Making Tax Digital for Income Tax: Introduced in April 2026 – What's Changing in 2027?

Published: 27 October 2026
Category: Making Tax Digital | Income Tax | HMRC Updates | Self-Employed

Making Tax Digital (MTD) for Income Tax officially came into effect on 6 April 2026, marking one of the most significant changes to the UK's Self Assessment system in recent years.

The new rules initially affected self-employed individuals and landlords with qualifying income exceeding £50,000. However, this is only the beginning.

From 6 April 2027, the qualifying income threshold will reduce to £30,000, bringing many more sole traders and landlords into the digital tax reporting system.

For individuals who have traditionally prepared their accounts once a year, these changes mean a new approach to record-keeping, reporting income and managing tax responsibilities.

At TOPTAX Accountants, we believe understanding these changes early is essential for avoiding unnecessary complications and ensuring a smooth transition.

In this article, we explain what changed in 2026, what is coming in 2027 and how individuals and businesses can prepare.

1. What Changed When MTD for Income Tax Started in April 2026?

On 6 April 2026, HMRC introduced mandatory Making Tax Digital for Income Tax for eligible self-employed individuals and landlords with qualifying income above £50,000.

This changed the way affected taxpayers maintain financial records and report their business or property income.

Previously, many individuals maintained paper records or spreadsheets and prepared their Self Assessment tax return at the end of the financial year.

Under the new system, affected taxpayers must:

• Maintain digital records of their income and expenses.

• Use compatible accounting software.

• Submit quarterly updates to HMRC.

• Complete their annual tax return using compatible software.

• Continue meeting existing Income Tax payment deadlines.

The changes aim to modernise the tax system, improve record accuracy and reduce errors.

MTD does not mean paying Income Tax four times a year. It introduces more frequent reporting, not a new quarterly tax payment requirement.

2. What Is Changing From April 2027?

The biggest change in 2027 is the reduction in the qualifying income threshold.

When MTD began in April 2026, it generally applied to individuals with qualifying income above £50,000.

From 6 April 2027, the threshold falls to more than £30,000.

This means many smaller businesses and landlords who were not affected in 2026 will need to comply with the same digital record-keeping and quarterly reporting requirements.

MTD for Income Tax rollout timetable

Start dateQualifying income threshold6 April 2026More than £50,0006 April 2027More than £30,0006 April 2028More than £20,000

For the April 2027 rollout, HMRC generally uses qualifying income reported on the 2025/26 Self Assessment tax return.

Individuals who exceed the relevant threshold should check their obligations even if they have not received a notification from HMRC.

3. Is the £30,000 Threshold Based on Turnover or Profit?

This is one of the most important points for self-employed individuals to understand.

The MTD threshold is based on qualifying gross income before expenses, not taxable profit.

For example, consider a self-employed delivery driver:

• Annual business income: £38,000

• Allowable business expenses: £14,000

• Taxable business profit: £24,000

Although the taxable profit is £24,000, the qualifying income is generally £38,000.

Therefore, the individual would normally fall within the MTD requirements from April 2027, provided the other eligibility conditions are met.

Similarly, where an individual has both self-employment and property income, the relevant gross income is generally combined.

Employment income taxed through PAYE, dividends and pensions are not included when calculating the MTD qualifying income threshold.

4. Which Businesses Will Be Affected in 2027?

The expansion is expected to affect a wide range of sole traders and landlords, including:

• Taxi and private hire drivers.

• Delivery drivers and couriers.

• Driving instructors.

• Construction subcontractors.

• Freelancers and consultants.

• Self-employed tradespeople.

• Small retail business owners.

• Individuals receiving rental income.

For example, a taxi driver with gross earnings of £35,000 during 2025/26 may need to join MTD from April 2027, even if vehicle expenses substantially reduce their taxable profit.

However, the new requirements do not automatically apply to every limited company director or employee.

MTD for Income Tax currently focuses on qualifying self-employment and property income.

5. How Will Quarterly Reporting Work?

One of the main changes introduced in 2026 is the requirement to submit quarterly income and expense updates to HMRC.

This same requirement will apply to individuals joining the scheme in April 2027.

Instead of waiting until the end of the tax year to report their financial information, affected taxpayers must maintain digital records and submit updates using compatible software.

For individuals joining MTD from 6 April 2027, the standard quarterly deadlines will be:

Reporting periodSubmission deadline6 April – 5 July 20277 August 20276 April – 5 October 20277 November 20276 April 2027 – 5 January 20287 February 20286 April 2027 – 5 April 20287 May 2028

These are cumulative reporting periods, meaning each update covers information from the beginning of the tax year.

Different reporting period arrangements may apply where calendar-quarter reporting is used.

Quarterly updates are summaries of recorded income and expenses, rather than complete tax returns.

6. Will the Annual Self Assessment Tax Return Still Be Required?

Yes.

Although MTD introduces quarterly reporting, individuals will still need to complete an annual tax return.

The annual return will include relevant adjustments, allowances, reliefs and other taxable income where applicable.

For taxpayers who joined MTD in April 2026, their first MTD annual tax return will generally be due by 31 January 2028.

For those joining in April 2027, their first MTD annual tax return will generally be due by 31 January 2029.

The existing tax payment deadlines will continue to apply.

Therefore, MTD changes how financial information is maintained and submitted, but it does not remove annual tax reporting responsibilities.

7. What About the New Penalty Rules in 2027?

Another important development is the introduction of a points-based penalty system for late submissions.

For the 2026/27 tax year, HMRC introduced transitional arrangements under which penalty points are not applied for late quarterly updates.

However, quarterly updates must still be submitted.

From the 2027/28 tax year, late quarterly submissions can result in penalty points.

Under the new system, reaching four points for quarterly reporting failures can result in a £200 financial penalty.

Additional rules apply to late annual tax returns and late tax payments.

This makes timely bookkeeping and submission of quarterly updates increasingly important.

8. Do You Need New Accounting Software?

Individuals within MTD must use compatible software to maintain the required digital records and submit information to HMRC.

Depending on the business, this may involve dedicated accounting software or suitable spreadsheet arrangements supported by compatible bridging software.

The software should allow taxpayers to record relevant transactions and submit quarterly information electronically.

For many small businesses, the biggest adjustment may not be the software itself but developing the habit of maintaining accurate records throughout the year.

Rather than collecting receipts and bank statements at the end of the tax year, transactions will need to be recorded more regularly.

This can also provide business owners with a clearer picture of their income, expenses and profitability.

9. What Should Self-Employed Individuals Do Before April 2027?

If your gross self-employment or rental income exceeded £30,000 in the 2025/26 tax year, you should begin preparing now.

Review your qualifying income

Check your gross business and property income to determine whether you are likely to fall within the new requirements.

Review your bookkeeping arrangements

Consider whether your current records meet the digital requirements.

Choose suitable software

Ensure your accounting software is compatible with HMRC's MTD for Income Tax system.

Organise your income and expenses

Maintain accurate financial records, including business receipts, invoices and relevant expenses.

Speak to your accountant

Your accountant can help assess your obligations, assist with software arrangements and explain how quarterly reporting will work.

Prepare before April 2027

Early preparation can reduce the risk of missed deadlines, incomplete records and unnecessary disruption.

10. What Happens After 2027?

The Making Tax Digital rollout will continue beyond April 2027.

From 6 April 2028, the qualifying income threshold is scheduled to reduce further to more than £20,000.

This will bring additional sole traders and landlords into the system.

For individuals currently below the £30,000 threshold, reviewing digital bookkeeping arrangements may still be worthwhile in preparation for future changes.

The wider direction of HMRC's reforms is towards greater use of digital record-keeping and electronic tax reporting.

11. How TOPTAX Accountants Can Help With Making Tax Digital

At TOPTAX Accountants, we understand that moving from annual Self Assessment reporting to digital quarterly submissions can be challenging, particularly for small businesses and individuals who are unfamiliar with accounting software.

With over 15 years of experience in accounting and taxation, we provide professional support to help clients understand their responsibilities and meet their reporting obligations.

Our MTD-related services include:

• Assessing whether MTD for Income Tax applies to you.

• Reviewing qualifying income and relevant thresholds.

• Guidance on compatible accounting software.

• Digital bookkeeping and record-keeping support.

• Preparation and submission of quarterly updates.

• Annual accounts and Self Assessment tax returns.

• Ongoing tax advice and HMRC compliance assistance.

We aim to make accounting straightforward, helping clients remain compliant without unnecessary complications.

12. Get Ready for the Next Phase of MTD in April 2027

Making Tax Digital for Income Tax has already changed the way many self-employed individuals and landlords report their income.

With the threshold reducing from £50,000 to £30,000 in April 2027, thousands of additional taxpayers will need to adapt to digital record-keeping and quarterly reporting.

Understanding your obligations now can make the transition easier.

Whether you're a taxi driver, delivery driver, driving instructor, landlord or other self-employed professional, TOPTAX Accountants can help you prepare.

Need help with Making Tax Digital for Income Tax? Contact us today.

TOPTAX Accountants
Accounting | Tax | Payroll | Compliance

Telephone / WhatsApp: 07804 646745
Email: info@toptax.co.uk
Website: www.toptax.co.uk

Based in Bradford, West Yorkshire – Supporting Clients Across the UK

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Disclaimer: This article provides general information based on HMRC guidance available as at October 2026. Individual circumstances may differ, and tax rules or administrative requirements may change. Professional advice should be obtained where appropriate.