If you've searched "MTD for Income Tax" you've already seen the headline version. Keep digital records. File quarterly. Use compatible software. That's all true, and that's where most articles stop.
The decision is bigger than that. It's whether you have to comply at all (the thresholds are not what you'd assume), what HMRC will actually accept as "compatible software" (including a properly-set-up spreadsheet), what a quarterly update actually contains, and what this should reasonably cost. The software vendor articles don't cover this honestly because they're selling software. The big firm articles don't cover it honestly because they're charging £150 a quarter for what's becoming routine work.
This guide covers the whole thing from scratch — what changed, who's affected, what changes day-to-day, what software counts, and the deadlines that actually matter.
1. Who must comply — and when
Making Tax Digital for Income Tax is being rolled out in three phases, based on what HMRC calls your qualifying income. That's the total gross income you earn from self-employment and property in a tax year — combined, before any expenses are deducted.
The phases are:
| From | If your qualifying income for the prior tax year is over |
|---|---|
| 6 April 2026 | £50,000 |
| 6 April 2027 | £30,000 |
| 6 April 2028 | £20,000 |
How HMRC decides which cohort you're in
HMRC looks at the Self Assessment tax return you submitted in the previous tax year. So whether you have to start using MTD from 6 April 2026 was determined by the 2024/25 return you filed by 31 January 2026. If your qualifying income on that return was over £50,000, you're in.
If HMRC determines you're in scope, they write to you. If you've had a letter, that's why.
Worked example
Sarah earns £35,000 from self-employed graphic design and £18,000 gross rent from one buy-to-let property. Combined qualifying income: £53,000.
- She's in scope from 6 April 2026.
- The £53,000 figure was on her 2024/25 SA return.
- It doesn't matter that her property income alone (£18k) is below £30,000 — qualifying income is combined.
Who is not in scope
- Company directors receiving salary or dividends — MTD ITSA does not apply. Directors who also have meaningful self-employment or property income on the side may still be in scope for that side.
- Partners in partnerships — your share of partnership profit is not counted as qualifying income, and partnerships are not currently in scope (HMRC has signalled future expansion but no start date is confirmed). If you also have separate self-employment or property income on the side, that side income still counts towards your threshold.
- Employees with PAYE-only income — never in scope.
- Anyone with qualifying income of £20,000 or less — automatically out, even after April 2028 (based on current legislation; the floor is under review).
Exemptions
A formal exemption from MTD is available on narrow grounds:
- Age, health condition, or disability that stops you using a computer, tablet, or smartphone
- A religious belief incompatible with using digital communications
- No internet access at your home or business because of your location
HMRC does not accept "I've always done paper returns," unfamiliarity with software, or cost as grounds. Exemption applications are decided case-by-case and have to be applied for in advance.
What if you don't comply
For the first year (the tax year 2026/27), HMRC has confirmed they will not apply penalty points for late quarterly updates. Late payment penalties and late tax-return penalties still apply. From 2027/28 onwards, the full points-based late submission regime applies to quarterly updates as well. The mechanics of how points convert to fines are tracked separately by HMRC and worth checking nearer the time.
Source: GOV.UK — Find out if and when you need to use MTD for Income Tax · Work out your qualifying income · Get an exemption from MTD for Income Tax · Sign up for MTD for Income Tax
2. What actually changes day-to-day
Three things change:
- Records have to be digital. You can't keep your books in a paper notebook or in any non-digital format. Spreadsheets are fine — provided they connect to compatible submission software (more on this in section 4).
- You file four quarterly updates per tax year. Each is a summary of your income and expenses for the period, sent to HMRC through the software.
- You file a final tax return at year-end to make tax adjustments, claim reliefs, and confirm your final figures. This replaces your current Self Assessment return; the deadline is the same — 31 January following the end of the tax year.
That's it. The underlying tax rules — income tax bands, allowable expenses, capital allowances, reliefs — don't change. What changes is how often HMRC sees your numbers.
MTD for Income Tax at a glance
| What | When |
|---|---|
| Quarterly update — period ending 5 July | by 7 August |
| Quarterly update — period ending 5 October | by 7 November |
| Quarterly update — period ending 5 January | by 7 February |
| Quarterly update — period ending 5 April | by 7 May |
| Final tax return | by 31 January following the tax year |
You can also opt for calendar quarters (period ends 30 June, 30 September, 31 December, 31 March) if your software supports it — most do. The deadline is still the 7th of the following month. The choice has no tax effect; it's about whichever cycle is easier for your bookkeeping.
The software handles the period calculations and submission mechanics. You don't have to do anything different from what you'd do for a normal Self Assessment, just more often.
Source: GOV.UK — Use MTD for Income Tax
3. What a quarterly update contains — the part most guides skip
This is the section that earns the article. People panic about quarterly updates because they imagine re-doing their tax return four times a year. They aren't. A quarterly update is a summary, not a calculation.
HMRC receives:
- The totals for each income category for the period
- The totals for each expense category for the period
That's it. HMRC does not see individual transactions, individual invoices, or individual receipts. They see one number per category.
What is not required in a quarterly update:
- No tax adjustments required. You don't have to apply capital allowances or claim reliefs at the quarterly stage — those, and other year-end accounting adjustments, are finalised in the year-end return. You can include adjustments earlier if your software supports it, but you're not expected to.
- No final figures. The numbers you send each quarter are running totals based on your bookkeeping. You can correct them in later quarters or at year-end if you got something wrong.
- No other income. Employment income, dividends, pensions, savings interest — none of that is part of a quarterly update. Those go in the year-end final return.
The categories you report against are essentially the same as the boxes you currently fill in on your Self Assessment return. If you've done a SA return before, you've already used these categories — turnover, cost of goods sold, premises costs, motoring expenses, and so on. The shape of the data doesn't change. What changes is that you submit it four times instead of once.
Common worry: "what if I get a number wrong?"
Mistakes can be corrected at the next quarterly update or at the final return. The regime is designed around year-end being the place where things get finalised — the quarterly updates are running totals, not declarations. As long as your final return is correct by 31 January, you're not in penalty territory for in-year revisions.
Source: GOV.UK — Send quarterly updates
4. Software — what counts, including spreadsheets
HMRC's requirement is that your software must:
- Keep digital records of your income and expenses
- Send quarterly updates to HMRC
- Submit your final tax return
There are three routes that meet this requirement. The named examples and prices below are from each provider's own pricing pages, verified April 2026 — vendors change pricing regularly, so check the current rate before signing up.
Route 1: Cloud accounting software
Full bookkeeping suites with bank feeds, invoicing, and reporting alongside MTD compliance. Examples include Xero, FreeAgent, QuickBooks, and Sage. Pricing varies by provider; check each vendor's pricing page for current rates.
FreeAgent is free if you have a business account with NatWest, Royal Bank of Scotland, Ulster Bank, or Mettle (Mettle requires at least one transaction per month to keep it free). Otherwise, the FreeAgent sole trader plan is £19/month (currently £9.50/month for the first six months, ex-VAT). For a sole trader with a Mettle account, this combination — free banking, free FreeAgent — is the cheapest fully-featured route.
Suits: people who want a complete bookkeeping system, with bank feeds, invoicing, and reporting alongside the MTD compliance bit.
Route 2: Lightweight MTD-only software
Tools focused on the sole-trader use case rather than full double-entry bookkeeping.
Coconut, for example, charges £21.99/month or £129.99/year for its MTD filing tier (which includes quarterly updates and the year-end submission). Other lightweight options exist on HMRC's compatible-software list at varying price points.
Suits: sole traders with a simple income/expense profile — a single trade, modest transaction volume, no need for full double-entry bookkeeping.
Route 3: Spreadsheet plus bridging software
This is the route most guides ignore, and it's worth knowing about. HMRC explicitly permits "software that connects to your records" — referred to as bridging software — which lets you keep your books in a spreadsheet and submit to HMRC through a separate small tool.
Pricing varies by provider, typically a low annual cost. Some bridging products are free for low transaction volumes. HMRC's compatible-software finder lists the current options.
Suits: anyone comfortable in Excel or Google Sheets, with low-to-moderate transaction volume, who would rather keep ownership of their data than pay a monthly subscription.
The honest framing: whichever route fits your business is fine. There is no HMRC-preferred software, no bonus for using a particular vendor. The software industry has spent the last few years marketing MTD ITSA as if it requires their specific product. It doesn't.
Source: GOV.UK — Find software compatible with MTD for Income Tax · FreeAgent pricing · Mettle · Coconut pricing — vendor prices verified April 2026.
5. What this should actually cost you
This is the question most threads on MTD eventually arrive at, and it deserves a clear answer.
There are two real routes: do it yourself with software, or pay an accountant. Software pricing below is anchored to vendor pricing pages we've checked directly.
DIY route
- Software: £0 if you bank with NatWest, Mettle, RBS, or Ulster Bank (free FreeAgent included); otherwise around £130/year for a lightweight MTD-only product like Coconut, or a low annual cost for a spreadsheet-plus-bridging setup.
- Time: 1–2 hours per quarter to reconcile records, plus 30 minutes to submit.
- Total cost: £0 (with a free-FreeAgent bank) to roughly £200/year if paying full price, plus your own time.
Suits: sole traders comfortable with their own bookkeeping, low to moderate transaction volume, no complex tax position.
Paying an accountant
Sole-trader fees vary much more than people realise. From what we see in the market, there are three rough bands:
- Online fixed-fee route — around £200–£500 per year. A handful of online-first firms bundle MTD-compatible software with your final return for a fixed monthly fee. Built around single-trade clients with low transaction volume. Fine if your situation is simple; less suitable if you have property income on top.
- Generalist accountant — around £600–£1,500 per year. A small firm doing your bookkeeping, four quarterly updates, and the final return. Sole-trader packages with software included tend to cluster around £35–£55 per month, depending on transaction volume.
- Premium / complex — £1,500–£2,500+ per year. Trade plus property, higher transaction volume, or advisory time included. London adds roughly 20–30%.
Suits: people who want to hand the whole thing over. The right band depends mostly on transaction volume and whether you have property income alongside a trade.
The pricing pressure on MTD compliance is one of the reasons we're building basics. The economics of charging premium rates for a process that's largely click-and-submit aren't going to hold.
6. What to do this month
If you've had a letter from HMRC saying you're in scope from 6 April 2026, here's the practical checklist.
This week
- Find the letter. Make sure you know your start date. If you can't find it, log into your Business Tax Account on gov.uk to confirm.
- Pick a software route. DIY (spreadsheet plus bridging), lightweight app, or cloud accounting. Section 4 has the trade-offs.
This month
- Set up your software. If you're going down the spreadsheet plus bridging route, get the spreadsheet template right before the tax year starts. If you're using a cloud accounting product, connect your bank feed and set up your chart of accounts.
- Sign up for MTD for Income Tax with HMRC. Even if you've had the letter, you (or your accountant) have to formally sign up before submitting your first quarterly update. This is done through your compatible software, or directly via gov.uk.
- Reconcile what you have so far. Your first quarterly update covers up to 5 July, due 7 August. By the end of the first month, you should have everything from April recorded in software.
- Decide on accountant or DIY. If you're using an accountant, get the engagement letter signed and confirm what they're doing each quarter versus what you're doing.
Before each quarterly deadline
- Reconcile bank transactions to the period end
- Confirm income and expense totals look sensible
- Click submit
Before 31 January 2028
Final tax return for 2026/27 — your bookkeeping is already largely done from the four quarterly updates. The final return is the year-end adjustments, reliefs, and any other income (employment, dividends, savings interest, etc.).