Making Tax Digital for Income Tax: Who Is In, and What Changes
The threshold is not what most people think it is. It counts income before expenses, and it adds your self-employment to your rent — which is how a £32,000 trade and a £24,000 flat put you in the first wave.
Updated 1 September 2026. HMRC has begun signing people up automatically this month. This guide has been revised to cover the letters, and to correct the penalty position for the first year — there are no points for late quarterly updates in 2026/27.
A decorator in Leeds turns over £32,000 a year. He also rents out the flat he lived in before he got married, which brings in £24,000. Neither number worries him. Both are well under £50,000.
He is in the first wave of Making Tax Digital, and until a letter from HMRC arrives he will have no idea.
The threshold is not per business. It adds the two together, before expenses, and £56,000 clears it comfortably. Since 6 April 2026 he has had to keep digital records and file four times a year instead of once.
Those letters are going out now. From September 2026 HMRC started signing up anyone whose 2024/25 return showed qualifying income over £50,000 and who had not registered themselves. Around 860,000 people are in that first wave.
The short version
- You are in if your gross self-employment income plus gross UK property income tops £50,000. Before expenses, added together.
- Wages from a job do not count towards that figure. Neither do pensions, dividends or savings interest.
- Four quarterly updates — 7 August, 7 November, 7 February, 7 May — then a final declaration by 31 January.
- No penalty points for late quarterly updates in 2026/27. The first year is a soft landing. Points start from 2027/28.
- HMRC does not supply the software. You have to choose and pay for it, though free options exist.
If a letter has arrived, you are already signed up
This is the part catching people out this autumn. Signing up was meant to be something you did. Since September 2026, HMRC does it for you if you have not got round to it.
The letter says HMRC has signed you up on your behalf for the 2026/27 tax year, because your qualifying income for 2024/25 was over £50,000. It does not ask permission and there is no form to send back.
What it does not do is any of the actual work. It will not pick your software, it will not build your digital records, and it will not file anything. Registration is the only part that has been handled.
So if one lands, the order of business is: sign in to HMRC online services with your Self Assessment details, check the income figures they have used, get compatible software, then bring your records up to date and file the quarterly updates you have already missed.
And if you think they have got it wrong
There is no opt-out button. What there is instead is a conversation: contact Self Assessment general enquiries and say you do not believe you need to be in it. That is also the route if you think you qualify for an exemption.
Worth doing promptly rather than ignoring. The obligation runs from 6 April 2026 whether the letter feels right or not.
Image source: pexels.com
Who has to do it, and from when
| From | Gross income above |
|---|---|
| 6 April 2026 — in force now | £50,000 |
| April 2027 | £30,000 |
| April 2028 | £20,000 — see the note below |
The £20,000 stage is widely reported as April 2028, but sources are not consistent about whether that date is settled or still an intention. Treat it as coming rather than fixed, and check before planning around it.
The decision was made on a return you have already filed
HMRC works out who is in the first wave from 2024/25 Self Assessment returns. That return went in long before the rules started, which means the figures behind the decision are ones you can no longer change. What you do now only affects the later waves.
The bit everyone gets wrong
Three things about the threshold catch people out. Two of them pull more people into scope than expect it, and the third keeps some people out who assume they are trapped.
It is gross, not profit. The figure is your income before you take a single expense off it — turnover, in other words. A trade billing £55,000 with £20,000 of costs and £35,000 of profit is over the line, because HMRC is looking at the £55,000.
It is combined, not separate. Self-employment and UK property income are added together. Two modest income streams that each feel comfortably small can add up to a number that is not.
But your wages are not in it. This is the one that causes the most needless worry. If you have a salaried job and a side business, the PAYE salary does not count towards the threshold at all. A teacher on £45,000 who does £15,000 of weekend work is nowhere near it, because only the £15,000 counts.
Also outside the sum: pensions, dividends, savings interest, capital gains, inheritance tax and VAT. Only trade and UK property go into it.
Work out whether you are in
Gross figures, before expenses. Leave out wages, pensions and savings.
Enter your two figures and this will tell you which wave you fall into.
What changes: four updates instead of one return
Two obligations, really. Keep your records digitally in compatible software, and send HMRC an update every quarter.
| Update | Period covered | Deadline |
|---|---|---|
| Q1 | 6 April – 5 July | 7 August |
| Q2 | 6 April – 5 October | 7 November |
| Q3 | 6 April – 5 January | 7 February |
| Q4 | 6 April – 5 April | 7 May |
Look at the middle column again, because this is the detail almost nothing explains properly.
The updates are cumulative. Every one starts from 6 April. Q3 is not “October to January” — it is the whole year so far, restated. Which means a mistake in Q1 does not need amending; it gets corrected the next time you file, because you are sending the running total again.
That is the opposite of how most people assume quarterly filing works, and it takes a lot of the fear out of it.
A trade and a rental means two sets of updates
Our decorator does not file one update covering everything. The business and the flat are separate sources, so each gets its own quarterly update. Run two trades and a rental and that is three.
They share the same deadlines, and it all comes back together at the end — one final declaration, not one per source.
What stays out of the quarterly updates
Wages, pensions, dividends and savings interest are not part of the quarterly cycle. They are still taxable and still get declared — just once, at the year end, the way they always were. Only trade and property income go in every quarter.
Image source: pexels.com
And then the final declaration
By 31 January, as now. This replaces the Self Assessment return, confirms the year’s figures and is where reliefs and allowances are claimed. If you have filed one before, our guide to Self Assessment for the self-employed covers the ground it is taking over.
So the deadline you already know does not go away. Four more arrive in front of it.
The penalties, and the first-year reprieve
Here is the part worth reading carefully, because a lot of coverage published before the rollout has it wrong.
There are no penalties for missing a quarterly update deadline in the 2026/27 tax year. The first year is a soft landing. If you missed 7 August 2026, you are not carrying a point.
Points for late quarterly updates start with the 2027/28 tax year. In practice the earliest one you can pick up is for the April to June 2027 quarter, if that is not filed by 7 August 2027.
The tax return deadline is a different matter. That one bites from the start — miss 31 January 2028 for the 2026/27 year and a point follows.
How the points work
- One point per missed deadline. At four points you pay £200, and £200 again for every miss after that.
- Below four points, a point expires on its own after 24 months.
- Once you are at four, expiry stops. You clear the slate by filing on time for 12 consecutive months and submitting anything still outstanding from the previous 24.
Paying late is charged separately
Filing and paying are two different failures with two different penalties, and the payment one is steeper. There is a first-year concession here as well: for your first year in the new system you get 30 days from the due date before anything is charged, rather than 15.
| How late | 2026/27 (first year) | 2027/28 onwards |
|---|---|---|
| Up to 15 days | Nothing | Nothing |
| 16–30 days | Nothing — first-year grace | 3% of the tax outstanding at day 15 |
| 31 days and beyond | 3% at day 15 plus 3% at day 30, then roughly 10% a year until paid | Same, at 4% and 4% |
Which makes cash flow a compliance problem rather than only a business one. If you are not forecasting it, start with cash flow forecasting for small businesses — and for a tax bill that lands awkwardly, a business overdraft rather than a loan is usually the right shape of borrowing.
The software, and what it costs you
One thing to be clear about: HMRC does not provide the software. There is no free government portal for this the way there is for a Self Assessment return. Choosing a package, paying for it and learning it are all on you.
The recognised commercial names are the ones you would expect — Xero, QuickBooks, FreeAgent, Sage. Free and low-cost options do exist, and some business bank accounts now bundle a compatible tool for sole traders, so it is worth checking whether you are already paying for one without knowing.
If you would rather keep a spreadsheet, you can, but only with bridging software sitting between it and HMRC. A spreadsheet on its own cannot file.
Two practical notes. Software works best when the money runs through a dedicated account rather than your personal current account — see choosing a business bank account. And if this is the moment you decide to hand the job over, choosing an accountant is worth doing before the quarterly rhythm starts rather than after.
Image source: pexels.com
Who does not have to
Some exemptions are automatic: trustees, personal representatives, people without a National Insurance number, Lloyd’s members and non-resident companies.
Others have to be applied for, where using software is genuinely impractical because of age, disability, where you live, or religious belief. Somewhere with no reliable connection is a real category here, not a technicality.
Then there are the people outside it by structure rather than by exemption:
- Landlords who hold property through a limited company. The company pays corporation tax and files company accounts, so none of this applies.
- Unincorporated partnerships. They cannot register yet and sit outside the current system.
- Anyone whose income falls away. Three consecutive years below £30,000 and you can leave.
That first one is why the question of sole trader or limited company has picked up a new wrinkle, though incorporating purely to dodge quarterly filing would be a poor reason on its own — the tax and admin consequences run a lot deeper than this.
If you own property jointly
Rental income counts according to your share of the property, not the whole rent.
Married couples and civil partners are treated as 50/50 by default, unless a Form 17 declaration has been filed setting out different shares. So a couple renting out a flat for £24,000 count £12,000 each — which can be the difference between one of them being caught and neither.
Image source: pexels.com
What to actually do about it
- Do the sum. Gross self-employment plus gross UK rent, before expenses, wages left out. That is your number.
- Check the post. If HMRC has signed you up, the obligation is already running and there are quarterly updates behind you.
- Sort the software. It has to file to HMRC directly, so a spreadsheet needs a bridging tool alongside it. Check what your bank account already includes before paying for anything.
- Move to monthly reconciling. This is the real change. Quarterly filing is painless when the records are current and horrible when you do a year’s bookkeeping in one weekend.
- Put the dates in the calendar. 7 August, 7 November, 7 February, 7 May. The next one is 7 November.
Is this actually bad news?
Less than it sounds, for one group and one reason.
If you already reconcile your books every month, almost nothing changes. Your software knows the numbers; filing is a button. The people who will suffer are the ones doing a shoebox of receipts every January, and for them the pain is bookkeeping discipline rather than tax.
There is a real upside too. Knowing your position four times a year rather than once makes almost everything else easier — pricing, borrowing, and knowing whether you can afford to hire. It is the same discipline that decides whether a lender says yes when you build a business credit profile, and it is where any honest view of what your business costs to run starts.
If the quarterly rhythm exposes a gap between invoicing and getting paid, that is worth solving properly — see invoice finance versus factoring.
Image source: pexels.com
Frequently asked questions
Who has to use Making Tax Digital for Income Tax?
Since 6 April 2026, sole traders and landlords whose combined gross income from self-employment and UK property is over £50,000. The threshold falls to £30,000 in April 2027, with £20,000 expected after that.
Does my salary count towards the £50,000?
No. Employment income taxed through PAYE is left out of the threshold entirely, as are pensions, dividends and savings interest. Only self-employment and UK property income count.
Is the threshold based on profit or turnover?
Turnover — gross income before expenses. Your profit does not decide whether you are caught.
HMRC has signed me up without asking. Can I opt out?
Not directly. If you do not think you should be in it, or you believe you qualify for an exemption, contact Self Assessment general enquiries and take it up with them. There is no opt-out form.
Will I be fined for missing the 7 August 2026 update?
No. There are no penalties for late quarterly updates in the 2026/27 tax year. Points for quarterly updates begin in 2027/28. The tax return deadline is not covered by that reprieve.
What are the quarterly deadlines?
7 August, 7 November, 7 February and 7 May. Each update is cumulative from 6 April, so it restates the year to date rather than covering only that quarter.
I have a business and a rental. Is that one update or two?
Two — each source files its own quarterly update on the same dates. There is still only one final declaration covering everything.
Does Self Assessment disappear?
The return does. A final declaration by 31 January replaces it, and that is still where reliefs and allowances are claimed.
Do limited company landlords have to do this?
No. Property held through a limited company sits outside Making Tax Digital for Income Tax. The company pays corporation tax and files company accounts instead.
Can I still use a spreadsheet?
Only alongside bridging software that sends the figures to HMRC. HMRC does not supply software of its own, so the filing has to go through a compatible package either way.
Can I ever come out of it?
Yes — after three consecutive years with income below £30,000.
Where these figures come from
- GOV.UK — Making Tax Digital for Income Tax for sole traders and landlords: step by step
- GOV.UK — Penalties for Making Tax Digital for Income Tax
- GOV.UK — Check what to do if HMRC has signed you up
- GOV.UK — Find out if and when you need to use Making Tax Digital for Income Tax
This is general information, not tax advice. Thresholds, dates and penalty rates change — check the current position with HMRC or your accountant before acting on anything here.
