Making Tax Digital 2026: Your Complete Guide

Making Tax Digital for Income Tax requires self-employed individuals and landlords to keep digital records and submit quarterly updates to HMRC instead of one annual tax return. It launches April 2026 for those with income over £50,000.

The system fundamentally changes how you interact with HMRC. Instead of scrambling once a year to gather receipts and complete your Self Assessment, you'll maintain digital records throughout the year using approved software and submit cumulative income and expense updates every three months. The traditional tax return is replaced by quarterly submissions, an End of Period Statement, and a final declaration. HMRC's goal is to modernise tax administration, reduce errors, and give both taxpayers and the tax authority real-time visibility into tax positions rather than working from year-old data.

MTD for Income Tax starts 6 April 2026 for self-employed individuals with gross income over £50,000. The threshold reduces to £30,000 from April 2027 and £20,000 from April 2028.

The phased rollout means different people will be brought into the system at different times based on their turnover levels. If your gross income from self-employment or property exceeds £50,000 in the 2025/26 tax year, you must be MTD-compliant from 6 April 2026. If you're below that threshold now but expect your income to grow, you should start preparing even if you're not legally required yet, because once you cross the threshold mid-year, you'll need to comply from the start of that tax year. HMRC is already sending notification letters to affected taxpayers, so check your correspondence and don't assume you have more time than you actually do.

Not yet. If your gross income is below £50,000, you're not required to use MTD until the threshold is reduced in 2027 or 2028. However, preparing now with digital record-keeping is advisable.

While you won't face penalties for non-compliance if you're under the threshold, there are good reasons to start preparing anyway. Moving to digital record-keeping now means you'll already have systems in place when you do need to comply, whether that's because the threshold drops or your income grows. Many accountants are already recommending their clients transition to MTD-style bookkeeping even if not legally required, because it provides better financial visibility throughout the year and makes tax planning more proactive rather than reactive. Plus, if you're anywhere close to the £50,000 threshold, you don't want to suddenly cross it and realise you're not ready to comply.

HMRC-approved MTD software includes Xero, QuickBooks, FreeAgent, and Sage. Your accountant can manage this software for you, handling all quarterly submissions as part of their service.

The software must be on HMRC's approved list and capable of connecting to their systems via API to submit quarterly updates digitally. Popular options like Xero and QuickBooks cost £20-£50 per month if you're managing them yourself, but they require you to understand how to categorise transactions correctly, set up tax codes, and ensure everything is recorded accurately. Many self-employed people find it more cost-effective to have their accountant manage the software as part of a comprehensive service. At LOYALS, our £600 annual MTD package includes the software, the setup, the quarterly filings, and ongoing support, which works out cheaper than DIY software subscription plus the time you'd spend learning to use it properly.

You submit quarterly updates (every 3 months) showing cumulative income and expenses, plus an End of Period Statement and final declaration at year-end. Four submissions per year instead of one annual return.

The quarterly deadlines are fixed: 31 July for the first quarter (6 April - 5 July), 31 October for the second quarter (6 July - 5 October), 31 January for the third quarter (6 October - 5 January), and 30 April for the fourth quarter (6 January - 5 April). Each update shows your cumulative position for the tax year to date, not just that quarter's activity. After the fourth quarter, you file an End of Period Statement confirming everything was accurate, followed by a final declaration by 31 January that's similar to the current Self Assessment return. That's six interactions with HMRC per year compared to the current one, which is why many people prefer having their accountant handle the entire process rather than managing it themselves.

Yes. LOYALS handles all MTD quarterly submissions for £600 per year. Send us your bank statements every 3 months and we prepare and file everything with HMRC on your behalf.

Professional MTD support is often the most cost-effective option when you factor in the time saved, stress avoided, and tax optimisations you'd miss doing it yourself. Here's how it works with LOYALS: every three months, you send us your business bank statements and any additional receipts. We categorise all transactions, prepare your quarterly update showing cumulative income and expenses, and submit it to HMRC before the deadline. At year-end, we handle the End of Period Statement and final declaration. If HMRC queries anything or you receive correspondence, we deal with it on your behalf. You get complete MTD compliance without needing to learn software, worry about deadlines, or stress about whether you've categorised something correctly. The £600 annual fee covers all four quarterly submissions plus year-end work and ongoing HMRC correspondence support.

Late submissions attract fixed penalties escalating with each missed deadline. Inaccurate submissions can result in percentage-based penalties. Penalties compound across four quarterly deadlines per year.

The penalty structure mirrors Self Assessment but with four opportunities per year to incur penalties instead of one. A late quarterly submission triggers a £100 fixed penalty initially, escalating with each subsequent late submission in the same tax year. If you're more than 3 months late, daily penalties of £10 per day apply (capped at £900), with further penalties at 6 and 12 months. Inaccurate submissions that understate your income or overstate expenses can result in percentage-based penalties ranging from 0% to 70% of the additional tax owed, depending on whether HMRC deems the errors careless, deliberate, or deliberate and concealed. Failing to keep digital records as required can attract up to £400 per quarter in penalties. When you're dealing with four deadlines per year, penalties can compound quickly if you fall behind or make errors, which is why having professional support to ensure everything is filed correctly and on time often pays for itself.

No. MTD for Income Tax applies only to sole traders and landlords filing Self Assessment. Limited companies file Corporation Tax returns separately and are not affected by this phase.

This is a crucial distinction that causes a lot of confusion. Making Tax Digital for Income Tax specifically targets individuals who currently file Self Assessment tax returns — meaning sole traders, freelancers, and landlords. If you operate through a limited company, you file a Corporation Tax return, not Self Assessment, and that filing process isn't changing under this phase of MTD. Limited companies already file digitally and have their own compliance requirements. If you're a director of a limited company and also earn self-employed income on the side, the MTD requirements would only apply to your self-employed earnings if they exceed the threshold, not to your company. Similarly, if you're a sole trader considering incorporating to avoid MTD, that decision should be based on broader business and tax considerations, not just the quarterly reporting requirements, because incorporation brings its own compliance obligations.

LOYALS offers complete MTD compliance for £600 per year, including quarterly filing, digital record-keeping, and year-round HMRC correspondence handling. DIY software costs £20-£50 monthly but requires your time and expertise.

Let's break down the true cost comparison. DIY approach: MTD-compatible software runs £20-£50 per month (£240-£600 annually), plus you need to learn how to use it properly, spend 3-5 hours per quarter categorising transactions and preparing submissions (16-20 hours per year), and hope you don't make errors that trigger penalties or miss tax-saving opportunities. Professional approach with LOYALS: £600 per year covers everything — software, setup, all four quarterly submissions, End of Period Statement, final declaration, and year-round HMRC correspondence handling. You send us bank statements every three months and we handle the rest. When you factor in the time saved (16-20 hours at your hourly rate), stress avoided, penalty insurance, and tax optimisations we identify that you'd likely miss doing it yourself, professional support often costs less than DIY when you account for all the hidden costs.

No. Once MTD applies to you, the annual Self Assessment is replaced by quarterly updates, an End of Period Statement, and a final declaration. The traditional tax return no longer exists for MTD taxpayers.

This is one of the biggest changes under Making Tax Digital — you can't opt out and continue with the old system. Once your income crosses the threshold and MTD becomes mandatory for you, the traditional Self Assessment tax return is gone. You must submit quarterly updates throughout the year, file an End of Period Statement after your fourth quarter, and complete a final declaration by 31 January. The final declaration is similar to the current Self Assessment in that it's where you claim additional reliefs and allowances that don't fit into the quarterly updates, but the core reporting of income and expenses happens quarterly. There's no "I'll just keep doing it the old way" option — HMRC's systems will expect quarterly submissions from you, and failing to provide them will trigger penalties. This is why preparing now is so important, even if you're not legally required yet, because once MTD applies to you, there's no going back to the simpler annual filing system.