Making Tax Digital (MTD) is the biggest change to the UK tax system in a generation. Starting from 6 April 2026, self-employed individuals and landlords with gross income over £50,000 must keep digital records and submit quarterly updates to HMRC using MTD-compatible software. This replaces the traditional annual Self Assessment process with a more frequent, digitally driven system.
If you are self-employed, a freelancer, a sole trader, or a landlord in the UK, MTD affects you. This guide covers everything you need to know: who is affected, what the requirements are, which software to use, how quarterly reporting works, and what penalties apply if you do not comply.
What Is Making Tax Digital?
Making Tax Digital is HMRC’s programme to modernise the UK tax system. The core idea is simple: instead of filing one annual Self Assessment return, you keep digital records throughout the year and submit quarterly summaries to HMRC. This gives both you and HMRC a more up-to-date picture of your tax position.
MTD has already been rolled out for VAT-registered businesses (MTD for VAT has been mandatory since April 2022). The next phase — MTD for Income Tax Self Assessment (ITSA) — is what affects self-employed individuals and landlords starting in April 2026.
Who Is Affected by MTD for Income Tax?
MTD for ITSA applies to individuals with gross income from self-employment and/or property that exceeds the threshold for their phase. The rollout is phased by income:
| Phase | Start Date | Gross Income Threshold |
|---|---|---|
| Phase 1 | 6 April 2026 | Over £50,000 |
| Phase 2 | 6 April 2027 | Over £30,000 |
| Phase 3 | April 2028 | Over £20,000 |
Important: The threshold is based on gross income (before expenses), not profit. HMRC determines your threshold from the tax return whose filing deadline fell just before the start of the relevant tax year. For Phase 1 (2026/27), HMRC uses your 2024/25 return filed by 31 January 2026.
HMRC will not automatically register you for MTD — you must sign up yourself, even if you are already registered for MTD for VAT. For a detailed breakdown of ITSA requirements, see our guide to Making Tax Digital for Income Tax.
The Three Core Requirements
1. Digital Record Keeping
Under MTD, you must record the date, amount, and category of every business transaction digitally. This means using MTD-compatible software or a spreadsheet combined with bridging software — paper records alone are no longer sufficient.
You do not need to scan and store every receipt digitally (though it is strongly recommended for HMRC record keeping compliance). The digital requirement applies to the transaction record itself. However, HMRC can still request the underlying receipts during a compliance check, so keeping them organised is essential.
An AI receipt scanner like SparkReceipt captures receipt details digitally in seconds — creating both the digital record and a stored copy of the original receipt in one step.
2. Quarterly Updates
You must submit cumulative year-to-date summaries of your income and expenses to HMRC every quarter. These are not full tax returns — they are summary updates showing your running totals. The quarterly deadlines for the 2026/27 tax year are:
| Quarter | Period | Submission Deadline |
|---|---|---|
| Q1 | 6 April – 5 July 2026 | 7 August 2026 |
| Q2 | 6 July – 5 October 2026 | 7 November 2026 |
| Q3 | 6 October – 5 January 2027 | 7 February 2027 |
| Q4 | 6 January – 5 April 2027 | 7 May 2027 |
Because updates are cumulative, any receipts or expenses missed in an earlier quarter can be included in a later update without needing to amend previous submissions.
3. End of Period Statement and Final Declaration
After the fourth quarterly update, you submit an End of Period Statement (EOPS) to finalise your business income and expenses. Then a Final Declaration replaces the current Self Assessment tax return — this is where you confirm your total tax liability, including any other income sources. The Final Declaration deadline is 31 January following the end of the tax year.
What Software Do You Need?
You need MTD-compatible software that can submit quarterly updates and your Final Declaration to HMRC via their API. HMRC maintains an official list of MTD-compatible software providers.
Options range from full accounting packages (Xero, QuickBooks, FreeAgent, Sage) to simpler tools designed specifically for MTD compliance. Some free options exist — see our MTD software comparison guide.
Where SparkReceipt fits: SparkReceipt handles the receipt capture, categorisation, and digital storage side — the foundation that feeds into your MTD-compatible accounting software. Scan receipts, capture email receipts automatically, categorise expenses, then sync to QuickBooks Online for MTD submission.
Digital Links Requirement
Once data is entered into your digital records, any transfer between software or to HMRC must be digital — no manual re-keying or copy-pasting allowed. If you use a spreadsheet for record keeping, you need bridging software to submit to HMRC. If you use multiple tools (e.g., SparkReceipt for receipts + QuickBooks for accounting), the data transfer between them must be automated or digitally linked.
How to Prepare for MTD Before April 2026
With the Phase 1 deadline imminent, here is what you should do now:
- Check your income threshold — review your 2024/25 gross self-employment and property income to determine if you are in Phase 1 (over £50,000)
- Choose MTD-compatible software — select and set up your accounting software before April. See our MTD software guide
- Sign up with HMRC — register for MTD for Income Tax through your HMRC online account
- Digitise your records — if you currently use paper records or spreadsheets, move to digital record keeping now
- Set up receipt capture — start scanning receipts digitally with an AI receipt scanner so you have organised records from day one
- Talk to your accountant — discuss how quarterly reporting changes your workflow and whether they will handle submissions on your behalf
For a detailed preparation checklist, see our guide to Making Tax Digital for the self-employed.
MTD Penalties
MTD introduces a new points-based penalty system that replaces the old fixed fines:
- Late submission: One penalty point per missed quarterly update or Final Declaration. At 4 points, a £200 financial penalty is triggered — plus £200 for every subsequent miss
- Late payment (16-30 days): 3% of tax owed at day 15
- Late payment (31+ days): Additional 3% plus a daily rate of 10% per year on outstanding balance
- No compatible software: Up to £400 per return
- No digital records: £5-15 per day
Points expire after 2 years of good compliance. For full details and worked examples, see our guide to Making Tax Digital penalties.
MTD and Receipt Keeping
While MTD requires digital transaction records, HMRC’s underlying requirement to keep supporting documentation (receipts, invoices, bank statements) has not changed. You must still retain records for at least 5 years after the 31 January filing deadline.
The practical reality is that MTD makes digital receipt storage more important than ever. If you are already recording transactions digitally, having the matching receipt stored digitally alongside it makes compliance straightforward. For full details, see our guide to HMRC record keeping requirements.
Making Tax Digital FAQ
Do I need to submit every receipt quarterly?
No. Quarterly updates are summary totals of income and expenses, not individual transactions. However, you must keep the underlying receipts in case HMRC requests them.
Can I use a spreadsheet for MTD?
Yes, but you need bridging software to submit the data to HMRC digitally. You cannot manually type figures into HMRC’s systems.
What if my income drops below the threshold?
Once you are mandated into MTD, you remain in it even if your income falls below the threshold in later years. You can apply to HMRC to leave MTD in certain circumstances.
Does MTD replace Self Assessment?
For income covered by MTD (self-employment and property), the quarterly updates and Final Declaration replace the Self Assessment return. Other income types (employment, dividends, capital gains) are declared in the Final Declaration.
Can I apply for an exemption?
You can apply for exemption on grounds of digital exclusion (e.g., age, disability, location without reliable internet). This must be requested separately even if you already have an exemption for MTD for VAT.
This article is for informational purposes only and does not constitute tax advice. Consult a qualified accountant or tax adviser for your specific situation.
