MTD for Income Tax: The Complete UK Guide for 2026/27
Table of Contents
Still don’t know if it applies to you? (Real-Life Scenarios) |
As Making Tax Digital (MTD) moves into its next major phase it’s extending to Income Tax Self-Assessment (ITSA) from April 2026, with preparation requirements already beginning throughout 2025. According to HMRC’s impact assessment, more than 4 million taxpayers are expected to fall under MTD for ITSA, which means that millions of landlords, freelancers, and small-business owners across the UK will need to change the way they record and submit their tax information because of this.
In this guide, CIGMA Accounting, with offices across London will break down what MTD really means in practice. We’ll explain who needs to comply, the deadlines you must be aware of, how exemptions work, and the potential penalties for non-compliance, all clear, practical, and easy to act on.
What Is MTD for Income Tax?
Making Tax Digital (MTD) is HMRC’s long-term plan to modernise the UK tax system by requiring taxpayers to keep digital records and submit updates every quarter. It changes the way millions of UK taxpayers record and report their tax information. From April 2026, MTD becomes mandatory for:
- Self-employed individuals with income over £50,000
- Landlords with rental income over £50,000
- Partnerships from 2027
Instead of one annual Self-Assessment, taxpayers will submit:
- Four quarterly digital updates
- A year-end reconciliation (EOPS)
- A Final Declaration replacing the SA100
This is designed to give both taxpayers and HMRC a clearer, up-to-date picture of income, expenses, and estimated tax liabilities throughout the year, with fewer errors and a more accurate view of liability throughout the year.
At its core, MTD creates a seamless digital link between businesses, their approved accounting software, and HMRC. This eliminates processes like manual retyping, spreadsheets without digital links, and paper-based bookkeeping. Instead, it MTD focuses on automating submissions which significantly reduces the risk of errors, lost paperwork, and last-minute January rushes. For anyone who currently relies on paper records or Excel spreadsheets, the transition may feel daunting, but it also opens the door to more efficient financial management.
It’s the biggest change to personal tax administration in decades.
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Who Needs to comply and when in 2026?
MTD for Income Tax applies to most UK taxpayers who earn income outside the PAYE system. This includes:
- Self-employed sole traders – If your gross self-employed income is over £50,000.
- Property Landlords – All UK and overseas rental income count toward the threshold.
- Company directors with additional untaxed/side income – If you run a limited company but also: Rent out property, sell services as a sole trader, or earn untaxed digital income you may still fall into MTD even though your company is separate.
- Digital nomads & content creators/influencers – With UK sourced revenue Income from: social media, Affiliate marketing, or Online courses.
- Platform workers – Uber, Deliveroo, Etsy sellers, online tutors, etc.
- Partnerships – General partnerships join from April 2027.
Call-Out: Combined Income Rule (Frequently Misunderstood)
HMRC assesses the £50,000 threshold using your total relevant income from self-employment + property income. Even if neither source individually exceeds £50,000, you may still fall into MTD.
Future Rollout: 2026 and Beyond
HMRC’s planned timeline:
Year | Who joins |
2026 | Income over 50K |
2027 | Income 30K – 50K + general partnerships |
2028-2030 | Smaller businesses, complex partnerships, possible expansion |
Thresholds may evolve depending on how smoothly the early rollout performs.
Why MTD Matters (Benefits Beyond Compliance)
MTD isn’t just a legal obligation it brings meaningful long-term financial advantages.
- Real-time tax transparency – Quarterly updates allow you to forecast tax liabilities instead of waiting until January.
- Fewer errors – Bank feeds and automated categorisation reduce human mistakes.
- Better cashflow planning – With consistent updates, you can plan for payments on account more accurately.
- Reduced admin – Apps capture receipts, track mileage, and store documents automatically.
- Improved business decisions – More accurate, up-to-date financial data = better planning.
CIGMA Accounting supports clients by helping them integrate tools like Xero, Zoho Books, and QuickBooks. We ensure compliance without adding stress or unnecessary admin.
Real world example :
A landlord using Xero or Zoho Books can track rental income by property, automatically calculate finance costs, and produce clean quarterly summaries, reducing the risk of HMRC mismatches.
Require accounting services?
Get in touch with our expert accountants today! Contact us via WhatsApp for personalized financial solutions.
Key Deadlines and Quarterly Submission Dates
From April 2026, quarterly updates follow a regular reporting cycle.
Quarter | Covers | Deadline |
Q1 | 6 Apr – 5 Jul 2026 | 7 Aug 2026 |
Q2 | 6 Jul – 5 Oct 2026 | 7 Nov 2026 |
Q3 | 6 Oct – 5 Jan 2027 | 7 Feb 2027 |
Q4 | 6 Jan – 5 Apr 2027 | 7 May 2027 |
After Q4, you submit:
- EOPS (End of Period Statement)
- Final Declaration (include visual)
This replaces the old SA100.
Our latest presentation with Zoho books: Zoho books Official Page
Digital Records Explained (What Counts as “MTD-Compliant”?)
“Are spreadsheets allowed under MTD?”
“What counts as digital links?”
To comply with MTD for Income Tax, all taxpayers must maintain fully digital, audit-ready records. Below is a breakdown of what HMRC defines as “MTD-compliant digital record keeping” as all financial data to be kept in digital form and connected via digital links.
Your digital records must include:
- Invoices
- Rental income
- Expense receipts
- Bank transactions
- Mileage logs (if applicable)
- Categorised expenses
- Property-by-property rental summaries
What IS allowed:
- Cloud accounting software
- Bank feeds
- Scanned receipts
- Excel (ONLY with bridging software)
What is NOT allowed:
- Handwritten ledgers
- Paper-only receipts
- Spreadsheets that require copy-pasting
- Manual retyping into HMRC’s portal
MTD requires a clear, unbroken digital journey from source records to HMRC.
Best Software for MTD (Quick Overview)
- Xero – Excellent automation, easy bank feeds, strong for landlords and freelancers.
- QuickBooks – Great for beginners, strong mobile app, widely used.
- Sage – Robust, ideal for traditional businesses.
- Free Agent – Free for NatWest/Mettle business banking customers.
- Zoho Books – Affordable, clean interface, increasingly popular with digital service providers.
- Bridging Software – If you insist on spreadsheets — this is your lifeline.
Best for Landlords:
- Xero (strong property tracking)
- FreeAgent (good for simple single-property workflows)
Best for Creators & Digital Businesses:
- Zoho Books or QuickBooks (multi-currency, payout reconciliation)
[ EXTERNAL LINK TO THE OFFICIAL PAGES OF THESE SOFTWARE COMPANIES]
Choosing the Right Software (In-Depth Comparison)
Xero – Best all-rounder for growing businesses
- Highly accurate bank feeds
- Excellent automation rules
- Works well for multi-income users (rental + freelance)
- Scales easily
- Strong support ecosystem
Best for: landlords, freelancers, trades, digital creators.
QuickBooks – Best for ease of use
- User-friendly dashboard
- Great mobile app
- Fast setup
- Simple receipt capture
Best for: beginners, sole traders with straightforward income.
Zoho Books – Best value for money
- Very affordable
- Excellent customisation
- Integrates with 40+ Zoho apps
- Great for digital businesses
Best for: online businesses, creators, consultants.
Free Agent – Best for microbusinesses
- Free with Mettle/NatWest
- Simple user experience
- Great for one-person operations
Best for: part-time landlords, small service providers.
Sage – Best for traditional businesses
- Desktop + cloud options
- Good for businesses upgrading from legacy systems
Best for: established businesses transitioning from spreadsheets.
For more information read our blog on:
Step-by-Step Migration Guide (2025–2026 Preparation)
Most MTD problems arise not from quarterly submissions but from poor setup. Preparing your software, categories, and digital links in 2025/26 prevents penalties when MTD becomes mandatory.
Step 1: Choose your MTD software
Compare features, pricing, integrations, and your accounting needs.
Step 2: Set up your bank feeds
Connect all:
- Business accounts
- Rental accounts
- PayPal/Revolut/Stripe accounts
- Expense cards
Step 3: Clean up your categories
Many taxpayers incorrectly class transactions, leading to HMRC mismatches.
Create a consistent structure:
- Advertising
- Travel
- Rent
- Repairs
- Software
- Subscriptions
- Utilities
- Interest
Step 4: Import your historical data
Upload CSV files or past year records into your software.
Step 5: Test your first mock quarterly submission
A dry run helps you identify:
- Duplicate transactions
- Incorrect categories
- Missing invoices
- Rental classification issues
Step 6: Set monthly automation
Create rules:
- “Starling > Meta Ads = Advertising”
- “Stripe > Client Invoice = Sales”
- “BNP Paribas > Mortgage = Property finance costs”
Step 7: Schedule quarterly reviews
Even with perfect automation, you must review:
- Accuracy
- Missing receipts
- Rental property splits
- Mileage logs
- Adjustment requirements
How Quarterly Submissions Work
Step 1: Your bank feed collects data automatically
Every transaction flow into your software daily.
Step 2: You categorise income & expenses
Automation handles most of it, but checks are needed for accuracy.
Step 3: You (or your accountant) review your summary
This takes around 10–15 minutes if records are kept up to date regularly.
Step 4: Click “Submit Update to HMRC”
Your quarter assessment is filed digitally.
Step 5: Adjustments at year-end
EOPS corrects:
- Depreciation
- Finance costs
- Private use adjustments
- Accruals
- Capital allowances
Step 6: Final Declaration
Confirm your total tax position.
Common Mistakes and How to Avoid Them
Mistake 1: Mixing personal and business bank accounts
Creates reconciliation chaos.
Fix: Use a dedicated business or rental account.
Mistake 2: Not reviewing bank feed rules
Automation can misclassify income.
Fix: Review categories monthly.
Mistake 3: Missing digital links
Copy/pasting breaks compliance.
Fix: Use built-in integrations.
Mistake 4: Forgetting the EOPS
Quarterlies alone are not enough.
Mistake 5: Treating rental properties as one
HMRC requires property-by-property records for digital logs.
Mistake 6: Trying to DIY complex submissions
Adjustments require accounting knowledge, especially for landlords.
CIGMA Accounting often resolves issues before they become HMRC triggers.
MTD Exemptions
Full list:
- Low income (<£50,000) – you are currently outside the scope of MTD for Income Tax, though voluntary adoption is still encouraged.
- Digital exclusion – applies where someone cannot reasonably use digital tools due to: Age, Disability, or long-term health condition Location with unreliable broadband.
- Religious objection – Some individuals or communities have religious beliefs that do not allow the use of electronic records.
- Temporary issues – If a taxpayer faces a temporary issue that prevents compliance such as serious illness, a bereavement, unexpected technical failure, or a fire at business premises HMRC can offer temporary relief.
- Complex partnerships – partners whose individual income already falls under MTD obligations may choose to voluntarily align partnership records with digital standards now. This reduces reconciliation challenges later and helps ensure a smoother transition.
Exemptions must be formally requested; they are NOT automatic.
Evidence and Record Keeping
To qualify for any exemption, HMRC expects detailed evidence. This may include:
- Medical certificates
- Broadband coverage reports
- Written confirmation from a religious organisation
At CIGMA Accounting, we help clients compile the necessary documentation and complete exemption applications correctly the first time, reducing delays or rejections.
Why Voluntary Adoption Still Helps
Even if you are eligible for an exemption, moving to MTD-compatible software brings meaningful benefits:
- Automated syncing of income, expenses, and bank data
- Fewer manual errors
- Faster tax planning and more accurate forecasting
- Better financial visibility throughout the year
Voluntary compliance also demonstrates a proactive approach, which can reduce the likelihood of HMRC scrutiny.
Explore MTD for IT Taxpayer Exemption.
HMRC form — Apply for digital exemption
The three-year rule for MTD
What Is the Three-Year Rule?
If your qualifying income drops below the £50,000 threshold for three consecutive tax years, you will no longer be required to follow MTD rules.
Why Was This Rule Introduced?
The government recognises that income, especially for landlords and small traders can vary significantly from year to year. The Three-Year Rule ensures:
- Fairness for those with unstable or seasonal income
- Reduced administrative burden
- Only those with consistently higher income remain in the MTD system
Example of the Three-Year Rule in Practice
Tax Year | Total Relevant Income | Above £50,000 Threshold | MTD Requirement? |
2026/27 | £54,000 | Yes | MTD applies from 6 April 2026 |
2027/28 | £47,500 | No | Still required (only year 1 below threshold) |
2028/29 | £45,000 | No | Still required (year 2 below threshold) |
2029/30 | £44,000 | No | Three consecutive years below threshold reached – MTD requirement ends from 6 April 2030 |
Who Does the Three-Year Rule Apply To?
- Sole traders
- Landlords
- Individuals with combined income from self-employment and property
- Partnerships will follow from 2027, when further MTD phases begin
It does not apply to companies or limited liability partnerships.
In short: Once you enter MTD, you stay in until you record three full consecutive tax years below £50,000. A single high-income year resets the counter.
Penalties & HMRC Enforcement
From April 2026, MTD for Income Tax will operate under a new points-based penalty system , replacing the old model of immediate fines. The approach rewards consistent compliance and penalises repeated failures. Each missed obligation adds points, and once you reach your threshold, a financial penalty is automatically issued.
Offence | Points | Result |
Missing a quarterly submission | 1 point | 4 points = £200 fines |
Late filing of the End of Period Statement (EOPS) | 1 point | £200 fine per instance |
Late payment of tax due | 2 points | Daily interest + late payment surcharges |
Require accounting services?
Get in touch with our expert accountants today! Contact us via WhatsApp for personalized financial solutions.
*From official GOV.UK site*
Points expire
HMRC’s new system rewards consistent compliance. If you submit all updates and statements correctly for 24 months, your penalty points reset entirely, giving taxpayers a “clean slate”. However, if you continue missing deadlines and your points do not reset, penalties will accumulate quickly. Although HMRC’s aim is to encourage accuracy rather than punish taxpayers, the consequences can still be significant for those who fall behind.
Why HMRC Adopted This Approach
The new regime is designed to create a fairer and more proportionate system. Under the old rules, even minor delays triggered harsh penalties. The points-based model instead focuses on behaviour over time. Occasional slips are forgiven, but habitual lateness leads to action. This reduces the administrative burden on compliant taxpayers while ensuring persistent offenders face meaningful consequences.
How HMRC Detects Non-Compliance
MTD provides HMRC with near real-time access to digital data, supported by automated cross-checking tools. Using machine learning and integrated databases, HMRC uses digital cross-matching to identify:
- Underreported income
- Bank feed mismatches
- Rental discrepancies
- Repeated errors
If the system detects inconsistencies such as income that does not match bank deposits, HMRC may open a compliance review or investigation. With digital transparency, late filings, incorrect figures, or undeclared income these are flagged almost immediately.
Pitfalls that will lead to Penalties
- Submitting quarterly updates manually instead of using digitally linked records
- Missing the EOPS deadline after completing the quarterly reports
- Failing to keep digital records for each source of income (e.g., business and rental separately)
- Assuming an exemption applies without formally applying for it
- Relying entirely on software but not reviewing the figures before submission
Staying organised and addressing these areas early helps avoid unnecessary points.
GOV.UK Income Tax end-to-end service guide
Best Practices for Staying Penalty-Free
- Automate: Use cloud accounting software with daily transaction syncing.
- Delegate: Grant your accountant filing authority to prevent missed deadlines.
- Audit: Review income and expenses quarterly to catch discrepancies early.
- Educate: Ensure staff or partners understand the digital requirements under MTD.
Read Higher Penalties for MTD Filers.
HMRC guidance — Penalty reform for MTD.
Industry-Specific Guidance
Overview;
MTD for landlords
MTD for Airbnb
MTD for e-commerce sellers
MTD for tradespeople
MTD for creators and influencers
Landlords
You must keep digital records per property:
- Rent received
- Service charges
- Repairs & maintenance
- Mortgage interest
- Utilities
- Fees to letting agents
Overseas property income counts toward the threshold.
Airbnb & Holiday Let Owners
Additional complexity:
- Subsidiary services
- Cleaning fees
- Furniture replacements
- Occupancy tracking
MTD software can automate much of this.
E-Commerce Sellers
Special considerations:
- Multi-currency transactions
- PayPal fees
- Shopify/Stripe payouts
- Refunds and chargebacks
- Inventory adjustments
Choose software with strong integrations.
Tradespeople
Key needs:
- Mileage logs
- Tool purchases
- Consumables
- CIS deductions if applicable
Apps simplify receipt capture dramatically.
Creators & Influencers
Income can be dispersed across:
- Sponsorships
- Ad revenue
- Royalty payments
- Affiliate links
- Digital downloads
MTD ensures accurate multi-source tracking.
Still don’t know if it applies to you? (Real-Life Scenarios):
Example 1: Dual-Income Freelancer (Web Developer + Landlord)
James earns:
- £55,000 self-employed
- £12,000 rental income
- Additional affiliate income
Using compliant software under MTD regulations, he will need to submit quarterly income updates for both business and property income. Each submission will automatically feed from his connected bank feeds into his digital accounting system. This means no manual entry, fewer mistakes, and real-time visibility of his tax liability.
Example 2: Landlord with Overseas Property
Sarah owns:
- 3 small cottages – combined income £40,000
Broadband coverage in her village is inconsistent, and she prefers handwritten ledgers, so Sarah qualifies for a digital exclusion exemption. Although this is the case, CIGMA can introduce her to a mobile-based accounting app that syncs offline and uploads data when connectivity returns. If taking on this offer, Sarah will be able to enjoy a clear financial overview without losing her preferred low-tech workflow.
Example 3: YouTuber with inconsistent monthly income
Income fluctuates:
- £5,000 one month
- £700 the next
Because MTD uses yearly thresholds, not monthly, digital records keep things smooth despite variable earnings.
Glossary and compliant checklist to prepare for the MTD transition
Clear definitions:
- Digital Link: data transferred electronically with no manual retyping
- EOPS: End of Period Statement
- Functional Compatible Software: HMRC-recognised digital tool
- Final Declaration: Replaces SA100
- Bridging Software: Helps spreadsheet users remain compliant
- Quarterly Update: Summary of income/expenses
MTD Transition Compliance Checklist:
- Confirm Whether You Fall Within MTD Scope
Check if your total self-employment + property income exceeds £50,000 (mandatory from April 2026). Review secondary income streams (Airbnb, digital platforms, royalties, overseas income). Conduct quarterly turnover reviews to avoid unexpected threshold breaches.
- Choose HMRC-Approved MTD Software
Select a recognised provider: Xero, QuickBooks, Zoho Books, FreeAgent, or bridging software (if using spreadsheets). Verify that the MTD for ITSA module is activated.
- Set Up Digital Record Keeping
Create separate digital categories for each income source (e.g., self-employment, rental income). Enable automatic bank feeds for real-time data syncing, Store receipts digitally using apps such as Hubdoc or Dext. Eliminate manual re-entry as all data must pass through digital links.
- Integrate All Financial Systems
Connect invoicing, payroll, property management, and sales platforms into one ecosystem, avoid duplicate systems that require manual consolidation, confirm all integrations are MTD-compatible and tested.
- Establish a Quarterly Filing Routine
Add the four submission deadlines to your calendar now. Set automatic reminders (7 days before each deadline). Treat the EOPS as your fifth essential submission. Schedule quarterly review meetings with your accountant.
- Perform Regular Reconciliations
Reconcile bank data weekly, not quarterly. Check for mismatches between invoices, receipts, and bank transactions. Ensure totals align across all income sources before submitting update.
- Review Taxpayer Roles & Responsibilities
Formally authorise your accountant if they will submit updates on your behalf. Understand that HMRC still views the taxpayer as ultimately responsible. Clarify who handles quarterly submissions, EOPS, and record maintenance.
- Check Exemption Eligibility (If Applicable)
Assess whether you qualify for: Digital exclusion (age, disability, remote location), Religious exemption, Temporary relief (illness, bereavement, technical failure) Then gather supporting evidence in advance. Lastly submit exemption applications early via HMRC’s digital form.
- Strengthen Cybersecurity & Backups
Enable automatic data backups (cloud + local storage). Use two-factor authentication on all accounting systems. Protect devices with updated antivirus and password security.
- Train Your Team on MTD Processes
Provide staff training on digital record keeping and quarterly submissions. Ensure bookkeepers follow consistent categorisation and reconciliation practices. Document internal workflows for continuity and compliance.
- Audit Your Current Accounting Data
Identify errors, missing invoices, or duplicated transactions. Review VAT, PAYE, CIS, and company accounts for alignment with MTD data streams. Fix issues before they roll into the first quarterly submission.
- Plan Cash Flow for Real-Time Tax Updates
Use real-time tax calculations to prepare for upcoming liabilities. Integrate cash-flow forecasting tools or consult CIGMA’s advisory team. Maintain buffer reserves to avoid late-payment penalties.
- Begin Transition Early (Don’t Wait for 2026)
Start using MTD-compatible tools during 2025.Test all submissions in advance to avoid deadline stress. Use the voluntary period to refine workflows and correct errors early.
- Final Step: Conduct a Full MTD Readiness Review
Complete each checklist item. Ask your accountant to perform a final compliance check. Document your new MTD processes for long-term consistency.
FAQs
Yes, but as a Final Declaration.
Only after three consecutive years below the threshold.
Once a taxpayer enrols with MTD, they cannot simply exit the next year even if their qualifying income falls below the threshold. They must remain under MTD for at least three consecutive tax years. Only once they have had three full tax years in MTD with qualifying income below the threshold can they apply to exit.
Yes, but only with compliant software. It is best to check on HMRC official sites what software’s are allowed, and which are not or see our tailored guide
Yes, it applies to foreign property income if you are a UK resident and your total qualifying income exceeds the relevant threshold. Foreign properties must be reported separately from UK properties using MTD-compatible software.
Yes. Most taxpayers prefer this.
If your qualifying income falls below the threshold in one year but above in the next, HMRC looks at two consecutive tax years when assessing whether you must follow MTD rules. You only leave MTD when your income is below the threshold for three full tax years in a row. This helps prevent people “jumping in and out” of the system due to income fluctuations.
Yes, if you are a UK tax resident, foreign property income generally counts toward income thresholds for UK tax purposes, such as the Self-Assessment and MTD thresholds.
Yes. Exemptions apply regardless of income if you meet HMRC’s digital exclusion criteria.
HMRC only uses the previous tax year for assessment, so you join MTD the following tax year.
Explore: Higher Penalties for MTD Filers
HMRC guidance: Penalty Reform for MTD
Need Assistance with MTD?
At CIGMA Accounting, we combine MTD-ready digital systems, deep HMRC compliance expertise, and hands-on advisory support for freelancers, landlords, directors, and growing businesses. Our end-to-end MTD workflows cover digital record-keeping, quarterly submissions, software setup, and HMRC integrations — helping you stay compliant, avoid penalties, and eliminate last-minute filing stress.
Whether you’re based across London, our hybrid model gives you the best of both worlds: local advisory support backed by robust, HMRC-recognised cloud accounting technology.
Start your MTD journey with confidence. Book a free consultation with CIGMA and see how our proactive bookkeeping, MTD reporting, and ongoing tax support keep your business compliant, efficient, and fully prepared — now and for the years ahead.
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