Updated April 2026

Making Tax Digital for Income Tax

From April 2026, HMRC requires landlords and sole traders to keep digital records and file quarterly updates using compatible software. This guide covers what you need to know to get compliant.

What is Making Tax Digital?

Making Tax Digital for Income Tax Self Assessment (MTD ITSA) is HMRC's programme to move tax reporting online. If you earn income from rental property, self-employment, or both, you'll need to use compatible software to keep digital records and send quarterly updates to HMRC.

You still file a tax return at the end of the year, but through your software rather than HMRC's website. The Final Declaration is where you confirm everything is complete and accurate.

You cannot meet MTD obligations by typing totals into HMRC's online account. All submissions must go through HMRC-recognised software.

Key Dates

MTD ITSA is rolling out in phases based on your gross qualifying income.

April 2026Over £50,000Starting Now

Landlords and sole traders with combined gross income above £50,000.

April 2027Over £30,000

Extended to those with combined gross income above £30,000.

April 2028Over £20,000

Extended to those with combined gross income above £20,000.

Am I Affected?

MTD applies based on your qualifying income - your gross income (before expenses) from property and self-employment combined.

Example: Calculating Qualifying Income

Rental income (gross)£35,000

Self-employment turnover (gross)£20,000

Combined qualifying income£55,000

This person is above the April 2026 threshold and must comply from the start, even though neither source alone exceeds £50,000.

Below the Threshold

You are not required to join MTD ITSA while your combined qualifying income stays below the threshold for that tax year, but this may change as thresholds are lowered (see Key Dates above)

Out of Scope

Partnerships (separate MTD rules apply, not yet in scope)
Companies and corporate landlords (report under Corporation Tax)
Trusts and estates (not currently in scope for MTD ITSA)

Voluntary sign-up: If you're below the threshold, you can still sign up voluntarily to get used to the process before it becomes mandatory for you.

Quarterly Reporting

You submit income and expense summaries four times a year, once per quarter.

Quarter	Period	Deadline
Q1	6 Apr - 5 Jul	7 Aug
Q2	6 Jul - 5 Oct	7 Nov
Q3	6 Oct - 5 Jan	7 Feb
Q4	6 Jan - 5 Apr	7 May

Cumulative reporting

Each update includes all income and expenses from 6 April up to the end of that quarter, not just the quarter itself.

If you have both rental property and a sole trade, you file separate quarterly updates for each. They are treated as different income sources by HMRC.

What to Report

The categories you report depend on whether the income source is property or self-employment. Here is what HMRC expects for each.

UK Property

Income

Total rents received
Premiums of lease grants
Other property income
Tax deducted (Non-Resident Landlord Scheme)

Expenses

Premises running costs (insurance, rates, utilities)
Repairs and maintenance
Financial costs (loan interest, overdraft charges)
Professional fees (legal, agent, accountancy)
Cost of services (cleaning, gardening, wages)
Travel costs
Other allowable expenses

Self-Employment

Income

Business turnover
Other business income

Expenses

Cost of goods bought for resale or raw materials
Wages, salaries and staff costs
Car, van and travel expenses
Premises running costs (rent, rates, utilities)
Repairs and maintenance of property or equipment
Phone, stationery and other admin costs
Advertising and marketing
Interest on business loans and finance charges
Professional fees (legal, accountancy)
Irrecoverable debts written off
Other allowable expenses

If your annual turnover for a given income source is under £90,000, you can report expenses as a single total instead of by category. However, residential landlords must still separately identify restricted finance costs (Section 24 mortgage interest) even if turnover is below £90,000.

Final Declaration

After all four quarterly updates, you complete your tax return in software, adding any other income, gains, and reliefs. Then you file the Final Declaration to confirm everything is complete and accurate.

Deadline

31 January following the end of the tax year. This is the same date as the payment deadline.

Amendments

You can amend your Final Declaration within 12 months of the original filing deadline.

Annual Adjustments Before Filing

Before the Final Declaration, you may submit adjustments and allowances that don't fit into quarterly updates:

Private use adjustments

Balancing charges

Residential finance costs (Section 24 annual summary)

Cost of replacing domestic items

Property income allowance

Capital allowances (where applicable)

Section 24: Mortgage Interest Relief Restriction

Landlords only. This section applies to individual residential property landlords. It does not apply to companies, commercial property, or self-employment business loans.

Section 24 of the Finance (No.2) Act 2015 restricts how residential landlords claim tax relief on mortgage interest. Fully phased in since April 2020, it works like this:

Mortgage interest is NOT deducted from your rental profit.

Tax is calculated on your full rental profit (income minus allowable expenses, excluding mortgage interest).

A 20% basic rate tax credit is applied to your total finance costs, reducing your tax bill (not your taxable income).

Example: Higher rate taxpayer

Rental income£30,000

Allowable expenses (excl. mortgage interest)-£5,000

Taxable profit£25,000

Tax at 40% (higher rate)£10,000

Mortgage interest for the year£10,000

Section 24 credit (20% of £10,000)-£2,000

Net tax payable£8,000

Without Section 24, this landlord would deduct the £10,000 mortgage interest from profit, giving £15,000 taxable profit and £6,000 tax. Section 24 means they pay £2,000 more.

Carry forward: If the 20% credit exceeds your tax liability in a given year, the unused amount carries forward to future tax years.

Penalties

HMRC uses a points-based penalty system for late filing, and percentage charges for late payment. These apply to both landlords and sole traders.

Late Filing: Points-Based System

Each late quarterly or annual submission earns 1 penalty point
The threshold for quarterly filers is 4 points
A £200 penalty is charged when the threshold is reached
Every subsequent late filing after the threshold costs an additional £200
Points below the threshold expire automatically 24 months after they were incurred
Once at the 4-point threshold, points only reset after 12 consecutive months of on-time submissions and all outstanding returns from the previous 24 months have been filed

Soft landing for 2026/27: No penalty points will be awarded for late filing of quarterly updates during the first year of MTD ITSA (2026/27 tax year).

Late Payment Penalties - 2026/27 Tax Year

Period	Penalty
Day 15	3% of outstanding amount
Day 30	Additional 3% of amount still outstanding
Day 31+	10% per year, charged daily until paid

Late Payment Penalties - 2027/28 Onwards

Period	Penalty
Day 15	4% of outstanding amount
Day 30	Additional 4% of amount still outstanding
Day 31+	10% per year, charged daily until paid

First-year grace period: In your first year of MTD ITSA, you have 30 days from the payment due date to pay in full or agree a payment plan with HMRC before any late payment penalty is charged. After the first year, this reduces to 15 days.

Interest accrues on unpaid tax from the due date, even if a Time to Pay arrangement is in place with HMRC.

Disclaimer: This guide is for general information only and does not constitute tax, legal, or financial advice. While we make every effort to keep this page accurate and up to date, tax rules can change. Always check GOV.UK or consult a qualified tax adviser for guidance specific to your circumstances.

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