Strategy, Legal & Operations

Why has HMRC written to me about Making Tax Digital for Income Tax?

Wondering why HMRC has written to you about Making Tax Digital? Our guide answers the most common questions and explains what the changes mean for your tax reporting.

Published 30 July, 202613 min read Share

If you have received a letter or email from HM Revenue and Customs (HMRC) about Making Tax Digital for Income Tax, it is likely because HMRC believes you will need to follow the rules from 6 April 2027. 

This usually applies if you are a sole trader, a landlord, or both, you are registered for Self Assessment, and your qualifying income is above £30,000.

Key takeaways 

• HMRC is contacting sole traders and landlords who it believes will need to use Making Tax Digital (MTD) for Income Tax. 

• From 6 April 2027, MTD for Income Tax applies to people with qualifying income above £30,000, based on the qualifying self-employment and property income reported through Self-Assessment. 

• If you are in scope, you will need to keep digital records, use MTD-compatible software, send quarterly updates, and submit a digital tax return. 

• MTD for Income Tax does not change how much Income Tax you pay. It changes how you keep records and report information to HMRC. 

• If your accountant or bookkeeper manages your tax, they can still help—but you remain legally responsible for your tax return. 

Here’s what we cover:

Who this applies to

You are likely to be affected if…	You may not be affected if…
You are a sole trader, landlord, or both, and your qualifying self-employment and/or property income is above the relevant threshold.	You are not registered for Self Assessment, you do not have qualifying self-employment or property income above the threshold, or you meet an HMRC exemption.
You have received a notification from HMRC saying you are included in MTD for Income Tax.	You only have employment income taxed through PAYE, with no qualifying sole trader or landlord income above the threshold.

When did MTD for Income Tax start?

MTD for Income Tax began on 6 April 2026 for sole traders and landlords with qualifying income above £50,000. 

This article focuses on the next wave: people who need to follow MTD for Income Tax from 6 April 2027 because their qualifying income is above £30,000. 

From 6 April 2028, the rules are expected to include sole traders and landlords with qualifying income above £20,000. 

If you have already started MTD for Income Tax, or think you should have done so, you may want to read Sage Advice guidance on what to do once MTD for Income Tax has started, switching from Self Assessment, and what MTD means for trades and skilled workers.

1. Why has HMRC contacted me about Making Tax Digital for Income Tax? 

If HMRC has recently written to you about Making Tax Digital (MTD), it’s very likely that two things are tHMRC has probably contacted you because it believes you are in scope for Making Tax Digital for Income Tax. 

This is likely because you: 

• Run one or more sole trader businesses, are a landlord, or both; and 

• Are registered for Self-Assessment with qualifying income above £30,000. 

If your Self-Assessment information shows that you are in scope, you will need to use MTD-compatible software to keep digital records, send quarterly updates, and submit a digital tax return. 

HMRC’s letter is a heads-up. It is intended to give you time to understand the change, choose suitable software, and prepare your record-keeping before your obligations begin. 

2. What is MTD for Income Tax? 

Making Tax Digital for Income Tax is HMRC’s system for moving Income Tax record-keeping and reporting onto approved digital software. 

It is separate from Making Tax Digital for VAT.  

So, even if you already use MTD for VAT—or are not VAT registered—MTD for Income Tax may still affect you if your qualifying income is above the threshold. 

MTD for Income Tax applies in phases.: 

• Those with qualifying income above £50,000 joined from April 2026. 

• Those with qualifying income above £30,000 join from April 2027.  

Those with qualifying income above £20,000 are expected to join from April 2028. 

3. What do I have to do for MTD for Income Tax? 

In summary, you will need to do four things:  

• keep digital records,  

• submit quarterly updates,  

• submit a digital tax return,  

• and use MTD-compatible software. 

Keep digital records 

You will need to keep records of your business or property income and expenses digitally.  

For most people, this means using MTD-compatible accounting software. 

Submit quarterly updates 

You or your accountant/bookkeeper will need to submit updates about income and expenditure to HMRC every three months.  

If you have more than one sole trader business, you will need to provide separate quarterly updates for each business.  

Rental income is also reported separately, although income from multiple UK properties can be included in the same property update. Foreign property income requires its own update. 

Submit a digital tax return 

After the tax year ends, you will need to digitally sign and submit a tax return by 31 January.  

This confirms your income for the year and is like the existing Self-Assessment tax return. 

Use MTD-compatible software 

You will need software that can keep digital records and connect with HMRC.  

If you use more than one software tool, the records must be digitally linked where required. 

Sign up 

You will need to sign up for MTD for Income Tax before your obligations begin.  

Enrolment is not automatic.

4. What if my income drops below £30,000? 

If HMRC has identified you as meeting the income threshold based on your Self-Assessment tax return, you will still be required to join MTD for Income Tax from April 2027, even if your income drops below £30,000 in the following year. 

If your qualifying income remains below £30,000 for three consecutive years, you can contact HMRC to ask to return to the Self-Assessment tax return system. 

Bear in mind that the MTD for Income Tax qualifying income threshold is expected to fall to £20,000 from April 2028. 

5. Isn’t MTD for Income Tax going to make my accounting more complicated?

MTD for Income Tax may change how often you review and submit information, but MTD-compatible software can make the process easier once your records are set up correctly. 

For example, quarterly updates can be created from the income and expenditure already recorded in your accounting software.  

You should still review the information before it is submitted. 

The digital tax return should also be easier to complete if your income and expenses have been kept up to date throughout the year.

6. Will I need any extra software for MTD for Income Tax?

You will need software that is recognised by HMRC as MTD-ready.  

Existing software from many major providers, including Sage Accounting plans, is already compatible with MTD for Income Tax. 

If you already use accounting software, check whether your plan supports MTD for Income Tax and whether you need to activate a setting before your obligations begin.

7. Can I opt out of MTD for Income Tax?

If you are in scope, MTD for Income Tax is a legal requirement.  

You cannot choose to opt out or delay signing up simply because you prefer Self-Assessment. 

However, HMRC allows exemption requests in some circumstances.  

This may apply if your disability or age means it is not practical for you to keep or submit digital records, or if your religious beliefs are incompatible with using electronic records or communications. 

You will need to apply to HMRC for exemption and explain why. If you already have an exemption from MTD for VAT, this should be carried across automatically for MTD for Income Tax. 

Some people are automatically exempt, including: 

• foster carers or shared lives carers whose only income is qualifying care income,  

• people without a UK National Insurance number by the relevant date,  

• trustees,  

• personal representatives of someone who has died,  

• Lloyd’s underwriters in relation to underwriting business,  

• and non-resident companies. 

8. My accountant or bookkeeper handles my tax. Will MTD affect that? 

Your accountant or bookkeeper can continue to manage your tax affairs under MTD for Income Tax, including quarterly updates and the digital tax return. 

However, you remain legally responsible for reviewing and approving the digital tax return before it is submitted. 

Speak to your accountant or bookkeeper early so you can agree how and when you will share income and expense information.  

You may need a quarterly process for sending source documents, receipts, invoices, bank records, or software access. 

If you are an accountant, you may want to read guidance on how to prepare your landlord clients for MTD. 

9. Does MTD affect how much Income Tax I pay? 

No. MTD for Income Tax is not a new tax.  

It is a new digital reporting process for sole traders and landlords within scope. 

For affected taxpayers, it replaces the traditional Self-Assessment tax return process for reporting relevant self-employment and property income.

10. Is MTD for Income Tax a new tax system? 

No. MTD for Income Tax is just a new way of reporting income tax for sole traders and landlords. It replaces the Self Assessment tax return for those affected.

11. My accounting is simple. Do I still need quarterly updates? 

Yes, if you are in scope.  

The rules apply even if your accounting is simple, your income is predictable, or your earnings arrive mainly in one part of the year. 

For example, seasonal businesses, holiday lets, landlords with regular monthly income, and businesses with limited expenses may still need to submit quarterly updates. 

Quarterly updates require basic income and expenditure information.  

They do not require all the final adjustments, allowances, or charges that may be included in the digital tax return. 

12. Can I use spreadsheets for MTD for Income Tax?

Yes, spreadsheets can be used for MTD for Income Tax provided you also use MTD-compatible bridging software to allow communication with HMRC in order to submit the quarterly updates and digital tax return.

You can also use spreadsheets for non-ledger activities such as adjustment calculations once the data is in the ledger—although you should ensure there’s a legally-compliant digital link. In other words, you cannot cut/copy and paste data between the accounting software and the spreadsheet, or hand type it.

However, using spreadsheets for your accounting is not a good idea. It’s very easy to accidentally overwrite cells in a spreadsheet, for example, and spreadsheets easily become corrupted. If that happened then not only would you lose data but you’d fall short of the legal requirements of MTD for Income Tax, and could attract penalties from HMRC.

Furthermore, you will be legally required to securely keep the digital records contained within the spreadsheets for five years following 31 January after the end of the tax year. Keeping any file for that long can be a challenge. Using dedicated accounting software takes care of this for you, and is simply easier and much less prone to errors.

13. I run a business with employees. Does MTD for Income Tax apply to me? 

Having employees does not exempt you from MTD for Income Tax. 

If you are a self-employed sole trader, you are registered for Self-Assessment, and your qualifying income is above £30,000, you are legally required to follow MTD for Income Tax from April 2027.

14. I am employed full-time but run a side hustle. Does MTD apply to me? 

Being employed full-time does not exempt you from MTD for Income Tax if your qualifying self-employment or property income is above the threshold. 

If HMRC has contacted you about MTD for Income Tax, it is likely because your Self Assessment information shows qualifying income above £30,000 from your side hustle, rental income, or both. 

One benefit of MTD-compatible software is that some employment tax information, such as P60 data, may be drawn into your digital tax return where available.

15. Can I switch to a limited company to avoid MTD for Income Tax? 

Limited companies are not affected by MTD for Income Tax in the same way as sole traders and landlords. 

However, incorporating a business or transferring property into a limited company is a significant decision with legal, tax, and commercial consequences.  

Whether it is right for you depends on your circumstances, so you should seek professional advice from an accountant or similar adviser before making a change.

16. What MTD for Income Tax dates do I need to know? 

Generally speaking, and assuming your tax year begins on 6 April, these are the dates you need to know fIf your tax year begins on 6 April and you are in the April 2027 phase, these are the key dates for the 2027/28 tax year: 

• Quarterly update 1: 7 August 2027 

• quarterly update 2: 7 November 2027 

• quarterly update 3: 7 February 2028 

• quarterly update 4: 7 May 2028 

• digital tax return: 31 January 2029. 

Good accounting software can remind you about these dates and help prepare the updates and digital tax return.

17. I already use MTD for VAT. Do I need to do anything? 

Yes, if you are in scope for MTD for Income Tax. MTD for VAT and MTD for Income Tax are separate systems, so you need to understand and sign up for the Income Tax requirements separately. 

The penalty points systems for MTD for VAT and MTD for Income Tax are also separate. 

Penalty points for one tax do not affect the separate points tally for the other.

18. I used 3-line accounts on my Self Assessment tax return. Can I continue? 

If you are eligible to use 3-line accounts because your income is below the VAT threshold, you can continue to report total income, total expenses, and profit in your quarterly updates. 

MTD-compatible software can use this information to help complete your digital tax return at the end of the tax year. 

Common mistakes to avoid

• Assuming the HMRC letter is only a general awareness message and does not apply to you. 

• Waiting until the first quarterly update deadline before setting up software or digital records. 

• Thinking rental income is ignored if you are not self-employed. 

• Assuming MTD for VAT means you are automatically signed up for MTD for Income Tax. 

• Using spreadsheets without checking whether the required digital links and bridging software are in place. 

What to do next

1. Read the HMRC letter carefully and check which income threshold or tax year it refers to. 

2. Confirm your qualifying income from self-employment and property sources. 

3. Check whether your current accounting software is MTD-compatible. 

4. Speak to your accountant or bookkeeper about how quarterly reporting will work. 

5. Create a repeatable record-keeping routine before your first quarterly update is due. 

There are 5 reasons to start Making Tax Digital for Income Tax early that may help you prepare. 

Final thoughts

Receiving an HMRC letter about MTD for Income Tax can feel like a big change, especially if you have used Self Assessment for years.  

The main point to understand is simple: if you are in scope, you will need to keep digital records and report information to HMRC more regularly through MTD-compatible software. 

Preparing early can make the move easier.  

By checking your income position, choosing suitable software, and agreeing a process with your accountant or bookkeeper, you can reduce last-minute admin and stay ready for the April 2027 start date. 

Frequently asked questions

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