Making Tax Digital (MTD) – What You Need to Know in 2026
Making Tax Digital (MTD) is HMRC’s new way of collecting tax information using approved digital software. It changes how VAT and Income Tax are reported and replaces parts of the traditional Self Assessment system.
From April 2026, many self-employed individuals and landlords will be required to comply with MTD for Income Tax.
If you are unsure whether it applies to you, we explain everything below.
What is Making Tax Digital?
Making Tax Digital is HMRC’s system that requires businesses and individuals to:
Keep digital records of income and expenses
Use HMRC-approved software
Submit tax updates electronically
Send quarterly updates instead of one annual return
The aim is to reduce errors and modernise the tax system, but for many small businesses and landlords it means a significant change in how records are kept and submitted.
When Did Making Tax Digital Start?
Making Tax Digital for VAT began in April 2019.
It applies to most VAT-registered businesses, who must:
Keep digital VAT records
Submit VAT returns through compatible software
If you are VAT registered, you are almost certainly already within the MTD system.
When Does MTD Apply to Income Tax?
Making Tax Digital for Income Tax (MTD ITSA) begins in stages:
From April 2026 – self-employed individuals and landlords with income over £50,000
From April 2027 – those with income over £30,000
Income means total self-employment and/or property income before expenses.
If you fall within these thresholds, you will need to:
Keep digital records
Submit quarterly updates to HMRC
Submit a final declaration at the end of the tax year
This will replace the current Self Assessment process for those affected.
Does MTD Apply to Sole Traders?
Yes — if your total self-employment and/or rental income exceeds the thresholds above.
MTD does not currently apply to:
Individuals who only receive employment income
Company directors reporting only through Corporation Tax
Those below the income thresholds
However, many smaller businesses choose to move to digital bookkeeping voluntarily.
When Will Making Tax Digital Become Compulsory?
Here is a simple timeline:
| Tax Type | Mandatory From |
|---|---|
| VAT | April 2019 |
| Income Tax (over £50,000 income) | April 2026 |
| Income Tax (over £30,000 income) | April 2027 |
HMRC may expand the system further in future years.
What Do I Need to Do?
If MTD applies to you, you will need to:
Register for MTD with HMRC
Choose compatible accounting software
Keep your records digitally
Submit quarterly updates
Submit a final declaration at year end
Many people find the quarterly reporting requirement the biggest change, particularly landlords who previously only completed an annual tax return.
MTD for Landlords
If you receive rental income above the income thresholds, MTD will apply to you.
This means:
Recording rental income and expenses digitally
Submitting updates every quarter
Ensuring your records are accurate throughout the year
For landlords with multiple properties, this can significantly increase administrative work unless the right systems are in place.
How Penny Lane Accountants Can Help
Making Tax Digital does not need to be stressful.
At Penny Lane Accountants, we:
Register you for MTD
Recommend and set up compliant software
Manage your bookkeeping if required
Submit your quarterly updates
Handle your final declaration
Ensure you remain fully compliant with HMRC
Whether you are a sole trader, landlord or small business owner, we make the transition straightforward.
Unsure Whether MTD Applies to You?
If you are unsure whether Making Tax Digital affects you, we offer a free initial discussion to review your position and explain your obligations clearly.
Get in touch with our Chester-based team today and let us take the complexity out of MTD.
