Making Tax Digital for Income Tax: A Plain-English Guide for the Self-Employed (2026)

Making Tax Digital for Income Tax has arrived — and if you're self-employed, a sole trader, or a landlord earning above the threshold, it affects you now.

We know that any change to the way you deal with HMRC can feel daunting. There's a lot of information out there, and most of it either reads like a government leaflet or tries to sell you software before you've even understood what's happening.

So we've written this guide the way we'd explain it to a client sitting across the desk from us: in plain English, with practical steps, and without the jargon.

What is Making Tax Digital for Income Tax?

Making Tax Digital for Income Tax (MTD for IT) is HMRC's programme to move income tax record-keeping and reporting into the digital age.

In simple terms, instead of filing one Self Assessment tax return at the end of the year, you'll be keeping digital records of your income and expenses throughout the year — and submitting brief updates to HMRC every quarter.

Think of it less like filing four tax returns and more like keeping a running, organised record of your finances and checking in with HMRC four times a year. The goal is to reduce errors, reduce the end-of-year scramble, and give both you and HMRC a clearer, more up-to-date picture of your finances.

The annual process doesn't disappear entirely — you'll still complete a final declaration at the end of each tax year. But the big shift is that your records now need to be digital, and your reporting needs to happen in real time throughout the year.

Who Needs to Comply with MTD for Income Tax in 2026?

Here's who this covers:

• • Sole traders earning more than £50,000 from their self-employment
• • Landlords with rental income above £50,000
• • People with both sources of income — where your combined self-employment and rental income exceeds £50,000

A lower threshold of £30,000 is expected to apply from April 2027, broadening the requirement to even more self-employed people and landlords.

Important: it's gross income, not profit. This catches more people than you might expect. If your turnover is above £50,000 before expenses, you're in — even if your actual profit is much lower.

If you’re currently registered for Self Assessment and your income is close to these figures, it’s worth reviewing where you stand now rather than waiting.

What Do You Actually Need to Do?

This is the question most guides gloss over. Here's a practical, step-by-step breakdown.

Step 1: Get MTD-compatible software ✅

You'll need software that's approved by HMRC to keep digital records and submit your quarterly updates. You can't do this through HMRC's own systems alone — MTD compatible software is a requirement, not an option.

More on software options below — but getting this in place is the first and most important step.

Step 2: Start keeping digital records

From your MTD start date, all records of income and expenses must be kept digitally. This means using your software (or a spreadsheet with a compatible bridging tool) to log:

• • Income received from your business or rental property
• • Business or allowable expenses
• • Any other relevant financial records

The days of shoeboxes full of receipts translated into a spreadsheet once a year need to come to an end. Records must be maintained consistently throughout the year.

Step 3: Submit your quarterly updates 📋

Four times a year, you'll need to submit a quarterly update to HMRC through your MTD-compatible software. These updates summarise your income and expenses for that quarter.

The quarterly periods align with the tax year:

Each update is due one month after the end of the quarter. These are not tax payments — they're information updates. Your actual tax liability is still calculated at the end of the year.

Step 4: Submit your End of Period Statement (EOPS)

At the end of the tax year, you'll complete an End of Period Statement for each source of income. This is where you make any final adjustments, claim allowances, and confirm that your quarterly figures are accurate.

Step 5: Complete your Final Declaration

The Final Declaration replaces your annual Self Assessment tax return. It brings together all your income sources, confirms your total liability, and finalises your tax position for the year.

What If You Have Both Self-Employment and Rental Income?

If you're both self-employed and a landlord, your income from both sources is combined when assessing whether you meet the MTD for Income Tax threshold.

Example: You earn £32,000 from your sole trader business and £22,000 from rental income. Neither figure on its own crosses £50,000 — but combined, you have £54,000 in gross income. That means you're in scope for MTD from April 2026.

Here's what this means in practice:

• • You'll need to keep separate digital records for your self-employment and your property income
• • You'll submit separate quarterly updates for each income source
• • Both are brought together in your final declaration at the end of the year

This overlap catches a lot of people off guard, particularly in London where owning rental property alongside running a business is common. If you're in this position, it's especially worth getting organised early.

Which MTD-Compatible Software Should I Use?

There's no one-size-fits-all answer here, and we'd encourage you to look at a few options before committing. The main MTD compatible software packages used by self-employed people and landlords in the UK include:

• • QuickBooks — well-known, widely used, strong for sole traders with varied expenses
• • Xero — popular with small businesses, good accounting features
• • FreeAgent — designed specifically for freelancers and small businesses
• • Sage — established accounting software with MTD functionality
• • Landlord-specific tools — if property is your primary income source, look at specialist platforms built for landlords

HMRC maintains an approved software list on their website. When choosing, consider:

• • Ease of use — will you (or your team) actually log things consistently?
• • Cost — monthly subscription fees vary considerably
• • Integration — does it connect with your bank account for automatic transaction import?
• • Support — is there help available when you’re stuck?

If you have an accountant, it’s worth asking which software they work with — using the same platform makes collaboration much easier.

What Happens If You Don't Comply?

Here's how it works:

• • Each missed quarterly submission earns one penalty point
• • Once you reach a threshold of points (expected to be four for quarterly filers), a £200 financial penalty applies
• • Further missed submissions after the threshold result in additional £200 penalties
• • Points expire over time if you get back on track

There are also late payment penalties for tax paid after the deadline. The important thing to remember is that HMRC have signalled a supportive approach in the early stages — this isn't designed to catch people out. The penalty system is designed to encourage compliance rather than punish honest mistakes. But the more prepared you are, the less you’ll need to worry about it.

How a Making Tax Digital Accountant Can Help

At Sylwia Klocek Ltd, we've been supporting self-employed clients, sole traders, and landlords for over 21 years. MTD for Income Tax is a significant shift, but it's one we can make very straightforward for you.

Here's what working with us on MTD looks like:

• • We assess your position — whether you're in scope now, likely to be in scope soon, or can hold off for now
• • We help you choose the right software — and set it up correctly from the start
• • We handle your quarterly updates — so you don't have to think about deadlines
• • We review your records — catching anything that needs correcting before it becomes a problem
• • We complete your End of Period Statement and Final Declaration — everything tied together accurately and on time

You don't need to become an expert in Making Tax Digital. That's what we're here for. Whether you're a sole trader in West London, a landlord with a portfolio of properties, or someone managing a mix of both — we can take this off your plate completely.

Get in touch with our team today for a friendly, no-obligation conversation about your situation. Visit sylwiaklocek.co.uk or call us to speak with a member of the team.

Sylwia Klocek Accounting Ltd is an AAT-accredited accounting firm based in Brentford, West London. We have been supporting UK businesses and individuals for over 21 years.

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