Latest updates from HMRC
- Self-employed people who haven’t submitted their first quarterly update (which was due 7 August 2026) can still submit with no penalty for late submission
- From 6 April 2027, there’ll be a points-based penalty system for those who miss a quarterly deadline
- As of September 2026, HMRC started signing up those who are eligible for Making Tax Digital for the current tax year (2026-27), but who didn’t sign up themselves
How small business owners pay income tax is changing with the introduction of Making Tax Digital (MTD). From 2026, HMRC has phased in MTD for the self-employed and landlords – which will replace the annual Self Assessment process with quarterly tax updates.
According to our recent survey, almost half (46%) of small business owners are still unsure about how the upcoming Making Tax Digital rules will affect them. And a quarter said that fear of making mistakes was their biggest concern about it. We’re here to simplify the complicated bits.
We spoke to a small business tax expert, Mike Parkes, for his tips to help the self-employed adjust to the new Making Tax Digital legislation. Bringing more than 30 years’ experience in tax and finance, Mike’s worked for HMRC, in practice, and currently is Technical Director at !Coconut and GoSimpleTax.
Find out how to prepare for the Making Tax Digital changes, check if your business is affected, and see the key dates you need to know.
And if you’re a landlord looking to learn about Making Tax Digital, we have a whole other guide for you.
What is Making Tax Digital?
Making Tax Digital, or MTD, is a government initiative which will require small business owners and the self-employed to complete digital tax records and returns.
The government says that MTD aims “to help businesses get their tax right first time by reducing errors, making it easier for them to manage their tax affairs by going digital, and consequently helping them to grow.”
Making Tax Digital is being introduced in phases – with the changes to Self Assessment and income tax coming in from April 2026. MTD is already in place for VAT-registered businesses.
Watch our quick start guide video on Making Tax Digital to learn about the different start dates, plus what you can do to prepare for when your business becomes eligible.
MTD for income tax
Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) means that business owners will need to keep digital records of their finances and complete quarterly tax updates.
MTD will apply to your business from the following dates:
- April 2026: for sole traders and landlords with qualifying income over £50,000, based on their 2024/25 tax return
- April 2027: for those with qualifying income over £30,000, based on their 2025/26 tax return
- April 2028: for those with qualifying income over £20,000, based on their 2026/27 tax return
Qualifying income is the combined gross income from self-employment and property, before expenses are deducted.
From these dates, you’ll need to submit your quarterly tax updates using a Making Tax Digital-compatible software. We’ve reviewed the best Making Tax Digital accounting software here.
If you’re in a business partnership, MTD will also affect your business, though this date has yet to be confirmed.
Read more: Business tax – a guide for small businesses
MTD deadlines
Once you’ve found an MTD-compliant accounting software, you’ll need to remember to report your income for the following dates.
Quarterly MTD deadlines for the 2026-27 tax year
Instead of submitting an annual tax return, you’ll need to submit four quarterly tax updates by these dates:
- 7 August 2026
- 7 November 2026
- 7 February 2027
- 7 May 2027
You can submit these returns up to 10 days early if you know the quarterly information won’t change.
MTD deadline for final declaration
The final declaration for the 2026/27 tax year is due by 31 January 2028.
You’ll then need to submit a final declaration, or year-end tax return, by 31 January each year. This is effectively the new Self Assessment for someone within Making Tax Digital.
This is the year-end stage where you’ll confirm your overall tax position with HMRC. It includes information from your MTD quarterly updates and is also where you declare other income and claims, such as PAYE income, savings and investment income. So it’s essentially the information you previously would have included on your annual Self Assessment tax return.
Tax payment dates haven’t changed though, so tax owed for the previous tax year will be due by 31 January.
Expert tip: a quarterly update isn’t your tax return
Mike Parkes, tax expert and Technical Director at !Coconut and GoSimpleTax, says:
“It’s important to understand that quarterly updates aren’t the same as submitting your final tax return. They provide HMRC with summaries of your business income and expenses during the year, but you still need to complete a final declaration to confirm your overall tax position. Keeping your records accurate as you go can make that year-end process easier, while helping you maintain a clearer picture of how your business is performing.”
Read more: Is MTD replacing Self Assessment?
Getting MTD-ready in 4 steps
Preparing for the changes is simpler than you think. Just follow these four steps:
- Check your income: Look at your 2025/26 tax return to see if you cross the £30,000 or £50,000 threshold.
- Choose your software: Find an MTD-compatible accounting tool.
- Set up digital records: Start logging your income and expenses digitally.
- Sign up with HMRC for MTD: Sign up for MTD ahead of your deadline (HMRC will prompt you to do this if it thinks you’re over the threshold).
Choosing MTD-compatible software
To submit your quarterly updates, you’ll need to use software that’s recognised by HMRC. You can no longer use standard spreadsheets unless they are linked to HMRC-compatible “bridging software”.
There are plenty of flexible, low-cost options designed specifically for sole traders, including Sage, Xero, QuickBooks, and !Coconut.
Read more: Check out our guide to the best small business accounting software in the UK to find the right tool for your needs.
Download your free MTD readiness guide
Want to keep this information handy? Download our free MTD for Income Tax PDF. It includes all the key dates and steps you need to take to get your business ready for 2026.
Making Tax Digital records
The mandatory digital records you’ll need to keep include:
- self-employment income
- self-employment expenses
You’ll need to record the amount, date, and category for each item you record. You should also try to create your digital records as close to the date of the transaction as possible to get the most accurate financial impression of your business.
On top of this, you can choose to keep digital records of:
- other income sources (such as PAYE and dividends)
- disallowable expenses (such as expenses that weren’t fully for business use)
- simplified expenses
You’ll need to keep any digital records for at least five years after the 31 January tax year deadline – which is the same time needed for Self Assessment record keeping.
Expert tip: Keep your records up to date
Mike Parkes, tax expert and Technical Director at !Coconut and GoSimpleTax, says:
“One of the easiest ways to make quarterly reporting more manageable is to keep your income and expenses up to date throughout the year. Rather than trying to work through months of transactions just before a deadline, make a habit of reviewing your records regularly and checking that transactions have been categorised correctly. This can help you spot missing information or mistakes earlier, when they’re easier to put right.“
Sign up for MTD
Business owners are being encouraged to sign up for MTD early to avoid delays in their quarterly reporting.
You can register for MTD on the government website, as long as:
- your personal details are up to date with HMRC
- you’re a UK resident
- you have a National Insurance number
- you’ve submitted at least one Self Assessment tax return
- you’re up to date with your tax records
- you use one of the following accounting periods:
- 6 April to 5 April
- 1 April to 31 March
Making Tax Digital penalties
The penalties for failing to comply with Making Tax Digital are similar to Self Assessment. You could receive a penalty or fine for:
- missing a quarterly update or final declaration deadline
- missing a tax payment deadline
- persistently missing reporting or payment deadlines
Read more: A tax expert explains more about how to prepare for MTD and mistakes to avoid
MTD for income tax FAQs
When does MTD for Self Assessment start?
MTD is replacing the current Self Assessment system from April 2026 for self-employed and landlords who report an qualifying income over £50,000. Businesses that have a qualifying income of over £30,000 will need to use MTD from April 2027.
How does Making Tax Digital work?
Making Tax Digital means that businesses will have to keep digital records of their income. They’ll then need to submit quarterly reports to HMRC – as well as one final declaration and payment before 31 January of each tax year.
How does MTD work for business owners with multiple income streams?
If you have multiple sources of income, such as running multiple businesses, you’ll need to sign up for Making Tax Digital separately for each of them.
What happens if I’m below the threshold for Making Tax Digital?
If your qualifying income is less than the threshold for signing up to MTD then you don’t have to do anything. You don’t need to inform HMRC and you can continue filing your Self Assessment as you usually would.
More tax guides for small business owners
- Is Making Tax Digital replacing Self Assessment?
- Self-employed expenses in the UK – what can you claim?
- HMRC penalties for late tax returns and late payment
- Business tax – a guide for small businesses
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