Making Tax Digital for Income Tax: Thresholds & Dates

Making Tax Digital (MTD) for Income Tax has applied since 6 April 2026. It changes how sole traders and landlords keep records and report to HMRC. The first group joined with income over £50,000. The next group, with income over £30,000, starts on 6 April 2027, and HMRC is deciding who that is from 2025-26 tax returns filed now. This guide sets out the thresholds, the deadlines and the penalty rules as of October 2026, based on HMRC guidance on gov.uk. It also covers the position of British expats and other overseas landlords with UK rental income.

What MTD for Income Tax is

Under MTD for Income Tax you keep digital records of your self-employment and property income and expenses in HMRC-recognised software. Every three months you send HMRC a summary from that software, and after the year ends you file your tax return through the same software (or a linked product). Self Assessment still exists and the 31 January filing and payment deadline is unchanged. What changes is the record-keeping method and the extra in-year reporting.

It applies to individuals who are registered for Self Assessment and have self-employment or property income, or both, above the relevant threshold. Partnerships are not yet in scope: HMRC says it will set out their timeline later. HMRC said on 23 July 2026 that more than 864,000 sole traders and landlords were within scope for the first year.

Thresholds and start dates

The test uses qualifying income: your total self-employment and property income before expenses (turnover), taken from the tax return for the relevant earlier year. HMRC looks at the return two years before your start date, so 2025-26 income (the return due by 31 January 2027) decides who starts in April 2027.

Because the test is gross income, a landlord with modest profits can be in scope. Take a landlord whose UK rent for 2025-26 was £34,000, with £12,000 of mortgage interest, repairs and agent fees. Profit is £22,000, but qualifying income is £34,000. That is over £30,000, so MTD applies from 6 April 2027.

Income sources are added together. HMRC's own example is £25,000 of rent plus £27,000 of self-employment income, which gives £52,000 of qualifying income. A sole trader with £18,000 of turnover and £9,000 of rent (£27,000 in total) in 2025-26 misses the April 2027 threshold. But if the 2026-27 total is above £20,000, MTD starts on 6 April 2028.

• Jointly owned property: only your share counts. A £50,000 rent shared equally gives each owner £25,000.
• Not counted: employment (PAYE) income, your share of partnership profit, dividends (including from your own company), the State Pension and private pensions.
• VAT-registered on the cash basis: if you declare turnover including VAT, the VAT counts towards qualifying income.
• Short first year: HMRC annualises a sole trader's income. Six months' trading is doubled. Landlords must annualise property income themselves.

Quarterly updates and the final declaration

A quarterly update is a set of category totals (for example rent, repairs, travel). It is not a tax return, and you do not need to make accounting or tax adjustments before sending it. Each update is cumulative, running from the start of the tax year to the end of the quarter, so correcting an earlier quarter only means fixing the records and sending the next update. You must send an update for each self-employment and for each property business, even when there was no income or expenditure in the period.

Calendar periods suit businesses whose accounting year ends on 31 March. You must choose them in your software before your first update, and you cannot change them mid-year once an update has been sent. You can send an update any time after the period ends, or up to 10 days early if you expect no further transactions.

1. 1Keep records as you goRecord each income and expense item in the software (amount, date and category) throughout the quarter.
2. 2Send four quarterly updatesCheck the totals the software produces and submit by 7 August, 7 November, 7 February and 7 May. After each one you can see an estimate of your tax bill.
3. 3Correct and finalise the yearIf records change after the fourth update, resend it. Then make year-end adjustments such as disallowable expenses, capital allowances or simplified expenses.
4. 4Submit the tax return through softwareAdd other income (employment, dividends, savings, partnership share) and submit by 31 January after the tax year. This is the step older guidance calls the final declaration. Pay any tax due by the same date.

Exemptions

If you are exempt you keep filing a normal Self Assessment return. Some exemptions are automatic, based on what HMRC already holds. Others need an application. HMRC also separates permanent exemptions from temporary ones that last until April 2027 at the earliest.

HMRC will not accept a digital exclusion application based only on having filed on paper before, being unfamiliar with accounting software, having few records, or the extra time or cost involved.

Expats and non-resident landlords: does MTD apply to you?

This matters for British expats in the Gulf who still let UK property. HMRC answers it in two parts: what counts as qualifying income, and a temporary exemption.

What counts if you are not UK resident

If you were not UK tax resident, your qualifying income is your UK property income plus any self-employment income you declare on your UK Self Assessment return (including any trade of dealing in or developing UK land). Foreign property income, and self-employment income not declared on your UK return, is ignored. HMRC's example is someone tax resident in Spain who lets a UK flat and runs a business in Spain: only the UK rent counts. If you are UK resident, by contrast, both UK and foreign property income count.

The SA109 exemption runs out in April 2027

If your 2024-25 return included the SA109 supplementary page (used by non-residents, among others), you are automatically exempt for 2026-27. If you did not file it then but reasonably expect to in 2025-26 or 2026-27, you need to apply. Either way the exemption is temporary. HMRC says you will need to use MTD from 2027-28 if your qualifying income for 2025-26 is more than £30,000.

Worked example: a UK citizen living in Dubai lets a London flat for £3,000 a month. Gross rent for 2025-26 is £36,000 and profit after costs is about £20,000. She filed the SA109 page, so she was outside MTD for 2026-27. Her qualifying income is £36,000, which is over £30,000, so she must keep digital records and send quarterly updates from 6 April 2027. Her first update is due on 7 August 2027. If her rent had been £28,000, she would instead be measured against £20,000 on her 2026-27 return, and would join from April 2028.

Choosing compatible software

HMRC does not supply free MTD software of its own and does not recommend products. Its online software finder lists products that have been through HMRC's recognition process. There are two types:

• Record-keeping software creates the digital records, through bank feeds, receipt scanning or manual entry. It usually sends quarterly updates and files the tax return too.
• Bridging software connects to records you already keep, typically spreadsheets, and makes the submissions to HMRC.

Whichever you choose, it must support every one of your income sources, send quarterly updates and the tax return, let you report your other income (pensions, dividends, a partnership share), and work with your accounting period. You can split tasks across products, but only one product per submission. A landlord cannot send property updates from two different tools. If you are VAT registered, check whether your existing MTD for VAT software also covers Income Tax. Free products exist but may cap the number of transactions.

If you want help comparing and setting up a tool, see our accounting software solutions service.

Digital record-keeping in practice

Each digital record needs three things: the amount, the date received or incurred, and the category, using the same income and expense categories as Self Assessment. HMRC does not see individual invoices or receipts, only the totals. You must still keep the original documents, such as bank statements and invoices.

• Several trades: keep separate records and send separate updates for each self-employment.
• UK lets: all your UK properties form one UK property business and need one set of updates.
• Overseas lets (UK residents): keep records per foreign property. The software combines them into one foreign property update.
• Bank feeds: imported transactions often still need a Self Assessment category, and some items will not appear in the feed at all.
• Digital links: if records move between products, the link must be digital (CSV import, API or linked spreadsheet cells), not retyped or copied and pasted.

Mixed-use costs can be recorded in full and adjusted at year end. For a £200 phone bill with £75 of personal calls, you can record the £200 and the £75 disallowable part, or record only the £125 business portion. The habit that makes quarterly reporting painless is a short monthly routine: categorise transactions, match receipts and reconcile the bank. Our month-end close checklist covers it, and some owners hand the whole job to a cloud bookkeeping service.

Penalties: the points-based regime

MTD participants move to new late submission and late payment penalties from the tax year they join. For the April 2026 cohort, the 2025-26 return due 31 January 2027 still falls under the old Self Assessment penalties.

• 2026-27: HMRC will not issue penalty points for late quarterly updates. Points still apply to a late tax return, and all quarterly updates must be sent before the return can be filed.
• From 2027-28: each missed quarterly or return deadline earns one point, however many businesses were late. At 4 points you pay £200, and another £200 for each further missed deadline.
• Clearing points: below the threshold, each point expires 24 months after the missed deadline. At the threshold, you need 12 months of on-time submissions and must have sent everything outstanding for the previous 24 months.
• Separate from VAT: MTD Income Tax points are counted separately from any VAT penalty points.

Late payment penalties are not points based. For 2027-28 tax, nothing is charged up to day 15. Then 4% of the tax still owed at day 15 is charged, a further 4% of the amount owed at day 30, and from day 31 a 10% annual rate, charged daily, for up to 2 years. (For 2026-27 the two percentages are 3%.) In your first year under the new rules, the penalty-free window is 30 days instead of 15. Example: someone who has been in MTD since April 2026 owes a £10,000 balancing payment for 2027-28, due 31 January 2029, and pays it 45 days late. The penalties are roughly £400 + £400 + about £41, plus late payment interest. Agreeing a payment plan with HMRC before penalties start pauses them while you keep to the plan.

Getting ready for April 2027

If you are near £30,000 of gross income, the 2025-26 return you file by 31 January 2027 settles the question. To sign up, you must be registered for Self Assessment and have submitted a return in the last 2 years.

1. 1Add up gross incomeTotal your 2025-26 self-employment turnover and property income (your share only for joint lets) before expenses, then compare it with £30,000.
2. 2Check exemptionsUse HMRC's online checker. Non-residents should note that the SA109 exemption covers 2026-27 only.
3. 3Choose and authorise softwarePick a product from HMRC's software finder that covers all your income sources, then authorise it with HMRC.
4. 4Sign up before the tax yearSign up yourself on gov.uk or have your agent sign you up, so the software is connected before 6 April 2027.
5. 5Start digital records on day oneRecord from 6 April 2027 (or 1 April with calendar periods) and diarise 7 August 2027 for the first update.

HOF Partners works with UK landlords and sole traders, including those based in the UAE, on software setup and quarterly bookkeeping. See our accounting software solutions page for how that works.