Making Tax Digital is live — are you compliant or facing a £200 fine?

Making Tax Digital for Income Tax (MTD ITSA) became mandatory on 6 April 2026 for sole traders and landlords with qualifying income above £50,000 per year. If that's you and you haven't signed up, HMRC is already treating you as non-compliant — and fines are accumulating.

The rollout continues in stages: the threshold drops to £30,000 from April 2027 and to £20,000 from April 2028. That means even if you're below £50,000 today, this system will almost certainly reach you within two years.

What is Making Tax Digital for Income Tax?

MTD ITSA replaces the traditional annual Self Assessment tax return for affected individuals. Instead of submitting everything once a year by January, you must:

1. Keep digital records of all income and expenses using HMRC-approved software
2. Submit quarterly updates to HMRC (four times a year) summarising your income and expenses
3. Submit a final declaration after the tax year ends — this replaces the old Self Assessment return

Spreadsheets and paper records are no longer sufficient on their own. You must use software that connects directly to HMRC's systems.

Who is affected right now (April 2026)?

You must comply with MTD ITSA if your total qualifying income from self-employment and/or property exceeded £50,000 in any of the previous two tax years. Note:

• This includes both types of income combined
• It's your gross income (turnover), not profit
• PAYE income from employment does not count toward this threshold

The fines for non-compliance

HMRC uses a points-based penalty system for MTD ITSA. Each missed quarterly submission earns one penalty point. When your points reach a threshold (4 for annual filers, 2 for quarterly), you receive a £200 fine. Continued non-compliance results in further £200 fines for each additional missed submission.

Additionally, failing to submit a final declaration on time carries late filing penalties of £100 immediately, rising to £300 or 5% of tax owed after 6 months, and again at 12 months. These mirror the old Self Assessment late filing penalties.

Which software do you need?

You must use software from HMRC's approved list of MTD-compatible providers. Options include:

• Free options: Some basic tools from HMRC-approved providers are free for sole traders with straightforward affairs
• Paid options: QuickBooks, Xero, Sage, FreeAgent, and others offer MTD-compliant packages, typically £10–£30/month
• Bridging software: If you already use a spreadsheet, bridging software can connect your existing records to HMRC — this is a lower-cost option for those who don't want to change their bookkeeping habits

What about Uber, Deliveroo, and gig workers?

If your total income from platforms like Uber, Deliveroo, Just Eat, Etsy, Airbnb, or any other self-employment activity exceeds £50,000 (or from April 2028, £20,000), you must comply. Platform income counts as self-employment income for MTD purposes.

Many gig workers will be swept in by the £20,000 threshold from April 2028 — that's roughly £385/week in platform earnings. If that's you, start building MTD habits now.

What if you're below the threshold?

You continue to file Self Assessment as normal until your income crosses the relevant threshold. However, if your income is between £20,000 and £50,000, the April 2028 rollout is approaching fast. It makes sense to start using compliant software now — both to build the habit and to benefit from better records for your existing tax return.

Exemptions and deferrals

HMRC has confirmed limited exemptions:

• Those who are digitally excluded (defined as unable to use digital tools for reasons of disability, age, or remote location without broadband) can apply for an exemption
• Trustees, personal representatives, and Lloyd's of London names have specific arrangements
• Practising members of religious societies that object to electronic communications may also be exempt

Exemptions must be applied for through HMRC — they are not automatic.

Frequently asked questions

Do I still need to submit a Self Assessment return?

Under MTD, the annual Self Assessment tax return is replaced by a "final declaration." This is similar in concept but is submitted through your MTD software rather than directly on the HMRC website. You still need to report all income sources, claim allowances, and agree your final tax bill.

What happens if I miss a quarterly deadline?

You receive one penalty point. Points accumulate, and at the threshold (4 points for quarterly filers), a £200 fine is triggered. Points reset if you meet all obligations for a 12-month period.

Do I need an accountant?

No — MTD can be managed yourself using approved software. However, if your tax affairs are complex (multiple income sources, overseas income, capital gains), an accountant who uses MTD-compliant software can submit on your behalf. You authorise them through HMRC's agent system.

Can I keep using HMRC's own website to file?

No. From April 2026, affected taxpayers must use HMRC-approved third-party software. HMRC's own digital tools for Self Assessment will not meet MTD requirements for quarterly submissions.

What if my income fluctuates around the threshold?

If your qualifying income drops below the threshold, you can apply to HMRC to leave the MTD scheme. However, you must first complete a full year of MTD compliance before applying to exit.

If you're a gig worker or sole trader trying to understand your current tax position, use our gig worker payslip guide or our IR35 and day rate calculator to check your numbers.