Making Tax Digital for Income Tax Self Assessment introduces a mandatory digital reporting framework for self employed individuals and landlords. From April 2026, affected taxpayers are required to keep digital records and submit income information to HMRC on a quarterly basis. This change replaces the long-standing annual Self Assessment model for those within scope.
The making tax digital self employed rules are no longer optional or phased.
For higher earners, April 2026 marks full legal commencement of MTD for income tax, with penalties applying for non-compliance.
When MTD for Income Tax Applies
The start date for MTD for income tax depends on gross income levels rather than business structure or profitability.
New income tax rules from April 2026
From 6 April 2026, MTD for income tax applies to individuals who are UK resident and submit Self Assessment where gross income exceeds £50,000 and income arises from self employment, property, or both. Gross income is assessed before expenses and across all qualifying sources.
Extension from April 2027
Individuals with qualifying income between £30,000 and £50,000 are scheduled to enter the regime from 6 April 2027, subject to any future legislative change. No confirmed start date applies to those below £30,000.
Who Is Caught by Making Tax Digital Self Employed Rules
The scope of making tax digital self employed obligations is broader than many taxpayers expect.
Sole traders
Any individual trading in their own name with gross income above the threshold falls within scope. This applies regardless of business size, transaction volume, or prior compliance history.
Landlords
UK landlords are included where gross rental income exceeds the relevant threshold. This applies to single property owners and larger portfolios alike. Assessment is based on the individual’s share of income.
Combined income sources
Income from self employment and property is aggregated. Individuals below the threshold on each activity separately may still fall within scope once combined. This is a common source of error in eligibility assessments.
What MTD for Income Tax Requires in Practice
MTD for income tax changes both the frequency of reporting and the legal basis of record keeping.
Digital record keeping
Taxpayers are required to maintain digital records of income and expenses using compatible software. Paper records or manual summaries do not meet the statutory requirement. Spreadsheets are only acceptable where supported by compliant bridging software.
Quarterly updates
Under MTD for income tax, individuals are required to submit four quarterly updates for each tax year and for each relevant income source. These updates are statutory reporting submissions rather than tax calculations. They provide HM Revenue and Customs with periodic income and expense data drawn directly from digital records, but they do not determine the amount of tax due.
Quarterly updates do not replace the annual compliance process and they do not finalise a taxpayer’s position for the year. Tax liability continues to be established through the End of Period Statement and the Final Declaration, submitted after the end of the tax year. Failure to submit a quarterly update by the relevant deadline results in penalty points under the late submission regime, even where the underlying tax position remains unchanged.
End of Period Statements
An End of Period Statement is required for each income source to confirm that digital records are complete and finalised for the year.
Final Declaration
The Final Declaration replaces the current Self Assessment return. It confirms total taxable income, claims to reliefs, and the final tax position for the year.
Penalties and Enforcement Under MTD
The enforcement framework for MTD for income tax represents a material shift in how compliance failures are assessed and penalised. Rather than relying primarily on end-of-year filing defaults, the regime introduces ongoing exposure through quarterly obligations, supported by a cumulative penalty model. This significantly increases the number of compliance touchpoints at which taxpayers may incur penalties during a single tax year.
HM Revenue and Customs applies separate regimes for late submission and late payment, each operating independently of the other. A taxpayer may therefore face penalties even where tax is ultimately paid in full and on time.
Late submission penalties
Late submission penalties under MTD for income tax operate on a points-based system. Each missed quarterly update attracts a penalty point, regardless of whether the update would have shown additional tax due. Points also arise where an End of Period Statement or Final Declaration is submitted after the relevant deadline.
Once a taxpayer reaches the prescribed points threshold, a fixed financial penalty becomes payable. Further failures after that point can result in additional penalties. Points do not reset automatically and remain active until the taxpayer demonstrates sustained compliance over a defined period. This means that early non-compliance can continue to carry consequences well beyond the initial failure.
The practical effect is that taxpayers who treat quarterly updates as low-priority administrative tasks may accumulate penalties quickly, even where their underlying tax affairs are otherwise in order.
Late payment penalties and interest
The introduction of quarterly reporting does not change when tax becomes payable. Income tax continues to fall due under the existing payment timetable, including payments on account where applicable. Quarterly updates do not defer, reduce, or replace these payment obligations.
Where tax is paid after the statutory due date, late payment penalties and interest apply in addition to any late submission penalties. These charges arise independently and can apply even where all quarterly updates have been submitted on time. Taxpayers should therefore distinguish clearly between reporting obligations under MTD for income tax and their ongoing duty to pay tax by the relevant deadlines.
This separation of reporting and payment enforcement is a frequent source of misunderstanding and a recurring compliance risk.
Limits on reasonable excuse arguments
The availability of reasonable excuse arguments narrows significantly once MTD for income tax is fully in force. HM Revenue and Customs expects affected taxpayers to have had sufficient time to prepare for digital record keeping and quarterly reporting by April 2026.
Ongoing reliance on paper records, lack of familiarity with software, or preference for annual reporting is unlikely to be accepted as justification for non-compliance. Reasonable excuse claims are assessed narrowly and tend to focus on events outside the taxpayer’s control rather than systemic non-digital behaviour.
From an enforcement perspective, April 2026 marks the point at which HMRC expects full operational compliance from those within scope, rather than transitional adjustment.
Exemptions and Deferrals
Exemptions are available only in limited circumstances and they are not automatic.
Digital exclusion
Exemption may apply where digital compliance is not reasonably practicable due to age, disability, or location. The taxpayer needs to apply for exemption and retain evidence supporting the position.
Religious objections
Exemption may apply where digital record keeping conflicts with religious beliefs. Each application is assessed individually.
Compliance Risk Areas
The primary risks under making tax digital self employed rules are procedural rather than technical.
Taxpayers often use net profit instead of gross income when assessing scope. This results in incorrect assumptions about whether MTD for income tax applies.
Failure to implement compliant systems before April 2026 creates immediate exposure to penalty points. Early onboarding reduces risk by allowing time for testing, training, and process stabilisation.
Quarterly updates do not reduce tax bills or defer payment obligations. They are reporting requirements and they sit alongside the existing tax payment timetable.
Practical Next Steps
For individuals within scope from April 2026, preparation should focus on accurate income assessment, early software onboarding, and disciplined digital record keeping. Advisers should pay close attention to income aggregation and to clients with both trading and rental income.
From a compliance perspective, April 2026 represents statutory enforcement rather than a soft launch. Taxpayers who treat MTD for income tax as optional are likely to face penalties once quarterly submissions become due.
Author
Gill Laing is a qualified Legal Researcher & Analyst with niche specialisms in Law, Tax, Human Resources, Immigration & Employment Law.
Gill is a Multiple Business Owner and the Managing Director of Prof Services Limited - a Marketing & Content Agency for the Professional Services Sector.
