What Is MTD for Income Tax? A Plain-English Guide for Sole Traders and Landlords

The short version

Making Tax Digital for Income Tax Self Assessment (MTD ITSA) is a change to how sole traders and landlords report their income to HMRC. Instead of one annual Self Assessment return, you will submit a short income and expenses summary four times a year using HMRC-approved software.

The first phase started on 6 April 2026 for people with qualifying income over £50,000.

That is it. The concept is simple. The admin of getting set up is what catches people out.

Who does MTD for Income Tax affect?

MTD ITSA rolls out in three phases based on your qualifying income:

| Phase | From | Qualifying income threshold | |-------|------|-----------------------------| | Phase 1 | 6 April 2026 | Over £50,000 | | Phase 2 | 6 April 2027 | Over £30,000 | | Phase 3 | 6 April 2028 | Over £20,000 |

Qualifying income means your total gross income from self-employment and UK property combined. It is based on your income in the previous tax year. So if your 2024/25 total was over £50,000, you fall into Phase 1.

PAYE employees with no other income sources are not affected. Partnerships are expected to follow in a later phase not yet confirmed.

What is a quarterly update — and is it a full tax return?

No. A quarterly update is not a full tax return. It is a summary of your income and expenses for that three-month period.

You are not calculating your tax liability each quarter. You are just telling HMRC: "Here is what came in and what went out." HMRC uses this data to give you an estimated tax position during the year, but no payment is triggered by a quarterly update.

The four quarterly deadlines each year are:

• 5 August — for the quarter ending 5 July
• 5 November — for the quarter ending 5 October
• 5 February — for the quarter ending 5 January
• 5 May — for the quarter ending 5 April

What stays the same

Several things remain exactly as they were:

• January tax payment deadline is unchanged. You still pay your tax bill by 31 January.
• Self Assessment still exists, but is renamed. The annual return becomes a "final declaration" — you confirm your totals and add anything the quarterly updates did not cover (savings interest, dividends, gift aid etc.).
• Class 2 and Class 4 National Insurance still applies to sole traders as before.
• Your accountant can still do this for you, if they are set up for MTD on your behalf.

Free software options for MTD compliance

HMRC does not provide its own fully featured MTD software, but there are genuine free options:

HMRC Basic Tools — HMRC does publish a free tool for basic MTD submissions. It is no-frills but it is compliant. Suitable for people with simple income and expenses who are comfortable with basic spreadsheets.

Mettle / FreeAgent via NatWest or RBS — If you hold (or open) a Mettle business current account, you get free access to FreeAgent, which is full cloud accounting software with MTD built in. FreeAgent normally costs around £19/month. This is a genuine free route if you are willing to use their business banking.

QuickBooks Self-Employed — QuickBooks offers a starter tier and free trials. Not permanently free, but affordable at around £8/month.

Xero — Premium software, typically £16–33/month. Excellent for growing businesses but overkill for most sole traders just needing MTD compliance.

Bridging software — If you already keep records in a spreadsheet, bridging software pulls your data and handles the MTD submission. Some bridging tools have low-cost tiers.

4 things to do right now

1. Check your qualifying income. Look at your 2024/25 Self Assessment return and total your self-employment and property income. If it is over £50,000, you are in Phase 1.

2. Register for MTD via Government Gateway. Go to your Government Gateway account and find the MTD for Income Tax sign-up. You cannot use MTD-compatible software until you are registered.

3. Choose your software. Do not overthink this. If you want free, look at Mettle/FreeAgent or HMRC Basic Tools. If you want something polished and are willing to pay, QuickBooks or Xero are well-proven.

4. Start digital record keeping now. The quarterly deadlines begin in August 2026 for Phase 1. Your records for Q1 (April–July 2026) need to be in digital form.

The MTD Ready kit

If you want a step-by-step personalised checklist plus a side-by-side software comparison showing which option best fits your situation, the MTD Ready kit covers exactly this. One-time £29, instant download.

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Frequently Asked Questions

Does MTD apply to me if I am employed but also do some freelance work?

If the total of your freelance (self-employment) and any rental income exceeds the threshold (£50,000 in 2026, £30,000 in 2027), then yes, MTD applies to you. Your PAYE employment income is not counted in qualifying income for MTD purposes.

What happens if I miss a quarterly submission deadline?

HMRC has confirmed a grace period for the first year of MTD (2026/27 tax year) where people who are clearly trying to comply but make mistakes or miss a deadline will not be penalised. From 2027/28 onwards, the penalty points system applies: each missed submission adds a point, and once you reach the threshold, a £200 penalty is charged.

Do I need an accountant to use MTD?

No. MTD is designed to be used directly by taxpayers. However, many people choose to have an accountant handle their MTD submissions on their behalf. If your accountant is handling it, make sure they have you set up in their MTD agent software.

What is qualifying income exactly?

Qualifying income is the combined total of your gross income from self-employment (before expenses) and any UK property income (gross rent received). Income from employment (PAYE), pensions, savings, or dividends does not count towards the MTD threshold.

Will MTD change how much tax I pay?

No. MTD changes how and when you report income, not how tax is calculated. The same rules and allowances apply. Some people find that seeing a running tax estimate during the year helps them budget better, but the amount owed does not change.

What if I already use accounting software?

Check whether your software is on HMRC's list of MTD-compatible products. Most major providers (QuickBooks, Xero, FreeAgent, Sage) have added MTD support. Log in to your software and look for an MTD or Making Tax Digital section — you may just need to connect it to your HMRC account.