Making Tax Digital is the most significant change to how UK businesses report tax information to HMRC in a generation. The programme began with VAT-registered businesses in 2019 and has since extended to all VAT-registered businesses regardless of size. It is now moving into income tax self-assessment on a phased basis from April 2026, with corporation tax expected to follow at a later date. For small business owners and landlords who haven’t yet engaged with the income tax phase, understanding exactly what is required, from when, and what happens if a deadline is missed, is a practical planning task that cannot be deferred indefinitely.
Who Is In Scope, and From When
MTD for Income Tax Self Assessment is being phased in over three years based on qualifying income, meaning gross income from self-employment and property before expenses are deducted, not profit. The phases are:
- From 6 April 2026: sole traders and landlords with qualifying income above £50,000, based on the income reported on their 2024/25 tax return
- From 6 April 2027: those with qualifying income above £30,000, based on their 2025/26 tax return
- From 6 April 2028: those with qualifying income above £20,000
Income from multiple sources is added together to test against the threshold. A landlord with £22,000 in rental income and a small self-employed sideline earning £29,000 has combined qualifying income of £51,000, which brought them into scope from April 2026 even though neither income stream alone crossed £50,000.
Once a business is mandated into MTD, it generally stays in even if income later drops below the threshold, though an exemption becomes available after three consecutive tax years below the relevant threshold. Partnerships are expected to be brought into scope in a later phase, with a timeline still to be confirmed by HMRC.
MTD for Corporation Tax remains at an earlier stage. A voluntary pilot has been running, but HMRC has not yet confirmed a firm mandatory implementation date for most limited companies, so directors of small companies do not currently need to plan around a fixed deadline in the way sole traders and landlords now do.
What Quarterly Reporting Actually Involves
The headline change is that the current annual Self Assessment return, for those within scope, is replaced by four quarterly updates plus a year-end final declaration. Each quarterly update is a running summary of income and expenses for that period, submitted using HMRC-compatible software, and the figures are cumulative rather than final. This means an error in an early quarter can be corrected in a later update or at the final declaration stage rather than requiring a formal amendment, which is a meaningful difference from how errors are currently handled under Self Assessment.
The four quarterly deadlines fall on the 7th of the month following each quarter end: 7 August, 7 November, 7 February, and 7 May. After the fourth quarterly update, a final declaration bringing everything together is due by the usual Self Assessment deadline of 31 January following the end of the tax year.
For someone in the first group required to join from April 2026, the final declaration for the 2026/27 tax year is due by 31 January 2028. It is worth being clear that quarterly reporting is not the same as quarterly tax payment: the actual tax bill is still calculated and paid under the existing January timetable, so cash flow planning around tax payments does not need to change even though the reporting frequency does.
Penalties, and the First-Year Soft Landing
HMRC has introduced a points-based penalty system for late submissions under MTD for Income Tax, similar to the regime already used for MTD VAT. Each missed quarterly update or final declaration deadline earns one penalty point, and reaching four points triggers a £200 fine, with a further £200 for every subsequent missed deadline after that. Points expire after a sustained period of compliance, generally 24 months of submitting everything on time, so a single further missed deadline within that window resets the clock.
There is a meaningful concession for the first cohort. HMRC has confirmed that no penalty points will be issued for late quarterly updates during the 2026/27 tax year, the first year the £50,000 threshold group is required to comply. This soft landing does not extend to the final declaration deadline of 31 January, and it does not extend automatically to later cohorts joining at the £30,000 or £20,000 thresholds in subsequent years, who face the full points-based system from their first year in scope. Late payment penalties, which are separate from the points system and apply on a sliding scale the longer a balance remains unpaid, are unaffected by the soft landing and continue to apply in the normal way.
Making the Software Transition
For businesses already using cloud accounting software such as Xero, QuickBooks, Sage, or FreeAgent, the practical transition is largely a matter of verifying that the specific product and version being used is on HMRC’s current list of compatible software, and understanding the new quarterly submission schedule within that software. Most major providers have built MTD-compliant quarterly submission directly into their existing platforms, so for these businesses the change is more procedural than technical.
For businesses still using spreadsheets or paper records, the change requires a more fundamental shift in day-to-day bookkeeping. Spreadsheet users are not necessarily excluded, since HMRC permits the use of bridging software that can extract data from a spreadsheet and submit it in the required digital format, but this route still requires consistent, well-structured record-keeping throughout the year rather than a single end-of-year reconciliation. The earlier this transition begins, the more time there is to identify and resolve problems, such as inconsistent categorisation of expenses or missing records, before compliance becomes mandatory and quarterly deadlines start to bite.
Exemptions Worth Checking
Not everyone with qualifying income above the threshold is automatically required to comply. HMRC allows exemptions on grounds including digital exclusion, where a person is unable to engage with the requirements for reasons such as age, disability, or lack of internet access in their area, among other specific circumstances. Anyone who believes they may qualify for an exemption should check HMRC’s current guidance directly rather than assuming eligibility, since the criteria are specific and an unsuccessful assumption could leave a business non-compliant without realising it.
How This Differs in Ireland
Making Tax Digital is a UK programme administered by HMRC and does not apply to businesses operating solely within the Republic of Ireland. Irish businesses file through Revenue’s Online Service, and the digital filing requirements, deadlines, and penalty structures that apply are entirely separate from the UK system. Irish sole traders and companies should refer to Revenue’s own published guidance for their filing obligations rather than assume any UK-specific detail described here applies to them.
Businesses operating across both jurisdictions, for example a business trading in both Northern Ireland and the Republic, need to understand which set of requirements applies to which part of their operation, since UK Making Tax Digital rules apply only to the UK side of that business and Revenue’s own digital requirements apply separately to the Irish side. Maintaining genuinely separate records for each jurisdiction from the outset avoids the confusion that comes from trying to retrofit one system’s records to satisfy the other’s requirements later.
FAQs
Do I need to comply with Making Tax Digital if my income is below £50,000?
Not yet, if your qualifying income from self-employment and property combined was below £50,000 on the tax return that determines your position for the current phase. The threshold falls to £30,000 from April 2027 and £20,000 from April 2028, so businesses below the current threshold will still need to prepare for a later phase rather than assuming they are permanently outside scope.
What happens if I miss a quarterly update deadline?
For the 2026/27 tax year, the first year the £50,000 threshold group is in scope, HMRC will not issue a penalty point for a late quarterly update, though you still need to submit all outstanding updates before you can file your final declaration. From the 2027/28 tax year onwards, and for later cohorts from their first year in scope, a missed deadline earns one penalty point, with a £200 fine triggered once four points accumulate.
Can I still use spreadsheets under Making Tax Digital?
Yes, provided the spreadsheet is linked to HMRC-recognised bridging software capable of submitting the required data in digital format. Simply emailing a spreadsheet to an accountant or submitting figures manually through the current Self Assessment portal will not satisfy the requirement once you’re in scope.
Does Making Tax Digital change how much tax I pay?
No. Making Tax Digital changes how and when information is reported to HMRC, through quarterly updates and a final declaration rather than a single annual return, but it does not change tax rates, allowances, or how your final tax liability is calculated. The tax bill itself is still settled under the existing January payment timetable.
When will Making Tax Digital apply to limited companies?
MTD for Corporation Tax remains at the voluntary pilot stage, and HMRC has not yet confirmed a firm mandatory date for most limited companies. Directors of small companies are not currently required to plan around a specific deadline, though this is worth checking periodically as HMRC’s plans develop.
