From 6 April 2026, Making Tax Digital for Income Tax (MTD ITSA) became mandatory for sole traders and landlords with qualifying income over £50,000. The threshold drops to £30,000 in April 2027 and £20,000 in April 2028.
That means the way many self-employed people and landlords keep their books has to change. Paper records and spreadsheets typed up at year-end are no longer enough. Your records must be digital, your figures must reach HMRC through compatible software, and you must send quarterly updates, with the next deadline on 7 November 2026.
This guide explains exactly what MTD for Income Tax requires, what your ERP or accounting software must be able to do, and how to set up a compliant process.
Key Takeaways
MTD for Income Tax applies to sole traders and landlords with gross self-employment and property income above £50,000 (from April 2026), £30,000 (April 2027) and £20,000 (April 2028).
You must keep digital records, send quarterly updates and submit a final declaration by 31 January after the tax year.
Submissions must go through HMRC-recognised software, or a spreadsheet or ERP linked to bridging software.
Records must flow between systems through digital links, not retyping.
In 2026-27, there are no penalty points for late quarterly updates; points-based penalties apply from 2027-28.
Who Has to Comply, and When?
Start date | Qualifying income above | Based on your tax return for |
|---|---|---|
6 April 2026 | £50,000 | 2024/25 |
6 April 2027 | £30,000 | 2025/26 |
6 April 2028 | £20,000 | 2026/27 |
Qualifying income means gross income (total sales and rents before expenses) from:
Self-employment
UK and overseas property
It doesn’t include employment, pension, savings or dividend income, partnership income, or income as a company director. A loss-making business can still be in scope if its gross income is over the threshold.
Not in scope (for now):
Limited companies. Companies don’t use MTD for Income Tax, although VAT-registered companies already use MTD for VAT.
Partnerships. No mandatory start date has been set yet.
Some people are exempt automatically, and others, including those who are digitally excluded, can apply for an exemption.
What MTD for Income Tax Requires
1. Digital records
Every business or property income and expense transaction must be recorded digitally, in software or a spreadsheet. Records should include the date, amount and category of each transaction.
2. Quarterly updates
Every three months, you send HMRC a summary of income and expenses for each business and property source.
Quarter | Standard period | Calendar period option | Deadline |
|---|---|---|---|
Q1 | 6 Apr – 5 Jul | 1 Apr – 30 Jun | 7 August |
Q2 | 6 Apr – 5 Oct | 1 Apr – 30 Sep | 7 November |
Q3 | 6 Apr – 5 Jan | 1 Apr – 31 Dec | 7 February |
Q4 | 6 Apr – 5 Apr | 1 Apr – 31 Mar | 7 May |
Quarterly updates are cumulative: each one covers the tax year so far. That means a later update can include figures from an earlier quarter you missed.
3. Final declaration
After the tax year ends, you make year-end adjustments, then submit a final declaration combining all your income. It replaces the old Self Assessment return and is due by 31 January after the tax year (for 2026-27, that’s 31 January 2028).
4. HMRC-recognised software
Quarterly updates and the final declaration must be sent through software recognised by HMRC for MTD for Income Tax. You can either:
Use recognised accounting software that keeps records and submits, or
Keep records in a spreadsheet or another system and use bridging software to submit
5. Digital links
If data moves between systems, for example from your ERP to bridging software, it must move digitally: by API, file import or a direct link. Copying and retyping figures doesn’t count.
Penalties
Tax year | Late quarterly updates | Late final declaration |
|---|---|---|
2026-27 | No penalty points (soft landing) | Points-based penalties apply |
2027-28 onwards | One point per missed deadline | One point per missed deadline |
Under the points system:
Each missed deadline adds one point
Reaching four points triggers a £200 penalty
Each further missed deadline adds another £200
Points expire after a period of compliance
Late payment penalties also apply, starting from day 16 after the due date.
The soft landing isn’t a holiday. Digital record keeping has applied since 6 April 2026, and you still need to meet your quarterly obligations before your 2026-27 final declaration.
What Your ERP or Accounting Software Must Do
Use this as a checklist when reviewing your current system.
1. Record every transaction digitally
Income and expenses recorded as they happen, not at year-end
Date, amount and category on every transaction
Bank transactions imported automatically, not typed in
2. Categorise income and expenses the way HMRC needs
Quarterly updates use HMRC’s income and expense categories. Your chart of accounts should map cleanly to them, so totals can be produced without manual adjustments.
3. Separate each income source
Each self-employment and each property business needs its own figures. Your system must keep them apart, for example with separate cost centres or companies.
4. Produce cumulative quarterly totals
Your software should produce year-to-date totals by HMRC category at the end of each quarter, matching the standard or calendar periods you’ve chosen.
5. Submit to HMRC, or link digitally to software that does
Either your software is HMRC-recognised for MTD ITSA, or it can pass figures to bridging software through a digital link (API or file import).
6. Support year-end adjustments
Accruals, prepayments, capital items and private-use adjustments must be handled before the final declaration.
7. Keep an audit trail
Every change recorded with who made it and when, so your figures can be checked if HMRC asks.
8. Reconcile with your bank
Regular bank reconciliation makes sure no income or expenses are missing from your quarterly updates.
Where Each Type of Software Fits
Option | Keeps digital records | Submits to HMRC | Best for |
|---|---|---|---|
HMRC-recognised accounting software | Yes | Yes | Simple sole traders and landlords |
Spreadsheet + bridging software | Yes | Through bridging | Very simple records |
ERP (such as ERPNext) + bridging software | Yes, with stock, invoicing, payroll and more | Through bridging, via digital link | Growing businesses that need more than bookkeeping |
Using ERPNext for Making Tax Digital
Many growing UK sole traders and landlords outgrow basic bookkeeping apps: they hold stock, manage several properties, invoice clients and pay staff. ERPNext, an open-source ERP with no per-user licence fees, keeps all of that in one system and can form the record-keeping part of a compliant MTD process.
How it fits:
MTD requirement | How ERPNext handles it |
|---|---|
Digital records | Every sale, purchase, expense and payment recorded digitally |
Bank data | Bank statements imported and reconciled automatically |
HMRC categories | Chart of accounts mapped to HMRC’s income and expense categories |
Separate income sources | Separate cost centres or companies for each business and property |
Quarterly totals | Year-to-date reports by HMRC category for each quarter |
Digital link | Figures exported by API or file into HMRC-recognised bridging software |
Year-end adjustments | Accruals, prepayments and depreciation recorded in the same system |
Audit trail | Every change logged with user and time |
The compliant route: ERPNext keeps the records and produces the quarterly figures; HMRC-recognised bridging software submits them. The link between the two must be digital, by API or file import, never retyped.
Already VAT-registered? The same principles apply to MTD for VAT, which has applied to all VAT-registered businesses since 2022.
Step-by-Step: Getting Compliant
Step 1: Check whether you’re in scope
Add up your gross self-employment and property income from your latest tax return. Over £50,000 for 2024/25? You’re already in. Over £30,000 for 2025/26? You’ll join in April 2027.
Step 2: Choose your software route
Recognised accounting software, spreadsheet plus bridging, or ERP plus bridging, depending on how complex your business is.
Step 3: Map your accounts to HMRC categories
Make sure every income and expense account maps to an HMRC category, and each income source is kept separate.
Step 4: Set up digital links
Connect your record-keeping system to your submission software by API or file import.
Step 5: Submit your quarterly updates
Use the soft landing in 2026-27 to get your process right, but aim to submit on time so you’re ready when penalties start in 2027-28.
Step 6: Prepare for the final declaration
Make year-end adjustments and submit your final declaration by 31 January 2028 for the 2026-27 tax year.
Frequently Asked Questions
Who needs to use Making Tax Digital for Income Tax?
Sole traders and landlords with gross self-employment and property income above £50,000 from April 2026, above £30,000 from April 2027, and above £20,000 from April 2028.
What are the MTD quarterly update deadlines?
7 August, 7 November, 7 February and 7 May, for the quarters ending 5 July, 5 October, 5 January and 5 April (or the calendar quarter equivalents).
Are there penalties for late MTD quarterly updates?
Not in 2026-27. HMRC isn’t applying penalty points for late quarterly updates in the first year. From 2027-28, each missed deadline earns a point, and four points trigger a £200 penalty.
Do limited companies need MTD for Income Tax?
No. Limited companies aren’t covered by MTD for Income Tax, although VAT-registered companies already use MTD for VAT.
Can I use a spreadsheet for MTD?
Yes, if you use bridging software to submit to HMRC, and data moves between them through a digital link rather than retyping.
Can ERPNext be used for Making Tax Digital?
ERPNext can keep the digital records and produce the quarterly figures. Submissions to HMRC go through HMRC-recognised bridging software, connected to ERPNext by a digital link.
What counts as qualifying income for MTD?
Gross income from self-employment and property, before expenses. Employment, pension, savings, dividend and partnership income don’t count.
What is a digital link?
An electronic transfer of data between software programs, such as an API connection or file import. Manually copying or retyping figures isn’t a digital link.
Get MTD-Ready with Bizloom ERP
Bizloom ERP implements ERPNext for growing businesses internationally, with remote delivery and support. For UK businesses, we can:
Set up ERPNext with your chart of accounts mapped to HMRC categories
Separate each self-employment and property income source
Automate bank imports and reconciliation
Build quarterly MTD reports and digital links to your bridging software
Migrate your records from spreadsheets or other software
Host your system securely with managed ERP hosting
Learn more about our ERP implementation services, or compare platforms in ERPNext vs Odoo.
Outgrowing your bookkeeping app? Message us on WhatsApp to see how ERPNext could run your business and your MTD records. Ask on WhatsApp
Want a detailed plan? Book a Free ERP Assessment with Bizloom ERP.