Making Tax Digital

Who has to join MTD for Income Tax, and when

MTD for Income Tax applies to sole traders and landlords based on qualifying income — the combined gross income from self-employment and property before expenses, taken from the tax return two years before the start date.

Anyone with qualifying income over £50,000 in 2024/25 had to join from 6 April 2026. The threshold drops to £30,000 from 6 April 2027, then £20,000 from 6 April 2028, pulling in more sole traders and landlords at each stage.

Qualifying income is reassessed each year, so it is possible to move into MTD after previously falling under the threshold, or to stay out of it if income drops. Partnerships and limited companies are not in scope for MTD for Income Tax under the current rules.

MTD for VAT: already mandatory, no threshold

MTD for VAT stopped being optional in April 2022. Every VAT-registered business must keep digital VAT records and file returns through compatible software, regardless of turnover — the old £85,000 threshold for MTD only decided who had to register for VAT, not who had to use MTD once registered.

Filing a VAT return by typing figures into the HMRC portal by hand, without software holding the underlying digital records, does not meet the requirement even if the numbers are correct.

What digital record-keeping and quarterly updates actually mean

Records must be kept digitally as they arise — each transaction, not just a monthly total typed in after the fact — and moved between any linked software by digital link rather than manual re-entry.

Once in MTD for Income Tax, the annual return is replaced by four quarterly updates of income and expenses sent to HMRC through software, followed by a final declaration after the tax year end that confirms the figures and applies reliefs and allowances.

Bank feeds, invoice tools and receipt capture help populate records but still need review — software formats the submission; it does not decide whether an expense is allowable.

What happens if a submission or payment is missed

MTD for Income Tax uses the same points-based penalty regime already live for VAT. Each missed quarterly update adds one point; once the threshold for the filing frequency is reached (4 points for quarterly submitters), a fixed penalty is charged, and a further fixed penalty applies for each additional missed submission after that.

Points expire after a period of consistent on-time filing (24 months), so a single missed deadline is recoverable if the following submissions are on time.

Late payment penalties are separate and percentage-based, escalating the longer tax remains unpaid, similar to the regime already used for VAT and Self Assessment balancing payments.

Which software is compatible

HMRC maintains a list of software recognised for MTD for Income Tax and MTD for VAT. Commonly used options include Xero, QuickBooks, FreeAgent and Sage Accounting, several of which offer low-cost tiers aimed at sole traders and small landlords.

Anyone who wants to keep working in a spreadsheet can usually do so if it is connected to HMRC through bridging software that handles the digital link and submission — the spreadsheet itself does not need to be replaced, but a manual copy-and-paste into the HMRC portal does not satisfy the digital link requirement.

How Countify helps with Making Tax Digital

Countify checks whether MTD for Income Tax already applies based on current qualifying income, or works out when it will based on the phased thresholds, so clients are not caught out by the April 2026, 2027 or 2028 start dates.

We set up compatible software, migrate existing records onto a digital-link-compliant workflow, and handle the quarterly updates and final declaration once a client is in scope — so the records stay useful for running the business, not just for filing.