Making Tax Digital for Income Tax: Next steps for the self-employed

HMRC’s Making Tax Digital for Income Tax (MTD IT) came into effect in April 2026 and will eventually replace the traditional Self Assessment system for millions of people. It will affect different people at different times, depending on the annual amount they earn through self-employment or property rental income.

While it might sound like just another bit of tax admin, MTD IT is a significant shift. The earlier you understand what's involved, the better prepared you'll be to manage the transition smoothly (and avoid penalties).

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What is Making Tax Digital for Income Tax (MTD IT)?

MTD IT is part of HMRC’s wider digital strategy to modernise the UK tax system. The goal is to make tax administration more efficient, accurate, and easier for individuals and businesses. Under MTD IT, you’ll be required to use MTD-recognised software to:

• Keep digital records of your trade and property income and expenses
• Send updates four times a year of your year-to-date trade and property income and expenses to HMRC
• Submit a final declaration at the end of the tax year including your personal items such as pension etc.

It will replace the annual Self Assessment return with a more frequent reporting system designed to reduce errors and give you a clearer picture of your tax position throughout the year.

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What are the benefits for sole traders?

MTD IT isn’t just about meeting new rules; HMRC hopes it will help you manage your business finances more easily.  Some of the key benefits for sole traders include:

• A clearer view of your tax position – with year-to-date updates four times a year, you’ll know how much tax you owe throughout the year, not just at the end.
• Fewer surprises – regular reporting makes it easier to budget and plan ahead.
• Less to do at year-end – by keeping records up to date as you go, you avoid the last-minute stress of sorting paperwork.
• Reduced errors – using compatible software helps cut down on mistakes, missed claims and manual inputting.
• Better control of your finances – many people find digital record-keeping helps them stay organised and make quicker decisions.

Over time, MTD IT can help you feel more in control and confident when managing tax, giving you more time to focus on your work and customers.

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Who will be affected and when?

The new rules came into effect in April 2026 and apply initially to self-employed individuals and/or those with property rental income if their combined gross income from these sources exceeds £50,000 per year.

This includes sole traders across a wide range of sectors – such as those in the building trade, property owners, psychiatrists, physiotherapists, product makers, personal coaches, consultants, IT contractors, and those providing outsourced services like HR, marketing or finance. These are just a few examples, if you're self-employed and earning above the threshold then the new rules will apply to you.

There’s a phased rollout of the MTD IT.

• April 2026 – MTD IT became mandatory for individuals earning over £50,000 from self-employment and/or property rental income
• April 2027 – The threshold lowers to £30,000
• April 2028 – It's expected the threshold will be reduced to £20,000

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What you'll need to do to comply

Once you're within the scope of MTD IT, you’ll need to adjust how you manage and report your income tax.

You must use MTD IT-recognised software to keep digital records of your income and expenses. This software will also be used to send updates four times a year to HMRC. These updates will summarise your business income and costs to date (i.e., the cumulative year-to-date figures).

At the end of the tax year, you’ll need to make any adjustments or relief claims. You’ll then submit a final declaration by the following 31 January to confirm your total tax liability.

These steps will replace the traditional Self Assessment process, making it more regular but also potentially more manageable if records are kept up to date.

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How to prepare

If you haven't started yet, don't panic. Focus on these basics as, once those are in place, everything else follows naturally.

• Confirm if your gross income will trigger the MTD IT rules with HMRC's page
• Register with HMRC for MTD IT before you begin.
• Select your software - TaxNav offers a 30-day free trial
• Start keeping and recording your digital records - for example, directly into our software or in a spreadsheet using our bridging software. Until your final return, this does not need to be 100% accurate.
• Diarise when you need to submit your quarterly updates, TaxNav will remind you.
• Diarise your final (annual) declaration deadline

People with income over £30,000 from self-employment and/or property will need to join MTD IT from April 2027. You can, however, volunteer to join early and get familiar with it before your HMRC deadline.

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‍How TaxNav can help

At TaxNav, we’re already working with self-employed people across many professions to help them get ready for MTD IT.

We were part of HMRC's MTD IT pilot throughout the 2025/6 tax year and gained extensive experience through the 600+live submissions we successfully completed.

Our MTD IT-recognised software is designed to simplify the MTD IT process, offering:

• Easy digital record-keeping from your phone or laptop

• The ability to retain your preferred spreadsheets and still comply with MTD IT

• Compliance with the updates to HMRC, which are required four times a year - along with the annual declaration

• Helpful reminders and prompts to keep you on track and avoid penalties from HMRC

• Expert support if you get stuck

‍You also automatically get a 30-day free trial, and we offer low-cost subscriptions to keep things affordable. An annual subscription is £60+VAT or pay as you go for £6+VAT per month.

Whether you’re tech-savvy or not, TaxNav is here to make MTD IT simpler. ‍

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