Making Tax Digital for Income Tax is no longer something businesses simply need to prepare for.
It is now live.
For affected sole traders and landlords, MTD represents a major change in how accounting records are maintained and how information is reported to HMRC.
Instead of organising an entire year’s records shortly before the Self Assessment deadline, taxpayers within MTD need to maintain appropriate digital records throughout the year and send quarterly updates using compatible software.
For many small businesses, the biggest challenge will not necessarily be the quarterly submission itself.
It will be changing from once-a-year bookkeeping to maintaining accurate accounting records throughout the year.
In this guide, Taxwise Accountants NI explains the main MTD rules, deadlines and what sole traders and landlords should be doing now.
Who Needs to Use Making Tax Digital?
MTD for Income Tax is being introduced gradually according to qualifying income.
| Qualifying income | Reference tax year | MTD start date |
|---|---|---|
| More than £50,000 | 2024/25 | 6 April 2026 |
| More than £30,000 | 2025/26 | 6 April 2027 |
| More than £20,000 | 2026/27 | 6 April 2028 |
This phased timetable is confirmed by HMRC.
That means the first group of sole traders and landlords is already operating under MTD.
The next major group enters from 6 April 2027.
If your qualifying income for 2025/26 exceeds £30,000, now is the time to start preparing rather than waiting until April.
Is the MTD Threshold Based on Profit?
No.
This is one of the most important points to understand.
The qualifying-income test is not simply based on the amount of taxable profit left after deducting business expenses.
It broadly considers relevant gross income from self-employment and property before expenses.
That can make a significant difference.
For example, imagine that you have self-employed turnover of £37,000 and gross rental income of £17,000.
Your combined qualifying income could broadly be:
£54,000
Although neither source individually exceeds £50,000, the combined qualifying income may determine your MTD position.
This is particularly important for people who are both self-employed and landlords.
What Changes Under Making Tax Digital?
MTD does not simply mean submitting another form to HMRC.
It fundamentally changes the way affected taxpayers maintain their accounting records.
You need to keep relevant accounting information digitally and use compatible software to meet your MTD obligations.
HMRC says digital records should be created as close to the underlying transaction as possible, helping taxpayers maintain a more up-to-date view of their business affairs.
For many sole traders this means moving away from:
Bank statements + receipts + spreadsheet once a year
towards:
Regular digital bookkeeping throughout the year
That change can initially feel like additional administration.
However, when the accounting system is set up properly, there can also be benefits.
Regular records can give you much better visibility over your income, expenses, profitability, cash flow and potential tax liability.
What Are MTD Quarterly Updates?
Every three months, compatible software adds together the relevant digital income and expense records and creates totals that are sent to HMRC.
These are known as quarterly updates.
Importantly:
A quarterly update is not a full tax return.
HMRC describes these submissions as summaries of income and expenditure rather than tax returns.
You generally do not need to make all of your year-end tax adjustments before submitting each quarterly update.
Your final accounting and tax position is dealt with through the year-end process.
The MTD Quarterly Deadlines
For taxpayers using standard update periods, the deadlines are:
| Update | Digital records covered | Deadline |
|---|---|---|
| Q1 | 6 April to 5 July | 7 August |
| Q2 | 6 April to 5 October | 7 November |
| Q3 | 6 April to 5 January | 7 February |
| Q4 | 6 April to 5 April | 7 May |
There is an important detail here.
MTD quarterly updates are cumulative.
For example, your second update does not simply contain transactions from July to October.
It covers your digital records from the start of the tax year through to 5 October.
HMRC specifically clarified this point in its 2026 guidance.
What Is the Next MTD Deadline?
For taxpayers already within the first mandatory MTD group, the next standard quarterly-update deadline is:
7 November 2026
This covers the standard update period from the beginning of the 2026/27 tax year through to 5 October 2026.
If your digital records are not yet up to date, it is better to deal with them before the deadline approaches.
What If You Missed the First MTD Deadline?
The first standard quarterly deadline was 7 August 2026.
HMRC reported that more than 436,000 sole traders and landlords had successfully submitted their first quarterly update shortly after that deadline.
If you should already be using MTD but missed the first update, do not simply ignore it.
There is an important concession for the first mandatory year.
HMRC will not apply penalty points for late quarterly updates during 2026/27.
However, you still need to maintain digital records and submit the outstanding quarterly updates before you can submit your tax return. Late tax-return and tax-payment rules remain separate.
So the absence of a quarterly penalty does not mean the update can simply be forgotten.
Does MTD Mean Four Tax Returns Every Year?
No.
This is probably one of the most common misconceptions about Making Tax Digital.
The quarterly updates provide HMRC with summaries from your digital records.
You still complete your year-end tax reporting.
For taxpayers who entered MTD in April 2026, the 2026/27 tax return must be submitted using MTD-compatible software by:
31 January 2028
HMRC’s current MTD timetable confirms this deadline.
Making Tax Digital for Sole Traders
MTD can affect many different types of self-employed people.
That might include taxi drivers, tradespeople, consultants, contractors, freelancers, retailers, hospitality operators and professional service providers.
The practical challenge is usually the same: keeping your accounting records organised throughout the year.
Rather than collecting 12 months of information and dealing with everything shortly before the tax-return deadline, affected sole traders need a more regular bookkeeping process.
A good digital system can make that considerably easier.
Making Tax Digital for Landlords
Landlords should pay particular attention to MTD.
Property income can count towards qualifying income, and the position can become especially important where someone has both:
Self-employment income + rental income
For example, a sole trader whose business turnover falls below the threshold could still enter MTD because their property income takes the combined qualifying amount above it.
Landlords who currently rely mainly on paper records or basic spreadsheets should therefore consider how their bookkeeping will need to operate under MTD.
What Software Do You Need for Making Tax Digital?
You need software that is compatible with HMRC’s Making Tax Digital requirements.
For some businesses, cloud accounting software such as Xero can make the bookkeeping process much easier because it allows bank transactions, invoices, expenses and accounting records to be maintained digitally.
Taxwise NI is a Xero Certified Advisor and can help clients establish an appropriate digital bookkeeping system.
The most important point is not choosing software simply because it is popular.
The system needs to work for your business and the way you keep records.
Can You Still Use Spreadsheets?
In some circumstances, spreadsheets can form part of an MTD-compatible system where the necessary compatible or bridging software and digital links are used.
However, that does not necessarily mean spreadsheets remain the most efficient option.
For businesses with large numbers of transactions, cloud bookkeeping may provide a much more manageable solution.
MTD Can Actually Improve Your Financial Visibility
MTD is primarily a compliance change.
But maintaining regular accounting records can have a useful side effect.
Instead of discovering after the end of the year that the business made £X profit and owes £Y tax, regular bookkeeping can allow you to monitor your financial position much earlier.
You may have better visibility over revenue, expenses, profitability, cash flow and potential tax liabilities.
That can make it easier to put money aside for tax and identify unexpected cost increases before they become larger problems.
What Should You Do Now?
If you are already within the £50,000 cohort, make sure your digital bookkeeping and quarterly reporting are operating properly.
If your qualifying income for 2025/26 is above £30,000, start preparing now for 6 April 2027.
And if you expect to fall within the £20,000 threshold from 2028, it may still be worthwhile improving your bookkeeping before MTD becomes mandatory.
The transition is much easier when the accounting system is established before the first reporting deadline.
Let Taxwise Manage Making Tax Digital
Taxwise Accountants NI provides Making Tax Digital support to sole traders and landlords across Belfast and Northern Ireland.
We can help with MTD eligibility, digital bookkeeping, Xero and software setup, quarterly HMRC updates, year-end accounts and tax returns.
You Run Your Business. We Manage MTD.
