How to Prepare for MTD for Income Tax

Tax Queen

Tax Expert @ Pie

5 min read

Making Tax Digital for Income Tax is HMRC’s new system for qualifying sole traders and landlords to keep digital records and report Self Assessment information using compatible software. The requirements are being introduced in stages, with mandatory start dates based on qualifying income reported on earlier tax returns. Affected taxpayers must keep digital records, send quarterly summaries of income and expenses to HMRC, and submit an annual tax return through compatible software. Quarterly updates are not separate tax returns and do not normally require a tax payment, while the annual return and tax payment continue to follow the relevant Self Assessment deadlines. Preparing early by checking whether MTD applies, registering for Self Assessment, choosing compatible software and maintaining regular digital records can help make reporting easier and reduce errors. Pie is designed to help UK taxpayers organise income, expenses and Self Assessment information in one place.

Keeping on top of your tax can feel like a full-time job, especially with the introduction of Making Tax Digital for Income Tax. You may be wondering whether MTD applies to you, when it starts, what the latest filing deadlines are, and what you need to do to stay compliant

This guide explains who must use MTD for Income Tax, how quarterly updates work, which digital records you need to maintain, and when your annual tax return must be submitted.

For a broader overview of the new system, read our guide to Making Tax Digital for Income Tax Self Assessment.

You can also learn more about Pie and how its digital tax tools can help you organise your records and prepare for the transition.

By getting ready early, you can avoid rushed record-keeping, missed deadlines and unnecessary problems with HMRC.

Woman working at a laptop surrounded by notebooks and plants, preparing her digital records for MTD for Income Tax

MTD for Income Tax: What It Is and Why It Matters

Making Tax Digital for Income Tax is HMRC’s new system for how qualifying sole traders and landlords manage and report their Self Assessment information.

Under MTD, affected taxpayers must:

Keep digital records of self-employment and property income and expenses
Use MTD-compatible software
Send quarterly summaries of income and expenses to HMRC
Submit an annual tax return through compatible software
Pay their tax by the normal Self Assessment payment deadline

MTD does not completely remove the annual Self Assessment tax return. You will still submit one tax return for each tax year and pay the amount due by 31 January following the end of that tax year.

The main difference is that your self-employment and property records must be maintained digitally, with summary information sent to HMRC throughout the year.

Quarterly updates are not separate tax returns, and you do not normally pay tax when each quarterly update is submitted.

If you are looking for a simpler way to understand and manage these requirements, see how Pie works.

When Does MTD for Income Tax Start?

MTD for Income Tax is being introduced in stages.

Your mandatory start date depends on the qualifying income reported on an earlier Self Assessment tax return:

Qualifying income

More than £50,000

More than £30,000

More than £20,000

Tax return HMRC checks

2024–25 tax return

2025–26 tax return

2026–27 tax return

MTD start date

6 April 2026

6 April 2027

6 April 2028

Woman writing notes at a desk with a laptop, working through her tax records"

Qualifying income generally means your total gross income or turnover from self-employment and property before expenses are deducted.

If you operate more than one sole trader business or receive income from more than one property business, the amounts may need to be combined when HMRC checks whether you are above the threshold.

You must generally be registered for Self Assessment and have submitted a tax return before you are required to use MTD for Income Tax.

HMRC may contact you if its records show that you need to join, but checking your position remains your responsibility.

Landlords and self-employed taxpayers can find further guidance in our article on HMRC’s digital tax rules for self-employed people and landlords.

Hourglass representing tax deadlines and preparation for Making Tax Digital reporting.

Important Tax Filing Deadlines for 2026 and 2027

People beginning MTD on 6 April 2026 must still complete their normal Self Assessment obligations for the previous tax year

For the 2025–26 tax year, which ended on 5 April 2026, the main deadlines are

5 October 2026: Register for Self Assessment if you need to file for the first time
31 October 2026: Deadline for most paper Self Assessment returns
30 December 2026: Deadline to submit online if you want eligible tax collected through your PAYE tax code
31 January 2027: Deadline for online Self Assessment returns
31 January 2027: Deadline to pay the tax due for 2025–26

MTD Deadlines for the 2026–27 Tax Year

The first mandatory MTD year runs from 6 April 2026 to 5 April 2027 for qualifying taxpayers with income above £50,000.

The main deadlines are:

MTD requirement

Start keeping MTD digital records

First quarterly update

Second quarterly update

Third quarterly update

Fourth quarterly update

Submit the 2026–27 annual tax return through MTD software

Pay the tax due for 2026–27

Deadline

6 April 2026

7 August 2026

7 November 2026

7 February 2027

7 May 2027

31 January 2028

MTD Benefits: Why the Change Matters

Making Tax Digital is more than a new way to send information to HMRC. It encourages sole traders and landlords to maintain accurate and up-to-date financial records throughout the year

Regular digital record-keeping can help you:

Identify missing income or duplicated expenses
Monitor your estimated tax position
Find bookkeeping errors sooner
Keep receipts and records organised
Avoid a large administrative rush in January
Make better financial and budgeting decisions

MTD-compatible software may also provide receipt scanning, automatic bank feeds, transaction categorisation and real-time tax estimates.

These tools can make it easier to understand how much money you may need to reserve for your tax bill.

However, the estimates shown after quarterly updates are not necessarily your final tax liability. Your final position can change when you add other income, capital gains, allowances, reliefs and year-end adjustments

Find out more about why Pie is designed to make tax management easier.

How to Prepare for MTD for Income Tax

1. Confirm Whether MTD Applies to You

Review the gross self-employment and property income shown on the relevant Self Assessment tax return.

Remember that the threshold is based on qualifying income before expenses, not taxable profit after expenses.

If you operate more than one sole trader business or receive income from different property businesses, the amounts may need to be combined.

2. Check Your Self Assessment Registration

You generally need to be registered for Self Assessment and have submitted a tax return before signing up for MTD.

Check that HMRC holds the correct information about your active sole trader businesses and property income sources.

If you use an accountant or tax agent, confirm who will complete the MTD registration and software authorisation process.

3. Choose MTD-Compatible Software

You will need software that can connect with HMRC’s MTD system.

Your software should be able to:

Create or receive digital financial records
Categorise income and expenses
Produce quarterly summaries
Submit quarterly updates to HMRC
Add other income, gains, allowances and reliefs
Submit your annual tax return

An all-in-one system may handle the complete process. Alternatively, you may use one product for bookkeeping and another for submissions, provided the information is transferred digitally.

Before choosing a platform, compare its features, pricing, HMRC compatibility and customer support. Our guide to the best UK tax software for Self Assessment in 2026 can help you assess your options.

4. Sign Up for MTD

Being registered for Self Assessment does not automatically mean you are signed up for MTD for Income Tax.

You or your authorised tax agent must complete the MTD registration process and connect your compatible software to HMRC.

Follow our step-by-step guide on how to sign up for Making Tax Digital before your first mandatory reporting deadline.

People who will not become mandatory until a later year may be able to join voluntarily, but they should understand the reporting requirements before doing so.

5. Start Keeping Digital Records

Do not wait until the first quarterly deadline to organise your records.

Set up your income and expense categories, connect relevant bank feeds where appropriate, and decide how receipts and invoices will be stored.

Creating a weekly bookkeeping routine is often easier than processing three months of transactions shortly before a deadline.

What Records Must Be Kept Digitally?

For MTD for Income Tax, you generally need digital records of your self-employment and property income and expenses.

Each digital record should normally contain:

The transaction amount
The transaction date
The relevant income or expense category

Examples include:

Sales and service income
Rent received
Professional fees
Stock and material costs
Travel expenses
Office costs
Repairs and maintenance
Other allowable business or property expenses

You do not normally have to keep transaction-level MTD records for every other source of personal income.

For example, savings income, dividends, pensions and capital gains may not form part of your quarterly bookkeeping records. However, they may still need to be included in your annual tax return

You must also retain the underlying records that support your tax return. Learn more about how long to keep records for Self Assessment

How Quarterly Updates Work

Quarterly updates contain summaries of the income and expenses recorded for each sole trader or property business.

They are not complete tax returns. They do not normally include every adjustment, allowance or source of income needed to calculate your final tax position.

If you have multiple businesses, you may need to send a separate quarterly update for each business.

Your compatible software should produce the summaries using the digital records you have maintained.

Before submitting an update, check your records for:

Missing transactions
Duplicate entries
Incorrect income or expense categories
Personal spending recorded as a business expense
Unreconciled bank transactions
Missing invoices
Missing rental or business income

Maintaining your records throughout the quarter can reduce errors and make each submission easier.

Submitting the Annual Tax Return Under MTD

After the end of the tax year, you must review the full-year information held in your software.

At this stage, you may need to:

Correct or adjust your business records
Add savings, dividend or pension income
Include capital gains
Claim capital allowances
Claim property or business reliefs
Add information already held by HMRC
Confirm your final tax calculation

You will then submit one annual tax return through your MTD-compatible software.

For the first mandatory MTD year ending on 5 April 2027, the annual return and tax payment are due by 31 January 2028

MTD Exemptions

Some people may be exempt from MTD for Income Tax. You may be able to apply for an exemption if it is not reasonably practical for you to use digital tools because of factors such as

Age
Disability
Where you live
Lack of reasonable internet access
Religious beliefs that prevent the use of electronic communications

Other exemptions may apply in specific circumstances.

Being exempt from MTD does not normally remove your wider tax responsibilities. You may still need to submit a Self Assessment tax return and pay your tax by the standard deadlines.

Contact HMRC as early as possible if you believe you may qualify for an exemption

MTD Penalties and the First-Year Grace Period

HMRC has confirmed that penalties will not be charged for missing quarterly update deadlines during the first mandatory MTD tax year, 2026–27.

However, this does not mean quarterly updates are optional.

You must still maintain digital records and submit all required updates before you can complete your annual tax return.

The first-year protection does not cover:

A late annual tax return
Late payment of your tax bill
Inaccurate information
Failure to meet other tax obligations

After the first year, the MTD penalty system can award points for missed submission obligations. Reaching the relevant points threshold may result in a £200 penalty.

Using reliable software, maintaining your records regularly and recording all deadlines in your calendar can help you avoid penalties

Why Use Pie for MTD Preparation?

Pie is designed to help UK taxpayers manage income, expenses and Self Assessment information in one place.

Rather than leaving your bookkeeping until the end of the year, you can keep your financial information organised as transactions occur.

Learn why Pie may be suitable for your tax needs, or learn more about Pie and its mission

Final MTD Preparation Checklist

Before your next MTD deadline, make sure you have:

Confirmed the date from which MTD applies to you
Registered for Self Assessment
Signed up for MTD for Income Tax
Selected compatible software
Added every active sole trader and property business
Started keeping digital income and expense records
Reconciled your business or property transactions
Checked the correct quarterly update period
Recorded the quarterly deadlines in your calendar
Planned for your annual tax return and payment deadline

Final Thoughts

Making Tax Digital changes how sole traders and landlords maintain and report their financial information, but it does not remove the annual Self Assessment tax return.

For taxpayers who entered MTD on 6 April 2026, the first four quarterly deadlines are: