Making Tax Digital: what it means, and the software you actually need.
MTD for Income Tax Self Assessment came into force on 6 April 2026 for self-employed people and landlords with qualifying income over £50,000 — with the £30,000 wave following in April 2027. This is the plain-English version: what HMRC now expects, when, and which recognised software fits which business.
What Making Tax Digital actually is
MTD is HMRC's long-running programme to move tax records and filing onto software. The principle is simple: instead of a shoebox of receipts and one annual panic, you keep digital records in HMRC-compatible software, which files updates to HMRC as the year progresses. In return, your tax position is visible all year and the January scramble largely disappears — in theory. In practice it means one unavoidable thing: the software you choose is now a compliance decision, not a convenience.
The timeline so far — and what's next
| Phase | Who | Status |
|---|---|---|
| MTD for VAT | All VAT-registered businesses | Live since 2019–2022; now routine |
| MTD for Income Tax — wave 1 | Self-employed & landlords over £50,000 qualifying income | In force from 6 April 2026 |
| MTD for Income Tax — wave 2 | Over £30,000 qualifying income | From 6 April 2027 — start planning now |
| MTD for Income Tax — wave 3 | Over £20,000 qualifying income | Government intends to extend by the end of this Parliament |
| MTD for Corporation Tax | Companies | Consulted on, no mandated date — watch this space |
Who is affected right now
If your gross self-employed turnover plus rental income exceeded £50,000 in the relevant tax year, you are in the April 2026 wave. The phrase that trips people up is gross: the threshold applies to income before expenses, not profit. A consultant earning £60,000 with £25,000 of costs is in scope. A landlord with three modest buy-to-lets probably is too. If you are close to the line, assume you are over it until you have calculated properly.
What compliant software must do for you
- Keep digital records of income and expenses — bank feeds or captured receipts, not re-typed paper.
- Submit quarterly updates to HMRC (deadlines: 7 August, 7 November, 7 February, 7 May).
- File the final declaration by 31 January following the tax year, replacing the old Self Assessment return.
- Be HMRC-recognised for MTD — all four products we recommend below are.
Our software picks for MTD
The right MTD software is the one that fits your business shape — the compliance part is now identical across all recognised tools, so choose on fit:
| Product | Score | Best MTD fit | Why |
|---|---|---|---|
| Xero | 9.0/10 | Growing small businesses that want a modern ledger with unlimited users | Clean bank feeds and quarterly workflow out of the box; scales if the side business grows. |
| QuickBooks Online | 8.7/10 | Small businesses that want reporting depth and maximum accountant familiarity | Strong if your accountant is a QuickBooks practice — many are. |
| Sage Accounting | 8.1/10 | UK small businesses that want payroll-integrated accounting from an establishment brand | Natural if payroll sits in Sage too; long UK compliance pedigree. |
| FreeAgent | 8.4/10 | UK freelancers, contractors and very small limited companies | Our default pick for sole traders in wave 1 — tax timeline built for exactly this, and free with eligible NatWest/RBS/Mettle accounts. |
Common mistakes we see
- Waiting for a bridging loophole. For Income Tax there is no comfortable spreadsheet workaround — start on recognised software now.
- Budgeting for wave 2 later. If you are between £30,000 and £50,000, April 2027 arrives fast; pick software now and be compliant a year early, painlessly.
- Assuming the accountant handles it. Your accountant can file — but the digital records must exist in compatible software first. The record-keeping is yours.
- Missing the quarterly rhythm. Four deadlines a year at four points per limit — two missed quarters and you are one slip from £200.
- Choosing software on price alone. A free-with-bank-account option that fits beats a premium subscription you resent — see our accounting reviews for the full picture.
Frequently asked questions
Is Making Tax Digital for Income Tax already in force?
Yes. Since 6 April 2026, self-employed people and landlords with qualifying income over £50,000 must keep digital records and send HMRC quarterly updates using MTD-compatible software. The first quarterly deadlines under the new rules fall in the 2026/27 tax year.
Do landlords really have to use MTD software?
Yes — property rental income counts toward the qualifying income threshold, on its own or combined with self-employment income. A landlord with £55,000 of gross rent is in scope right now, even with no other business income.
Can I still use spreadsheets?
Not on their own for Income Tax. MTD requires digital records kept in compatible software that submits updates directly to HMRC. Spreadsheet-plus-bridging arrangements that some used for MTD VAT are not a practical long-term answer here — plan to run recognised software.
Is the £50,000 threshold on profit or turnover?
On gross qualifying income — turnover from self-employment plus rental income, before expenses. Many sole traders with healthy profits below £50,000 are still in scope because their turnover exceeds it. Check the figure carefully.
What happens if my income drops below the threshold?
You remain in MTD until HMRC confirms exemption — you do not automatically drop out in a quieter year. Rules apply based on reported income, and opting out has a defined process. Do not simply stop filing quarterly updates.
What are the penalties for missing quarterly updates?
MTD uses a points-based system: each missed deadline earns a point, and reaching the threshold (four points for quarterly filers) triggers a £200 penalty, with further £200 penalties for additional misses while at the threshold. Points expire after a period of compliance.
Honesty note: MTD rules, thresholds and dates do change between Budgets. We update this hub as they do — but always confirm your own position with HMRC guidance or your accountant before acting.
Accounting software reviews
The full scores, strengths and weaknesses behind the picks above.
Pricing index
What MTD-compliant software costs, side by side.
Compare accounting software
Head-to-head verdicts on the differences that matter.
MTD wave 2 lands April 2027 — get reminded properly.
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