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With a background in financial journalism across national titles, Ruby loves helping people take control of their money and specialises in pensions, tax, banking and benefits.
Making Tax Digital (MTD) is a plan to make the UK tax system fully digital. It began with the launch of MTD for VAT (for businesses and sole traders) back in 2019.
Instead of submitting one tax return at the end of the year. You'll keep digital records of your income and expenses, and submit updates to HMRC every three months, with a final declaration due by 31 January following the end of the tax year.
The goal is to reduce errors and help you see how much tax you owe throughout the year. HMRC says it should also make it easier to budget for your tax bill.
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MTD for income tax started in April 2026 and will be phased in gradually over the next two years. When you have to start following the requirements depends on how much money you make from your business or from renting out property.
| Earnings | Date MTD starts |
|---|---|
| More than £50,000 | April 2026 |
| More than £30,000 | April 2027 |
| More than £20,000 | April 2028 |
HMRC will write to you if you're affected to let you know when it's your turn to switch.
There are currently no plans to introduce MTD reporting requirements for those earning less than £20,000 a year. These individuals will continue to report their earnings and pay any tax they owe under the current self-assessment system.
Under MTD, there are three main steps:
The main deadlines for quarterly updates are:
Find out more: tax returns 2026: important deadlines
To comply with the MTD reporting rules, you must use HMRC-recognised software. HMRC doesn't have its own free software for this, so you'll need to use third-party software registered by HMRC.
There are currently more than 60 software products listed as registered, and these are aimed at both agents and individual taxpayers. HMRC’s MTD software list is updated regularly.
HMRC has launched a tool on Gov.uk to help you find the most suitable MTD software for your needs. It says MTD compliant software will cost a business up to £465 in the first year on average. This includes an average ‘one-off’ transitional cost of around £280 to £350 per business, plus an additional average annual cost of £110 to £115 for day-to-day use.
There are free MTD-compatible software options available, but these are generally designed for those with straightforward tax affairs. Free versions often have limited functionality and may not include tools such as invoicing, bank feeds or automated expense tracking.
Every business will have different accounting needs, and there are three different types of MTD-compliant software. These include:
You can also use a spreadsheet; however, you can't manually copy the figures into another program to complete your tax updates. The information must move between systems digitally to ensure it stays accurate and complies with the rules.
Features to consider when choosing your software include:
| Feature | What to check first |
|---|---|
| Invoicing and expenses | Can you create custom invoices, upload receipts and track mileage? |
| Bank fees and reconciliation | Does it link to your business bank account and automatically match transactions? |
| VAT and MTD compliance | If you’re VAT-registered, can it file returns directly to HMRC as well as meet MTD rules? |
| Self-assessment support | Does it provide profit-and-loss reports and exportable summaries? |
| Mobile access | Is there a reliable app for managing finances on the go? |
| Automation | Does it auto-match transactions, send invoice reminders and forecast tax? |
| Deadline reminders | Will it alert you to quarterly and final submission deadlines? |
| Scalability | Can you upgrade later to add payroll, stock control or multi-currency tools? |
| Support and integration | Is UK-based support available, and can it connect to your accountant or other apps? |
| Real-time tax estimates | Does it provide a running estimate of your tax bill as you log income and expenses? |
| Handling multiple income streams | Can it handle both property and sole trader income, with one final declaration? |
| Joint property support | Can it split income and expenses automatically by ownership percentage? |
To sign up for MTD, you'll need to provide HMRC with specific details regarding your active sole trader and property income. Individuals can sign up themselves, while agents can sign up on behalf of their clients.
You'll need the following information to do this:
You'll need to prove your identity during this process. You can use the Gov.uk ID Check App to match your face to a photo ID, or answer security questions based on your P60, payslips, passport or credit reference file.
Once you have gathered this data, visit the HMRC online sign-up service. Read the guidance provided, click the 'sign up now' button at the bottom of the page, and follow the instructions to sign in and register.
After signing up, you must link your software to HMRC. To authorise your software as a sole trader or landlord, follow these steps:
Once everything is set up, you'll use your software to keep digital records and submit quarterly updates to HMRC. You can also use your online account to check and change your business details.
Those registered for MTD can contact HMRC’s specialist support team.
Draw on our money guidance team’s decades of tax expertise to steer clear of penalties and make the most of allowances. You get unlimited access to them via phone with a Which? Money subscription.
Find out moreHMRC has a new points-based system for late returns under the MTD system. Under the new rules, you get one penalty point every time you miss a deadline.
These points add up, and you only have to pay a fine once you reach a certain limit. Your limit depends on how often you send your tax returns:
If you haven't reached the penalty point threshold, HMRC will remove each individual penalty point automatically after 24 months.
If you have reached the threshold for penalty points, you'll need to complete a ‘period of compliance’ to reset them to zero.
Late-payment penalties are also different under MTD. In your first year of new penalties, if your payment is more than 30 days late, HMRC will start to apply late-payment penalties to you. After your first year, the normal rules will apply.
This means if your payment is more than 15 days late, the tax office will start to apply late-payment penalties.
From the first day your payment is late, until you pay in full, HMRC will charge late-payment interest. This is the Bank of England’s base rate plus 4%.
| Timeframe | 2024-25 tax year (volunteer phase) | 2025-26 tax year onwards |
|---|---|---|
| Up to 15 days late | No penalty | No penalty |
| 16 to 30 days late | 2% of the tax owed at day 15 | 3% of the tax owed at day 15 |
| 31 days or more late | 2% of the balance at day 15 plus 2% of the balance at day 30 | 3% of the balance at day 15 plus 3% of the balance at day 30 |
| Ongoing penalty (applied daily from day 31) | 4% annual rate on the outstanding balance | 10% annual rate on outstanding balance |
If you're unable to pay, you'll need to contact HMRC as soon as possible and set up a Time to Pay arrangement. If a payment plan is agreed and taxpayers keep to that arrangement, the penalties will be paused.
Some individuals are automatically exempt from MTD for income tax and won't need to comply. These include:
These exemptions apply on a year-by-year basis, and you must review your eligibility regularly.
There's also a digital exclusion for MTD, which applies to those who can't reasonably comply with the requirements. This could be due to:
HMRC has indicated that ministers of religion, Lloyd's underwriters and those who claim the blind person’s allowance or married couple’s allowance will be brought in to MTD at some point in the future, but has not yet set out a timeline for those individuals.
We will update our guidance when more information is available.
You should apply before you, or the person you're applying on behalf of, needs to use MTD for income tax:
To apply for yourself or on behalf of someone else, contact the HMRC helpdesk for self-assessment general enquiries.
To apply for someone else as an agent, you will need to use the contact details from Agent Dedicated Line: Self Assessment or PAYE for individuals.
You can also write to HMRC by using one of the following subject titles on your letter:
If a health condition is making it difficult to contact HMRC about a MTD exemption, contact HMRC’s extra support team.
In your application, you'll need to provide your name, address, National Insurance number, and a clear explanation of why you can't comply.
HMRC will also need evidence, such as a doctor's note for medical conditions or a letter from a broadband provider confirming a lack of service in your area.
If you have an MTD for VAT exemption, you'll still need to contact HMRC and apply for an exemption for MTD for income tax.
Use the jargon-free calculator provided by GoSimpleTax to complete and securely submit your tax return direct to HMRC.
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