Making Tax Digital isn’t just about sending four updates a year. That is only one part of the process, and treating it as the whole thing is how businesses end up unprepared.
For sole traders and landlords within MTD for Income Tax, the idea is that your records are kept digitally throughout the year, and compatible software is used to report to HMRC.
Who it applies to
MTD for Income Tax applies from 6 April 2026 to sole traders and landlords with qualifying income over £50,000, based on the 2024/25 tax return. Lower thresholds follow in later years.
What the process actually involves
1. Keep digital records
Your business or property income and expenses need to be recorded digitally. For each transaction, records will generally include the amount, the date and the relevant income or expense category.
A folder of receipts and a spreadsheet filled in at year end does not meet this.
2. Use compatible software
Your records need to be kept in software that works with MTD for Income Tax. That software is then used to create and send your quarterly updates.
3. Send quarterly updates
Every three months, the software totals the income and expense information in your digital records and sends a summary to HMRC.
These are not separate tax returns, and each one is cumulative — it covers from the start of the tax year to the end of the relevant update period, not just the latest three months.
4. Keep the records accurate
If you spot an error during the year, correct the digital records. The intention is that your records become more accurate as the year progresses, rather than everything being fixed at year end.
5. Finalise at the end of the year
Once the tax year is over there is still more to do. You may need to review and amend figures, claim allowances and reliefs, and include other income that was not part of the quarterly updates. You then submit your tax return through compatible software.
So MTD is not simply “send four figures and you’re done”
It is a change in how records are kept throughout the year, with quarterly reporting sitting in the middle of that process. The quarterly updates are the visible part; the record keeping is the substance.
That is why getting the bookkeeping and software set up properly matters from the beginning. Software configured badly in April creates work every quarter for the rest of the year.
Penalties in the first year
For 2026/27, HMRC is not applying late-submission penalty points to quarterly updates during this first mandatory year. The quarterly reporting requirement itself still applies.
Two cautions. The easement covers the quarterly updates, not the year-end return. And it is temporary — it will not apply to those joining MTD in later years at lower thresholds.
The part worth highlighting
Many business owners see MTD as another administrative burden. I understand why.
I look at it slightly differently. Every three months, you will have an up-to-date picture of how your business is performing. If those figures are reviewed properly, they can help you spot trends, improve cash flow, prepare for tax liabilities and make better decisions during the year — not once the year has already ended.
The record keeping is being required of you anyway. Whether you get anything useful out of it is a choice. Reviewing those quarterly figures properly is not far from having management accounts.
Compliance is important. Understanding your numbers is where the real value lies.
If you are unsure whether MTD applies to you, or want help getting set up properly, book a consultation.
This article sets out general information and is not advice for your circumstances. MTD rules and thresholds change.
