Making Tax Digital for Income Tax: where things stand in October 2026

Information correct as at 27 October 2026. Every fact below is taken from HMRC guidance on GOV.UK, linked in the text and listed in full at the end.

Making Tax Digital (MTD) for Income Tax became mandatory on 6 April 2026. By August, HMRC reported that more than 570,000 sole traders and landlords had signed up and over 436,000 had sent their first quarterly update (HMRC press release, 12 August 2026). The next big step comes in April 2027, when the income threshold falls to £30,000. Here is where things stand.

Who has to use MTD for Income Tax?

MTD for Income Tax applies to sole traders and landlords who are registered for Self Assessment and have submitted a tax return. Whether, and when, you have to join depends on your qualifying income shown on an earlier tax return (HMRC: Use Making Tax Digital for Income Tax):

HMRC checks your Self Assessment return each year and writes to you to confirm your start date if you are over the threshold (HMRC: Find out if and when you need to use MTD for Income Tax).

What counts as qualifying income?

Qualifying income is your total income from self-employment and property before expenses – in other words, turnover, not profit. If you have more than one self-employment or property business, the figures are added together (HMRC: Work out your qualifying income).

HMRC’s guidance confirms that the following do not count towards qualifying income:

• employment income taxed through PAYE
• your share of partnership profits as an individual partner
• dividends, including dividends from your own company
• the State Pension and private pensions

If you own a property jointly, only your share of the income counts. HMRC gives two examples: £25,000 of rental income plus £27,000 of self-employment income gives qualifying income of £52,000; and a person who owns a property 50:50 with a sibling, earning £50,000 in rent between them, has qualifying income of £25,000.

What you have to do

1. Keep digital records

Your self-employment and property income and expenses must be recorded in software that is compatible with MTD for Income Tax. HMRC does not provide software itself. If you prefer to keep spreadsheets, you can, but you will need software that links to them (sometimes called bridging software) to send your updates and tax return (HMRC: Using MTD for Income Tax for the first time).

2. Send quarterly updates

Every three months you send HMRC a summary of your income and expenses for each sole trader or property business. Each update covers the tax year to date. They are summaries, not tax returns: you do not need to make accounting or tax adjustments, and you must still send an update for a period with no income or expenses (HMRC: Send quarterly updates).

You can instead choose calendar update periods (1 April to 30 June, and so on) with the same deadlines. You must select this in your software before sending your first update, and you cannot change it for the rest of that tax year.

Because each update is cumulative, mistakes can be corrected in your records and the corrections will flow through to your next update.

For 2026 to 2027, the next deadline is 7 November 2026, for the period 6 April to 5 October 2026.

3. Submit your tax return through your software

You still submit one tax return for each tax year, by 31 January after the year ends, but it is done through your MTD-compatible software. Before submitting, you check the figures, claim any reliefs and allowances, and add any other income and gains. For the 2026 to 2027 tax year, the deadline is 31 January 2028 (HMRC: Use Making Tax Digital for Income Tax).

Penalties

MTD for Income Tax users are under a new penalty regime from the tax year they join (HMRC: Penalties for MTD for Income Tax).

Late submission: each missed deadline earns one penalty point, and you can only get one point per deadline even if you have several businesses. When you reach 4 points, you are charged a £200 penalty, and a further £200 for each later missed deadline. Below the threshold, points expire automatically 24 months after the missed deadline.

2026 to 2027 easement: HMRC has confirmed that no penalty points will be issued for late quarterly updates in the 2026 to 2027 tax year. You must still keep digital records and send all the quarterly updates before you submit your tax return, and penalties for a late tax return and late payment still apply.

Late payment: HMRC’s guidance sets out the following for the 2026 to 2027 tax year:

• up to 15 days late: no penalty
• 16 to 30 days late: 3% of the tax owed at day 15
• 31 days or more late: 3% of the tax owed at day 15 plus 3% of the tax owed at day 30, plus an annual rate of 10% on the outstanding amount, charged daily from day 31

For 2027 to 2028, the day 15 and day 30 rates increase to 4%. In your first year under the new penalties, you have 30 days from the due date to pay in full or contact HMRC to set up a payment plan before penalties start. HMRC also states that from April 2027 the new penalties will apply to everyone who submits a personal Self Assessment tax return.

HMRC is signing people up

If your qualifying income on your 2024 to 2025 return was over £50,000 and you have not signed up or been signed up by an agent, HMRC has been signing people up in stages since September 2026. You will receive a confirmation letter in your HMRC online account or by post. HMRC asks you to check the income sources it holds, choose compatible software, catch up on your digital records and send any overdue quarterly update (HMRC: Check what to do if HMRC has signed you up).

Who is exempt?

Some people are exempt automatically and do not need to apply (HMRC: Find out if you can get an exemption). They include:

• people with qualifying income of £20,000 or less
• people who did not have a National Insurance number before the start of the tax year
• trusts and non-resident companies
• personal representatives of someone who has died
• people with a current power of attorney or a legally appointed deputy, controller or guardian because they are not able to deal with HMRC themselves

Some groups are exempt only temporarily – for example, until April 2027 for people who claimed averaging relief or qualifying care relief, or who included the trust income (SA107) or residence (SA109) pages, in their 2024 to 2025 return.

If it is not reasonable for you to use software – for example, because of age, health or disability, or because you have no internet access and no suitable alternative – you can apply for an exemption as digitally excluded. HMRC says that having filed on paper before, being unfamiliar with software, having few records, or the extra time or cost involved are not, on their own, reasons for exemption.

Partnerships do not currently need to use MTD for Income Tax. HMRC has said it will set out a timeline later.

What to do now

• Already in MTD? Make sure your 7 November 2026 update is on track, and that any missed August update has been sent. No penalty points this year does not mean the updates are optional.
• Turnover over £30,000 in 2025 to 2026? You will need to use MTD from 6 April 2027. Your 2025 to 2026 tax return, due by 31 January 2027, is the one HMRC will use to decide. Now is a good time to choose software and start keeping digital records.
• Turnover over £20,000? Your turn is likely to come in April 2028. Getting set up early makes the move easier.
• Not sure? Remember it is turnover from self-employment and property that counts, not profit.

Taxlab is a Xero Silver Partner and FreeAgent Certified Practitioner. We can help you choose software, set up digital records and handle your quarterly updates and tax return for you. Get in touch or message us on WhatsApp.

HMRC sources

• Use Making Tax Digital for Income Tax – introduction (GOV.UK, updated 16 October 2026)
• Send quarterly updates (GOV.UK, updated 16 October 2026)
• Using Making Tax Digital for Income Tax for the first time (GOV.UK, updated 16 October 2026)
• Find out if and when you need to use MTD for Income Tax (GOV.UK)
• Work out your qualifying income (GOV.UK, updated 11 September 2026)
• Penalties for Making Tax Digital for Income Tax (GOV.UK)
• Find out if you can get an exemption (GOV.UK, updated 28 May 2026)
• Check what to do if HMRC has signed you up (GOV.UK, updated 11 September 2026)
• 436,000 sole traders and landlords make their tax digital (HMRC press release, 12 August 2026)

This article is general information, not advice for your circumstances. Rules and HMRC guidance can change; please speak to us before acting on it.