD for Income Tax:
| What you need | DIY / software alone | Generic accountant | LOYALS specialist |
|---|---|---|---|
| Tests the threshold on gross rent plus trading income | ✗ You self-assess | ● If asked | ✓ Built into onboarding |
| Models incorporation against staying individual before April 2026 | ✗ | ● Often a separate fee | ✓ Structure and Tax Review |
| Applies the Section 24 restriction correctly in the final declaration | ● Software dependent | ✓ | ✓ Checked every quarter |
| Files all four quarterly updates and the final declaration for you | ✗ | ● Year end only | ✓ Full cycle |
| Runs a 12-month tax projection each quarter so the bill is never a surprise | ✗ | ✗ | ✓ Standard |
| Open Mon to Sat for calls between viewings | ✗ | ✗ Mon to Fri 9 to 5 | ✓ 10am to 7pm Mon to Sat |
This is why landlords with more than one property tend to move to a specialist once the quarterly cycle starts.
What this means for you: what to do now
If your gross rent for 2024/25 was above £50,000, the practical question is not whether to comply but whether to comply as an individual or move the portfolio into a company first, and that decision needs modelling because a transfer can crystallise CGT on the equity and SDLT on the market value. If you decide to stay individual, here is the LOYALS checklist:
- Confirm the test. Check your 2024/25 return: gross rent plus any self-employment income above £50,000 means you are in from 6 April 2026.
- Pick recognised software and set it up with bank feeds and property categories. FreeAgent, Xero, QuickBooks Online or 123 Sheets all work.
- Sign up for MTD for Income Tax through your HMRC account, and authorise your accountant as your MTD agent if you use one.
- Run a parallel quarter on real data before your first live submission to catch category gaps.
- Diary the dates: 7 August 2026, 7 November 2026, 7 February 2027, 7 May 2027 for the updates, and 31 January 2028 for the final declaration.
- Protect the payment dates. In 2026/27 a late update carries no penalty; a late payment still carries interest and, after the 30-day grace, a 3 percent penalty.
The most common failure we see is landlords leaving the software setup until the last few weeks, then discovering the bank feed needs three clean months of data before the first submission makes sense. Set it up early. It is sequencing, not exotic planning.