MTD for Income Tax: A Simple Guide for Small Business Owners
Accounting for small business owners is already complex. From April 2026, HMRC is changing the rules — and if your gross income from self-employment and/or property is over £50,000, you will fall into Making Tax Digital for Income Tax (MTD ITSA). This guide cuts through the jargon and tells you exactly what it means for your business.
What Is MTD for Income Tax?
MTD for Income Tax is HMRC’s digital reporting system for sole traders and landlords. Instead of submitting a tax return once a year, you will need to submit:
• 4 quarterly updates per year — summarising your income and expenses
• Your annual tax return — this includes any other sources of income like bank interest or pensions
Everything must be done through MTD-compatible software. Paper records alone are not enough.
Who Is Affected and When?
| Gross Income | Applies From | Status |
|---|---|---|
| Over £50,000 | 6 April 2026 | Act now |
| Over £30,000 | 6 April 2027 | Plan ahead |
| Over £20,000 | 6 April 2028 | Subject to legislation |
Gross qualifying income means your total turnover before expenses — not your profit. HMRC uses the figures from your 2024/25 Self Assessment return to decide if you join in April 2026.
What Are the Deadlines?
For the first MTD year (2026/27), the quarterly update deadlines are 7 August, 7 November, 7 February, and 7 May. Your Self Assessment tax return is still due 31 January 2028.
HMRC has announced a soft-landing in year one — no penalty points for late quarterly submissions in 2026/27. But penalties apply in full from 2027/28. Each late submission earns a point; four points means a £200 fine.
What Software Do You Need?
You need HMRC-approved MTD for ITSA software to submit quarterly updates. Popular options include Sage, Xero, and QuickBooks. If you already use bookkeeping software, check whether it’s MTD-ready — many providers are adding MTD functionality now.
Spreadsheets can still be used to track income and expenses, but must be linked to compliant software to submit data to HMRC.
5 Steps to Get MTD-Ready
Step 1: Check your 2024/25 gross income — are you over £50,000?
Step 2: Choose and sign up to MTD-compatible software
Step 3: Connect your bank feeds so income and expenses are tracked automatically
Step 4: Start keeping digital records now
Step 5: Talk to your accountant — they may already be supporting clients through MTD
The Bottom Line
MTD for Income Tax is a fundamental shift — but it’s designed to make tax management more accurate and less stressful in the long run. The businesses that will feel the least disruption are those that prepare now. April 2026 is one month away. The time to act is now.
Ready to get MTD-ready?
We’re helping small businesses across Yorkshire prepare for MTD right now. One conversation is usually all it takes.
Speak to an Adviser