Making Tax Digital (MTD) for Income Tax Self Assessment is one of the most significant changes to the UK tax system in decades. With Phase 1 live as of April 2026, thousands of self-employed individuals and landlords must now keep digital records and submit quarterly updates to HMRC. This guide covers who is affected, what is required, the penalties for non-compliance, and how to get ready.
What Is Making Tax Digital?
Making Tax Digital is HMRC's programme to modernise the UK tax system by replacing paper-based record keeping and annual tax returns with digital records maintained throughout the year, submitted using compatible software.
MTD was first introduced for VAT in April 2019. Following that rollout, HMRC is now extending the programme to Income Tax Self Assessment (ITSA).
"Making Tax Digital is fundamental to the delivery of a trusted, modern tax administration system."
HMRC, Making Tax Digital policy paper
Key Dates and Phases
HMRC is rolling out MTD for Income Tax based on qualifying income (total gross income from self-employment and property, before expenses):
| Phase | Start Date | Who's Affected | Threshold |
|---|---|---|---|
| Phase 1 | 6 April 2026 | Self-employed & landlords | Income over £50,000 |
| Phase 2 | 6 April 2027 | Self-employed & landlords | Income over £30,000 |
| Phase 3 | TBC | All self-employed & landlords | Below £30,000 |
| Partnerships | TBC | General partnerships | TBC |
Your qualifying income is your total gross income from self-employment and property combined, not your profit. £35,000 from freelancing + £20,000 rental = £55,000 — firmly in Phase 1.
Who Needs to Comply?
1. Self-Employed Individuals
If you are a sole trader — freelance designer, plumber, consultant, or any unincorporated business — and your qualifying income exceeds the relevant threshold, you must comply from the applicable start date.
2. Landlords
If you receive income from UK property (including buy-to-let) and your total qualifying income exceeds the threshold, you are within scope — whether property income is your sole source or combined with self-employment.
3. Partnerships
General partnerships will be brought in at a later date. Limited partnerships and LLPs are not currently included.
Not affected: Limited companies (Corporation Tax), PAYE-only employees, and individuals below the current threshold.
What Does MTD Require?
Digital Record Keeping
You must maintain digital records of all business income and expenses using MTD-compatible software. Spreadsheets alone are not sufficient unless they connect to HMRC via API. Records must include date, amount, and category of each transaction.
Quarterly Updates
Instead of a single annual return, you must submit summary updates every quarter:
| Quarter | Period | Deadline |
|---|---|---|
| Q1 | 6 Apr – 5 Jul | 5 August |
| Q2 | 6 Jul – 5 Oct | 5 November |
| Q3 | 6 Oct – 5 Jan | 5 February |
| Q4 | 6 Jan – 5 Apr | 5 May |
End of Period Statement & Final Declaration
After year-end, submit an End of Period Statement for each income source, followed by a Final Declaration (replacing the traditional Self Assessment return). Deadline: 31 January following the tax year — same as current SA.
Compatible Software
You must use HMRC-recognised MTD-compatible software that stores digital records, generates quarterly updates, and submits them via HMRC's APIs. HMRC maintains a list on GOV.UK.
Penalties for Non-Compliance
HMRC has introduced a points-based penalty system:
Late Submission Penalties
Each missed deadline earns one penalty point. At four points, you receive a £200 penalty. Every subsequent late submission also triggers £200 until compliance is restored.
Late Payment Penalties
- Up to 15 days late: No penalty
- 16–30 days late: 2% of tax owed at day 15
- 31+ days late: Additional 2% at day 30, plus 4% per annum daily on outstanding amount
"The new penalty regime is designed to penalise those who repeatedly fail to comply, while being more lenient to those who make the occasional mistake."
HMRC guidance on MTD penalties
Step-by-Step Preparation Checklist
- Check if you're within scope. Calculate total qualifying income from self-employment and property.
- Choose MTD-compatible software. Ensure it supports digital records, quarterly submissions, and Final Declarations.
- Sign up for MTD with HMRC. Register through your Government Gateway account well before your first deadline.
- Digitise your records. Migrate income and expense data from paper or spreadsheets into your software.
- Set up bank feeds. Connect your business bank account for automatic transaction imports.
- Do a test submission. Many providers offer sandbox environments to practise before the first mandatory submission.
- Talk to your accountant. Discuss workflow changes — they may need agent authorisation to submit on your behalf.
- Set calendar reminders. Or use software that sends automated deadline reminders.
The best way to avoid penalties is to set up your software early, automate quarterly submissions, and never let deadlines creep up on you.
How PrimeInvo Helps with MTD
- HMRC-recognised MTD software — submit quarterly updates and Final Declarations without leaving the platform.
- Automatic digital record keeping — every invoice and expense is stored in the correct format.
- Quarterly summary dashboard — income and expenses broken down by quarter, showing what needs submitting and when.
- Deadline reminders — automated notifications before each quarterly submission.
- VAT + Income Tax in one place — if you're also VAT-registered, one platform handles both.
Get MTD-Ready Today
Start using PrimeInvo now to digitise your records, automate quarterly submissions, and stay fully compliant with Making Tax Digital.
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