4 ways to prepare for Making Tax Digital for income tax

Taxpayers are being urged to prepare for the next stage of the Making Tax Digital (MTD) roll-out.

The MTD program, which began with VAT in 2019, will enter its next phase for income tax in April 2026. 

At that time, sole traders and landlords with an annual income over £50,000 will be required to use the new tax reporting system. 

Here, Which? gives you a breakdown of HMRC's MTD roll-out and highlights four things you should do now to help you prepare for the change. 

Why is HMRC making the change?

MTD is a key part of the government’s plan to digitalise the tax system. 

The shake-up will change how some taxpayers maintain their accounting and tax records and how they transact and communicate with HMRC.

The government claims that the change will save time and reduce scope for error. 

Craig Ogilvie, director of Making Tax Digital at HMRC, described the MTD as the biggest transformation since self-assessment was introduced in 1997.

He said it would 'make life easier' for sole traders and landlords by spreading the workload of tax reporting across the year.

• Find out more: UK income tax rates 2025-26 and 2024-25

How many people will be affected?

Of the seven million UK taxpayers with self-employment or property income, HMRC expects around 2.9 million will eventually need to comply with MTD. 

The first part of the MTD roll-out will apply to about 864,000 people.

A further 1.08 million people will be added in April 2027, and another 975,000 in April 2028. 

The data, published in August, revealed that a third of those affected, particularly around 216,000 in the first wave, do not use an accountant, and most do not currently use commercial software to file their taxes.

• Find out more: how rental income is taxed

4 things to do now to prepare for MTD

With eight months to go before the first stage of the roll-out, HMRC is urging taxpayers to prepare for the changes. Here are a few things you should do now:

1. Check whether it applies to you

As mentioned before, MTD for Income Tax is being introduced in phases. From next year, sole traders/landlords with a gross trading/rental income of £50,000 (before any tax expenses) must comply with MTD for Income Tax requirements.

If you earn less, then you will not be included this time round. From April 2027, the threshold will be lowered to £30,000. The final phase, coming in April 2028, will require those with a gross trading or rental income between £20,000 and £30,000 to comply.

Before 6 April 2026, you should work out your gross trading/rental income, so that you’re clear about when the new MTD reporting requirements will affect you. 

• Find out more: how to fill in a self-assessment tax return

2. Choose MTD-compatible software

To comply with MTD, you will need compatible accounting software. HMRC does not provide its own accounting software, although it does provide a list of third-party MTD-compliant products on the Gov.uk website.

Under MTD, you must maintain digital records of: 

• income 
• expenses 
• VAT (if VAT-registered) 
• tax adjustments. 

When selecting software, ensure it can report all your sources of taxable income. 

Some programs are limited to a single income type, so if you have multiple sources, such as a sole trader business and rental income, you should make sure the software can handle both.

If you already have accounting software, confirm with your provider that it is MTD compliant and suitable for your specific needs. Most existing ones are compatible, and these include the likes of Sage, QuickBooks or Xero.

While you don't need to keep digital records for other income sources – such as pensions, partnerships, savings, dividends – your software must be able to report them on your tax return.

• Find out more: self-employed income tax, National Insurance and VAT

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3. Start keeping digital records

HMRC has advised those affected to start keeping digital records now, so they can understand and get their heads around the new requirements and any new systems. You will need to keep digital records of both your income and expenses. 

Accountancy firms have advised landlords and sole traders to set aside time either each week or every fortnight to fully update their accounting software. You should be recording the date, amount and category of each transaction. 

If you are still using paper records, it can really help you get to grips with things before it becomes a legal requirement.

Accountants say having your business bank account connected to your accountancy software can make things much simpler. However, it’s a little less straightforward if you use your personal bank account or if your business only takes or uses cash for expenses. Although it is still doable. 

• Find out more: income tax calculator

4. Understand the new deadlines

Under MTD, you will need to report your earnings/income four times a year instead of only once in a single tax return. You will also need to submit a final declaration at the end of the tax year.

This means you have more deadlines to be aware of. 

Under the new system, you have a month after the quarterly period end date to send it – and these new deadlines are: 

• 7 August for quarter 1 (6 April to 5 July)
• 7 November for quarter 2 (6 July to 5 October)
• 7 February for quarter 3 (6 October to 5 January)
• 7 May for quarter 4 (6 January to 5 April)

You can make any corrections or adjustments to previous submissions at the next update. 

• Find out more: late tax returns and penalties for mistakes