With fewer than 40 days to go until Making Tax Digital (MTD) for Income Tax begins, HMRC has clarified several important points — including the use of bridging software, what happens if income falls below the threshold, and how taxpayers can leave MTD once registered.
Who is affected and when?
From 6 April 2026, MTD for Income Tax will become mandatory for sole traders, landlords and self-employed individuals with qualifying income over £50,000.
This first phase is expected to affect 864,000 individuals. HMRC has written to nearly 900,000 taxpayers based on income reported in the 2024–25 tax year, although awareness among those affected remains mixed.
Quarterly reporting under MTD will be compulsory from the start of the 2026–27 tax year.
Software Requirements – Can You Use Bridging Software?
HMRC has confirmed that bridging software is permitted.
Taxpayers may either:
- Use a full MTD-compatible accounting software package that creates and maintains digital records, or
- Use bridging software that connects existing spreadsheets or accounting records to HMRC’s systems.
HMRC does, however, state a preference for fully compatible MTD software. Their online guidance and interactive software tool can help taxpayers identify suitable products, including bridging options.
It is essential that appropriate software is in place several weeks before the first filing deadline to avoid issues when submitting quarterly updates.
When Do You Need to Register?
HMRC recommends that affected taxpayers register before 6 April 2026 so that systems are set up in advance of the new reporting requirements. While this date is not a strict legal cut-off, early registration is strongly advised.
Registration can be completed online via a Personal Tax Account (with links available through the HMRC app). Taxpayers with more complex affairs should speak to their accountant or tax adviser.
First Quarterly Filing Deadline
The first quarterly update will be due on:
Friday 7 August 2026
(for the period 6 April 2026 to 5 July 2026)
Important points:
- Income must be reported separately for each trade.
- Property income requires a separate quarterly submission.
- This is not a single summary figure.
MTD quarterly updates do not replace the Self Assessment tax return. Taxpayers will still need to submit a full Self Assessment return for the 2025–26 tax year by 31 January 2027.
For many, quarterly reporting will represent a significant shift from traditional annual bookkeeping practices.
What If Your Income Exceeds the Threshold Mid-Year?
If your income rises above £50,000 during a tax year, you will not enter MTD immediately. HMRC determines eligibility based on the previous tax year’s submitted Self Assessment return.
The phased introduction is as follows:
- Income over £50,000 in 2024–25 → MTD from 6 April 2026
- Income over £30,000 in 2025–26 → MTD from 6 April 2027
- Income over £20,000 in 2026–27 → MTD from 6 April 2028
What If Income Falls Below the Threshold?
Once within MTD, you must remain in the regime until your qualifying income has been below the relevant threshold for three consecutive tax years, unless all qualifying income sources cease.
After three consecutive years below the threshold, you may opt out. You will no longer need to:
- Keep digital records
- Submit quarterly updates
However, a Self Assessment tax return will still be required.
If all qualifying income sources stop entirely, different rules apply (see below).
What Happens If You Retire?
Retirement is treated differently from a reduction in income.
If your only source of qualifying income ceases completely, you must notify HMRC via your Personal Tax Account in the “Manage your Income Tax” section and provide the date the income stopped.
You must still:
- Submit a final quarterly update covering the cessation date
- Include the ceased income in your Self Assessment tax return
- Submit that final tax return using MTD-compatible software for the tax year in which the income ceased
Changing VAT Return Dates
VAT-registered businesses can request a change to their VAT return stagger so that filing dates align more closely with MTD Income Tax quarters. This can be done via the GOV.UK online VAT account.
What If You Disagree With HMRC?
If you believe HMRC has incorrectly determined that you must join MTD, you will need to contact HMRC directly.
Most determinations are based on figures submitted in the 2024–25 Self Assessment return, so there may be limited grounds for dispute unless an exemption applies (for example, digital exclusion).
Non-UK Residents
Non-UK residents who filed SA109 supplementary pages with their 2024–25 return will automatically receive a one-year deferral and will not need to join MTD until April 2027.
Penalties for Non-Compliance
HMRC has indicated that there will be a “soft landing” period during the first year of MTD for Income Tax. Penalties will be waived initially to allow for adjustment and system familiarisation.
From April 2027, the full penalty regime will apply, using HMRC’s points-based system.
Final Thoughts
Making Tax Digital for Income Tax represents a major change in how sole traders and landlords report their income. With 864,000 individuals entering the regime from April 2026, preparation is essential.
Ensuring software is in place early, registering in good time, and understanding the quarterly reporting requirements will help avoid unnecessary stress or compliance issues.
If you are unsure how MTD affects you, seeking professional advice sooner rather than later is strongly recommended.
