Money Matters

Help! MTD for Income Tax has started! What do I need to do?

A practical, no-fuss, step-by-step guide to getting things right—and making the most of digital tax.

1 April, 202622 min read Share

If you’re reading this, the chances are you’re a sole trader or landlord who has just been told—or has just realised—that Making Tax Digital for Income Tax now applies to you.

First things first: don’t panic. You have time, the rules are more manageable than you might think, and you are far from alone in navigating this change.

We’ve covered MTD for Income Tax extensively here on Sage Advice. Here are just some of our articles that provide background:

• Free e-book: MTD for Income Tax—A guide to switching from Self Assessment
• MTD for Income Tax: What it means for trades and skilled workers
• New to MTD for Income Tax? Avoid these 6 misunderstandings
• Am I excluded or digitally exempt from MTD for Income Tax?
• Making Tax Digital for Income Tax penalties: HMRC’s new systems explained

However, read on for the best MTD for Income Tax crash course you’re going to find. We’ll even tell you how you can get free software to use. Here’s what we cover:

What MTD for Income Tax actually means for you

MTD for Income Tax officially began on 1 April 2026 for self-employed individuals and landlords with combined gross income above £50,000—and who use the calendar month for their taxes.

However, most use the start date of 6 April 2026.

At its core, MTD for Income Tax introduces three obligations that replace the traditional annual Self Assessment process:

• Digital record-keeping: You must keep digital records of your business income and expenses using MTD-compatible software. That means using accounting software. Handing shoeboxes of receipts and manual spreadsheets to your accountant or bookkeeper won’t cut it anymore.
• Quarterly updates: Four times a year, you’ll send HMRC a summary of your income and expenses through your software. Think of these as progress reports. They are definitely not full tax returns. Furthermore, if you already use three-line accounts to provide summaries of your income and expenditure, you can do so here, too (see below).
• A digital tax return (also known final declaration): After the end of the tax year, you’ll submit a digital tax return through your software. This brings together all of your income—including anything outside MTD, such as dividends or interest—and confirms your tax position for the year. Just like your Self Assessment tax return, this must be submitted by 31 January.

Crucially, MTD for Income Tax does not change how much tax you pay, how your expenses are calculated, or when your payments are due. The rules of Income Tax remain exactly the same.

What changes is how you report your income, and how often.

MTD for Income Tax: What to do now, and what comes later

One of the biggest sources of anxiety around MTD for Income Tax is the feeling that everything needs to happen at once.

It doesn’t.

Here’s a practical timeline of what needs to happen and when. Don’t try to think about all of the below deadlines at once. Focus on the deadline in front of you.

Right now (April–May 2026): Get set up

Your immediate priority is to choose MTD-compatible software if you haven’t already (more on that below).

Then you must sign-up to MTD for Income Tax. It isn’t automatic even if HMRC has written to you to tell you need to use MTD! Nor is it already taken care of if you’re already using MTD for VAT. MTD for Income Tax is entirely separate.

Finally, you must configure the software to use MTD and connect to HMRC.

This sounds complicated but it’s actually straightforward.

If you haven’t already signed up for MTD for Income Tax with HMRC, do that now—you can do it through your Government Gateway account, or your accountant can do it on your behalf.

Speak to your software vendor about switching on the MTD for Income Tax features of the software. Again, this is usually straightforward.

Start recording your income and expenses digitally from 6 April 2026 onwards (or 1 April if you use the calendar month for your accounting). Every sale, every purchase, every invoice, receipt—capture it in your software as you go.

Ideally, you’ll also want to set up a bank feed so that transactions flow into your accounting software automatically, too. This makes life significantly easier, and every bank in the UK offers it.

7 August 2026: First quarterly update

This is your first real deadline.

Your first update covers the period of 6 April to 5 July 2026 and must be submitted by 7 August 2026.

The update is simply a summary of the income and expenses you’ve recorded in your software for that period.

If your records are up to date because you’ve been keeping digital records in your accounting software, submitting is typically just a review and a click (or tap).

7 November 2026: Second quarterly update

This covers the second quarter of the tax year (6 July to 5 October 2026).

By now, you should have a rhythm going. If you spotted any errors in your first update, corrections will roll through with this one.

And that’s an important point. There’s no legal requirement to get each quarterly update 100% correct. You can correct the next time around, if you need to.

It’s also worth noting that, for the first year of MTD for Income Tax covering 2026 to 2027, HMRC is laying off penalties if you miss the submission deadline.

This isn’t an excuse to ignore them. But it might take a load off your mind as you get used to MTD for Income Tax.

31 January 2027: Your 2025/26 Self Assessment is due

Don’t overlook this.

Even though MTD has started, your 2025/26 tax year (which ended on 5 April 2026) still requires a traditional Self Assessment return.

For most people switching to MTD for Income Tax, this will be the final Self Assessment return they submit.

If you’re filing online, the deadline is 31 January 2027 as usual. We’ll cover this in more detail later in this article.

7 February 2027: Third quarterly update

The third update you need to provide covers 6 October 2026 to 5 January 2027.

7 May 2027: Fourth quarterly update

The fourth quarterly update you need to provide covers 6 January to 5 April 2027.

Once this is submitted, you’ve completed your first full cycle of quarterly reporting.

Of course, your second year of MTD has just begun in April 2027 for the 2027-28 tax year, and your first quarterly update for that is due in August 2027.

But for your first year of MTD, there’s just one last thing…

31 January 2028: Your first MTD tax return

This is where you confirm your full-year figures for the 2026/27 tax year, claim any reliefs and allowances, and finalise your tax position.

Sound familiar? Yes, it’s very similar to your Self Assessment tax return. But there’s a difference.

It’s submitted through your MTD software. You can’t fill in a paper return and post it to HMRC. Nor do you need to use their website to submit it. It’s all done within your accounting software.

And it’s due by 31 January 2028.

Digital record-keeping: the essentials and the good practice

Let’s separate what you must do from what you should do.

The bare minimum for data entry compliance

You need to keep digital records of your self-employment and/or property income and expenses in MTD-compatible software.

HMRC requires that these records are created and stored digitally—not written on paper and typed up later. The records must include the amounts, dates, and categories of each transaction.

You’re allowed to type transactions into your software manually if that’s your preference. Many people do. A simple cloud-based accounting app that’s recognised by HMRC will meet the legal requirement.

But it’s important to know there are some rules around what’s called digital linking.

Put simply, once the MTD for Income Tax data has been entered into software, you must transfer it digitally. You can’t write down and rekey the data, for example.

What might surprise you is that copying and pasting from one place to another is also not prohibited.

Instead, there must be some method of digitally transferring the data, such as a feature built into the software.

As you might be realising, this makes the use of spreadsheets for storing any data relating to MTD for Income Tax a difficult proposition. It’s against the MTD rules to copy the key MTD accounting data out of a spreadsheet and into your accounting software. This is pretty serious. If HMRC finds out, you could face penalties.

Good practice for data entry

While manual entry is compliant, provided you follow the digital linking rules afterwards, it’s also the area where most errors and delays occur.

Good practice means reducing the amount of manual data entry you do. There are two main ways to achieve this.

First, connect a bank feed. Most accounting apps allow you to link your business bank account so that transactions are imported automatically. You then categorise them—or let the software’s suggestions do it for you—rather than typing them from scratch. This alone saves a massive amount of time and reduces the risk of mistakes.

Second, use a data capture tool. Tools such as AutoEntry allow you to photograph or scan a receipt, invoice, or bank statement, and the data is extracted automatically and posted into your accounting software.

AutoEntry uses AI-powered optical character recognition and learns from your previous entries, so it gets smarter over time. If you deal with a lot of paper receipts or supplier invoices, this is a game-changer. It turns a pile of paperwork into clean, categorised records without you having to type a thing.

Buying something from a wholesaler? When you get to your vehicle, snap the receipt using AutoEntry. That’s it. Job done. The data’s in your accounting. Received an invoice or bill? Snap it using AutoEntry. Job done, again.

Three-line accounts: The MTD simplification you might not know about

If you’re feeling overwhelmed by the thought of categorising every expense into the right box every three months, there’s an important simplification that applies to many sole traders and landlords: three-line accounts.

Under the MTD rules (and also Self Assessment), if your annual turnover from a particular self-employment or property business is below the VAT registration threshold (currently £90,000), you can choose to submit simplified quarterly updates.

Instead of breaking your expenses down into detailed categories—such as travel, premises, advertising, and so on—you can simply report three figures: your total income, your total expenses, and your net profit.

That’s it. Three lines, hence the name.

This is a significant relief for anyone whose business is relatively straightforward. If you’re a sole trader with turnover between £50,000 and £90,000 (or a landlord with rental income in that range), three-line accounts mean your quarterly updates become extremely simple.

You don’t need to agonise over whether a cost should sit in “Office, property and equipment” or “Other allowable business expenses.” You just need a running total of what came in and what went out.

It’s worth noting that you still need to keep proper digital records of your individual transactions—the three-line simplification applies to what you report to HMRC in your quarterly updates, not to the underlying record-keeping.

So your accounting software will still track individual invoices and receipts. But when it comes time to press “submit,” the quarterly update itself only needs to contain those three summary figures.

At year end, your digital tax return will still need the full breakdown of expenses by category (just as the current Self Assessment return does). But by then, your software will have been categorising transactions throughout the year, so the detailed figures should already be there.

MTD quarterly updates: What they are (and what they’re not)

There’s a common misunderstanding that quarterly updates are the same as filing four tax returns a year.

They are not. A quarterly update is simply a summary of the income and expenses you’ve already recorded in your software for that three-month period.

HMRC will then estimate how much tax it thinks you owe.

It’s not a demand for payment, and it doesn’t require you to claim reliefs or make adjustments. There are no inaccuracy penalties attached to quarterly updates either—HMRC treats them as a summary of your transactions, not a tax return.

If you’re keeping your records up to date as you go—even just spending ten minutes a week reviewing what’s come in through your bank feed—then submitting a quarterly update should take no more than a few minutes. Your software compiles the figures; you review and submit.

The quarterly periods follow the tax year by default: Q1 runs from 6 April to 5 July, Q2 from 6 July to 5 October, Q3 from 6 October to 5 January, and Q4 from 6 January to 5 April. Each update is due by the 7th of the month after the quarter ends.

If you have more than one source of qualifying income—say you’re self-employed and you also rent out a property—you’ll need to send separate quarterly updates for each income source. However, you only submit one digital tax return at year end for all your income combined.

Build a light weekly habit rather than leaving everything to the end of the quarter. Forward invoices or upload receipts as they come in, and once a month check that your bank transactions are matched and categorised. That way, when the quarterly deadline arrives, you’re reviewing, not rebuilding.

Tip: You don’t have to wait to submit an update. You can do so as frequently as you wish. This is very good practice, because of that tax bill estimate HMRC will provide. You’ll get excellent insight into cash flow.

Working with an accountant or bookkeeper under MTD

If you already work with an accountant or bookkeeper, you might be wondering how MTD changes that relationship.

The short answer is: it doesn’t have to change much at all, but it’s worth having a conversation about how you’d like things to work going forward.

Option 1: Let your accountant handle everything

Your accountant can manage the entire MTD process on your behalf—keeping your digital records, submitting your quarterly updates, and filing your digital tax return at year end. Many accountants are setting up exactly this kind of service for their clients.

The main thing to be aware of is that this changes the rhythm of your working relationship.

Under Self Assessment, you might have gathered your records once a year and handed everything over in a single batch.

Under MTD, your accountant will need information from you every quarter. That means staying in touch at least four times a year, sharing receipts and invoices promptly, and responding to any queries your accountant has about your transactions.

The annual “box of receipts in January” approach simply won’t work anymore.

This is likely to affect fees, too. If your accountant was previously doing one piece of work a year, they’re now doing at least five (four quarterly updates plus a tax return). It’s worth discussing how their pricing will reflect the increased contact, and whether there are things you can do to keep costs down—such as maintaining your own records in software your accountant can access.

Option 2: Split the work

A very popular approach—and one that often works well for both sides—is to split the responsibilities.

You handle the day-to-day record-keeping and quarterly updates, while your accountant takes care of the year-end digital tax return with all its adjustments, reliefs, and calculations.

This makes a lot of practical sense. The quarterly updates are straightforward: if your records are up to date in your software, submitting a quarterly update is usually a matter of reviewing the summary and clicking a button. There’s no tax calculation involved, no reliefs to claim, and no accounting adjustments to make. Most people find they can handle this themselves without difficulty.

The digital tax return, on the other hand, is where the complexity sits. This is where your accountant’s expertise really earns its keep—making sure capital allowances are claimed correctly, that your personal allowance and any reliefs are applied, that other income sources like dividends and savings interest are reported accurately, and that the final tax calculation is right.

By letting your accountant handle this piece, you get professional oversight where it matters most, while keeping the routine quarterly work (and its costs) in your own hands.

Because you and your accountant can work from the same software and the same set of records, this shared approach is far easier to manage than it would have been under the old paper-based system. Your accountant can log into your accounting software, see exactly what you’ve recorded, and pick up the year-end work without needing you to hand anything over.

Have an early conversation with your accountant about who will do what.

The most cost-effective setup for many people is to keep their own records and submit quarterly updates themselves (it really is just a click or tap), and leave the digital tax return to their accountant.

Whatever you agree, make sure you’re both using software that allows shared access to the same records.

If you don’t currently have an accountant

MTD is perfectly manageable without one, especially if your affairs are straightforward. The software does the heavy lifting. But if your tax situation is at all complex—multiple income sources, capital allowances, or anything beyond the basics—this could be a good time to consider engaging an accountant, even if only for that year-end tax return.

Choosing MTD-compatible software

You’ll need software that is recognised by HMRC as compatible with MTD for Income Tax. HMRC maintains a software finder tool at GOV.UK which lets you filter by your specific needs and get a personalised list of options.

There are broadly two types of software.

1. Full-service software handles everything in one place: digital record-keeping, quarterly updates, and your digital tax return. This is a basic description of cloud accounting software, as sold by software vendors like Sage.
2. Bridging software connects to records you keep elsewhere (such as a spreadsheet) and submits them to HMRC, though you’ll still need to ensure those records meet the digital record-keeping requirements.

For most people, accounting software is the simpler and safer option. It keeps everything in one ecosystem and reduces the chance of something falling through the gaps.

When evaluating software, consider the following:

• Does it handle your specific income types (self-employment, property, or both)?
• Does it handle multiple income streams (for example, if you run two or more sole trader businesses)?
• Can it connect to your bank for automatic transaction imports?
• Does it support receipt capture, either built-in or via an add-on like AutoEntry?
• Is it cloud-based so you can access your records from anywhere?
• Does it provide in-year tax estimates so you can see roughly what you’ll owe?
• If you have an accountant, can they access the same records so you can work together seamlessly?
• Perhaps most important, will it grow with your business? Some apps like Sage Accounting have simple plans for starting out, but then you can add in useful extra features like multicurrency support and payroll later—all without having to learn new software, or migrate your data.

A free MTD for Income Tax option for sole traders

If you’re a non-VAT-registered sole trader with fairly straightforward accounting needs, Sage offers Sage Sole Trader—a free, HMRC-recognised, MTD-ready accounting app.

It covers digital record-keeping, receipt scanning, bank feeds, Self Assessment preparation, and quarterly MTD submissions.

There is no billing and no time limit on the free plan. It’s designed to be simple enough to use without any accounting expertise, making it a strong starting point for anyone who wants to get compliant without spending anything.

Don’t overthink the software decision. Pick something that’s HMRC-recognised, suits your income type, and feels intuitive to you. You can always upgrade later. The most important thing is to get started.

Don’t forget your 2025/26 Self Assessment return!

This is a detail that catches people off guard. MTD for Income Tax applies from the 2026/27 tax year. But the 2025/26 tax year has only just ended (on 5 April 2026), and that year still needs to be reported in the traditional Self Assessment way.

If you file a paper return, the deadline is 31 October 2026. If you file online, the deadline is 31 January 2027.

The online Self Assessment filing window opens on 6 April 2026, so you can get it done early if you prefer—and doing so is a smart idea, because it means you won’t be juggling your first MTD quarterly updates at the same time as finishing your old-style tax return.

This is expected to be the last year you file a traditional Self Assessment return for your self-employment or property income. From 2026/27 onwards, the digital tax return through your MTD software replaces it.

If at all possible, file your 2025/26 Self Assessment as early as you can after 6 April 2026. Getting it out of the way before your first quarterly update (due 7 August) means you avoid overlap and can focus entirely on the new MTD process. Plus, you get to know exactly how much how much tax you owe, so there’s no need to keep guessing.

Payments on account for MTD, and other Income Tax rules

One of the most common questions about MTD is whether it changes when or how you pay your tax.

The answer is straightforward: no, it doesn’t.

If HMRC requires you to make payments on account—which applies when your Self Assessment bill is above a certain threshold—those payments continue exactly as before. You’ll still make two payments on account each year, on 31 January and 31 July, each set at 50% of your previous year’s tax liability. A balancing payment (or refund) follows once your actual liability is calculated.

The quarterly updates you send under MTD are reporting updates, not payment demands. You do not pay tax when you submit a quarterly update.

Similarly, none of the underlying rules of Income Tax are changing. The way you calculate your profits, claim expenses, apply capital allowances, and use personal allowances is all exactly the same.

MTD is about digitising the way you keep records and report to HMRC, not rewriting the tax code.

One genuinely useful side effect of MTD is that because your records are more up to date, your software can give you a running estimate of your tax liability throughout the year. Use this to budget for your payments on account—no more January surprises.

The soft landing: HMRC’s first-year leniency

HMRC has confirmed a “soft landing” for the first year of MTD for Income Tax.

During the 2026/27 tax year, no penalty points will be issued for late quarterly updates. This means that even if you miss one (or all four) of your quarterly deadlines in this first year, you won’t receive penalty points.

However, there are important caveats. The soft landing does not apply to your digital tax return. If you submit your 2026/27 digital tax return late (after 31 January 2028), penalty points may apply under the standard rules.

The soft landing also does not protect against late payment penalties, which operate on a separate regime.

From the 2027/28 tax year onwards, the points-based penalty system kicks in fully. Each late quarterly update earns a penalty point. Once you accumulate four points, you receive a £200 fine. Points can only be cleared after 12 months of on-time submissions and once all returns due in the previous 24 months have been filed.

Don’t treat the soft landing as an excuse to ignore deadlines. Use it as what it is: breathing room to get your processes right. Aim to hit every deadline from the start, but take comfort in knowing that a slip in this first year won’t cost you financially.

Final thoughts and next steps

MTD for Income Tax is a significant change in how you interact with HMRC, but it is not a change in how much tax you owe or how your business operates.

Once the initial setup is done, the ongoing workload is genuinely modest—especially if you adopt good habits early.

Here is what we’d suggest you do in the coming weeks and months:

• Today: Choose your MTD-compatible software. If you’re a non-VAT-registered sole trader, Sage Sole Trader is free and ready to go. Sign up, connect your bank account, and familiarise yourself with the interface. If you’re already using accounting software, check to see if it’s MTD-compatible—and switch on the feature.
• This week: Sign up for MTD with HMRC if you haven’t already. Start recording your income and expenses digitally from 6 April onwards (or 1 April if you use the calendar month for accounting). If you have an accountant or bookkeeper, now is the time to have a conversation about how you’ll work together under MTD. Will they handle everything, or will you take on the quarterly updates yourself and leave the digital tax return to them? Agreeing this early avoids confusion later.
• The run up to August’s first update deadline (7th): Get into a rhythm of keeping your records current. A few minutes a week categorising bank transactions is all it takes. If your turnover is below £90,000, check whether you can use three-line accounts for your quarterly updates—it simplifies things considerably. Your first quarterly update is due on 7 August 2026.
• Before January 2027: File your 2025/26 Self Assessment return. Ideally, do this as early as possible so you’re not managing old and new obligations at the same time.

And above all, remember that MTD is designed to make tax simpler in the long run. Better records mean fewer mistakes. More regular reporting means fewer surprises. And digital tools mean less time buried in admin and more time doing what you actually love.

You’ve got this.

Frequently asked questions