The complete guide for sole traders and landlords. Who's affected, quarterly deadlines, the new penalty system, exemptions, and what you need to do now.
Last updated: 13 April 2026 · All information sourced from HMRC and Gov.uk
Making Tax Digital for Income Tax (MTD for ITSA) went live on 6 April 2026. It is the biggest change to how sole traders and landlords report their income since Self Assessment was introduced in 1996. If you're self-employed or earn income from property, here's everything you need to know about what's changing, who's affected, and when.
MTD for Income Tax replaces the traditional once-a-year Self Assessment process with a system of ongoing digital record-keeping and quarterly reporting. If you're within scope, you (or your agent) must use software compatible with MTD for Income Tax to:
HMRC does not provide its own software for MTD. You will need to choose a commercial product from the list of compatible software published on Gov.uk. Free options are available for those with simpler affairs.
A key point that many people miss: you must now submit your full Self Assessment tax return through your MTD software. HMRC's previous online Self Assessment filing service is not available to those within MTD. This was confirmed through legislation introduced ahead of April 2026.
MTD for Income Tax is being mandated in three phases based on your qualifying income. This is your total gross income from self-employment and property combined, before any expenses or tax are deducted. Employment income, pensions, dividends, and savings income are not included in the calculation.
| Phase | Start date | Income threshold | People affected |
|---|---|---|---|
| Phase 1 | 6 April 2026 | Over £50,000 | 864,000 |
| Phase 2 | 6 April 2027 | Over £30,000 | 1,077,000 |
| Phase 3 | 6 April 2028 | Over £20,000 | 975,000 |
Individuals with qualifying income of £20,000 or less have an automatic exemption. HMRC says it will continue to explore how to bring the benefits of digitalisation to this group in future.
HMRC reviews Self Assessment tax returns and checks qualifying income each tax year. If your income is above the relevant threshold, HMRC will write to you confirming that you need to start using MTD by the start of the upcoming tax year.
However, not receiving a letter does not mean you're exempt. It remains your responsibility to check whether and when you need to sign up. HMRC's online tool at Gov.uk can help you check your position.
Every three months, your software adds together your digital records for each business to create summary totals of income and expenses by category. These are your quarterly updates. You do not need to make any accounting or tax adjustments before sending them.
You must send a separate quarterly update for each self-employment income source and each property business you have — it is not simply one update per person per quarter.
Quarterly updates must still be submitted even where there has been no activity in the period.
| Quarter | Period | Deadline |
|---|---|---|
| Q1 | 6 April – 5 July | 7 August |
| Q2 | 6 July – 5 October | 7 November |
| Q3 | 6 October – 5 January | 7 February |
| Q4 | 6 January – 5 April | 7 May |
If you prefer, you can elect to use calendar quarter periods that end on the last day of the month: 30 June, 30 September, 31 December, and 31 March. This is particularly useful if your accounting period ends on 31 March.
The government has also introduced changes allowing customers with an accounting date of 31 March to start their MTD obligations on 1 April in the first year, avoiding the need for manual adjustments at year-end.
Our MTD Quarterly Tracker spreadsheet has all four quarter periods pre-set with submission deadlines, income and expense logs, and a submission-ready pack for your software.
View MTD Tracker — £5.99MTD for Income Tax introduces a new points-based penalty system that replaces the existing Self Assessment late submission and late payment penalties. The new penalties apply from the tax year you join MTD.
HMRC has confirmed there are no penalties for missing quarterly update deadlines during the 2026/27 tax year. This gives the first cohort of 864,000 taxpayers a full year to settle into the new system.
Penalties do still apply for late tax returns and late payment of tax during 2026/27. Only quarterly update penalties are waived.
It is important to note that HMRC has not confirmed whether this soft landing will apply to taxpayers joining in April 2027 or April 2028. Current indications are that the grace period applies only to the first cohort.
For each quarterly update or tax return deadline you miss, you receive one penalty point. You can only receive one point per deadline, even if you have more than one business and miss more than one quarterly update at the same time.
The penalty point threshold is 4 points. Once you reach it, you receive a £200 financial penalty — and a further £200 for each subsequent missed deadline while at or above the threshold.
If you are below the 4-point threshold, each point is automatically removed 24 months after the missed deadline. If you reach the threshold, all points can only be removed by meeting two conditions: achieving a period of compliance and submitting any outstanding quarterly updates and tax returns for the previous 24 months.
MTD for Income Tax penalty points are entirely separate from any VAT penalty points.
The new late payment penalties are proportionate to how long it takes you to pay. The sooner you pay, the lower the penalty.
| Year | Grace period | Day 15 | Day 30 | Day 31+ |
|---|---|---|---|---|
| 2026/27 | 30 days | 3% of tax owed | 3% of tax owed | — |
| 2027/28+ | 15 days | 4% of tax owed | 4% of tax owed | 10% annualised (up to 2 years) |
Late payment penalties do not apply to payments on account.
Separately from the points system, HMRC can charge a penalty of up to £3,000 for failure to keep or preserve adequate digital records or for a break in digital links within MTD software.
HMRC's current exemptions guidance separates exemptions into distinct categories. The structure is more nuanced than many summaries suggest.
The following groups are exempt without needing to apply:
If your 2024/25 tax return included any of the following, you are automatically deferred from MTD until April 2027:
If your 2024/25 return did not include these but you reasonably expect your 2026/27 return to, you must apply to HMRC for a deferral — it is not automatic in that case.
You can apply for an exemption if it is not reasonably practicable for you to use compatible software. HMRC gives examples including age, disability or health condition, practising membership of a religious society or order, and inability to access the internet due to location. HMRC has stated it will not accept applications based solely on unfamiliarity with software, having few records, or the prospect of extra time or cost.
Partnerships are not currently within scope of MTD for Income Tax. HMRC says it will set out the timeline at a later date. For now, partnerships continue to file through Self Assessment as normal.
However, individual partners who have personal sole trader or property income above the qualifying thresholds are already caught by the rules for that personal income.
Opting out is not straightforward. You cannot leave MTD simply because one year's income drops below the threshold.
To become eligible to opt out, your qualifying income must fall to £20,000 or less for three consecutive tax years. The exit check uses the fourth quarterly update for the third year, not the tax return. HMRC's own example shows that the earliest a taxpayer in the first cohort (April 2026) could opt out would be for the 2030/31 tax year.
If you're in the first cohort (qualifying income over £50,000), MTD is already live and HMRC says you should sign up now if you haven't already. If you're in the second cohort (over £30,000), you can volunteer now to get ahead and benefit from HMRC's dedicated support. Free software options are available.
Whichever cohort you fall into, the practical steps are the same:
Our MTD Quarterly Tracker has all four quarter periods, submission deadlines, receipt tracking, bank reconciliation, and a dashboard — ready to use from day one.
View MTD Tracker — £5.99This article is for general information only and does not constitute tax advice. MTD guidance is being actively updated as the system goes live — always verify key details against current Gov.uk guidance before acting. Article last reviewed against live Gov.uk sources on 13 April 2026.