Making Tax Digital: 4 questions answered 

There is less than one year to go until 780,000 self-assessment customers are required to file returns using Making Tax Digital (MTD) – yet many people are still not ready for the change.

Up until now MTD has only applied to VAT reporting, but from 6 April 2026 it will be rolled out to include income tax returns for sole traders and landlords. 

Despite the clock ticking, a survey by Iris Software found nearly half of sole traders say they are unprepared for the new rules and almost a third admit they haven’t heard of MTD at all.

With time running out until the new rules become mandatory for income tax, Which? answers four of the most pressing questions about MTD and explains how it will affect you.

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1. What is Making Tax Digital?

Making Tax Digital involves keeping digital records of accounts and sending summaries to HMRC every three months, instead of filing one final return annually. 

You'll need to use HMRC-approved software to do this and you can find more guidance about what's compatible on the government website.

The idea is that keeping digital records, and submitting your figures more often, will help people keep track of how much tax they owe in real time, therefore making it easier to budget for their tax bill. 

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

2. Who will the new rules affect?

MTD was originally launched in 2019 for businesses that pay VAT and have a turnover of more than £85,000. It was then extended in 2022 to include all VAT-registered businesses. 

Here's how the different groups will be brought in: 

• From April 2026: self-employed individuals such as sole traders and landlords with a gross income (amount before deductions) of over £50,000 – made during the 2024-25 tax year – will also need to take part. HMRC estimates that around 780,000 will be affected by the change.
• From April 2027: those earning between £30,000 and £50,000 in the 2025–26 tax year will need to join. A further 970,000 people are expected to make the switch.
• From April 2028: The threshold for using MTD will then decrease to £20,000, bringing more taxpayers into the scheme. 

HMRC is encouraging taxpayers affected by the change to sign up to a testing programme by visiting the government website. 

The main advantage of doing this is that you can get used to the process now before it becomes mandatory next spring. You also won't have to pay any penalties for filing a quarterly return late during this period.

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

3. How will the process change?

Once you have submitted your quarterly summary of income, you will get an estimate of the tax due. 

Note that the quarterly summaries are updates, not tax returns. A final report will still need to be sent by 31 January, either through your MTD software or via a self-assessment tax return. At this point, your final tax bill for the year will be calculated. 

The payment deadline will also stay the same at 31 January. This will still be the date you make your first Payments on Account instalment, with the second due by 31 July.

Remember to continue keeping any relevant business records. This includes things like receipts, invoices, bank statements and any other evidence that can back-up the information you've submitted. 

You must keep this evidence, as HMRC has the right to request to see it if it carries out an investigation into your tax liability. 

• Find out more: how to calculate your tax bill

4. Are there penalties for late filing?

There will be penalties for if you're late submitting your quarterly tax summaries, but they're not as severe as those for submitting a late tax return or tax payment. 

Instead, the penalty system has been tweaked with the intention to make it fairer and encourage good behaviour, rather than as a punishment. 

It will work in a similar way to how speeding fines are issued to drivers, with a point added each time a deadline is missed. 

After a certain number of points is reached, taxpayers will have to pay an automatic fine of £200. The points threshold varies depending on how often you are required to make submissions to HMRC – the more frequent, the higher the threshold.

It’s worth noting, however, that points accrue separately for those who use MTD for VAT and income tax. So if you go beyond the tax threshold for both, you could face two fines of £200 each.

You won't be fined if you're excluded for MTD. This includes those who are already exempt from filing a self-assessment tax return online, or if your turnover is below the specified threshold.

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