2026-10-20・Automation / Small business / UK tax

Making Tax Digital for Income Tax - who must join, when, and a simple spreadsheet checklist

If you are a sole trader or a landlord in the UK, you have probably heard the words "Making Tax Digital". Maybe you got a letter from HMRC. Maybe you are not sure if it applies to you yet.

This article answers three questions:

1. Who has to use Making Tax Digital for Income Tax, and from when?
2. What do "digital records" and "quarterly updates" actually mean?
3. How can you get ready with a simple spreadsheet?

Everything below was checked against GOV.UK pages on October 20, 2026. Rules can change, so check the linked pages or ask your accountant before you act.

Who must use it

GOV.UK says you need to use Making Tax Digital for Income Tax if all of these are true:

• You are a sole trader or a landlord registered for Self Assessment.
• You have income from self-employment, from property, or from both.
• Your qualifying income is above the threshold for that tax year.

Partnerships will also need to use it in the future. The timeline for them will be set later.

When you must start

Your start date depends on your qualifying income in an earlier tax year:

HMRC looks at the Self Assessment return you filed for that year. If you need to start, HMRC writes to you. If you think you should have heard from HMRC but have not, GOV.UK has a checking tool, or you can ask your tax agent.

Some people are exempt, for example if they are digitally excluded. If you are exempt, you still report your income through a normal Self Assessment return.

What counts as "qualifying income"

This part confuses a lot of people. Qualifying income is your total income from self-employment and property, before expenses. It is not your profit.

If you have more than one business or property, you add them together. GOV.UK gives this example: £25,000 rental income plus £27,000 self-employment income means qualifying income of £52,000.

Some income is not counted, including:

• Employment income (PAYE wages)
• Your share of a partnership's profit as an individual partner
• Dividends, including from your own company
• State Pension and private pensions

So a person with a full-time job and a small side business only counts the side business income (and any property income).

What changes in practice

1. You keep digital records

You keep a record of each business income and expense in software. GOV.UK says each record must include:

• the amount
• the date the income was received or the expense was incurred
• the category

MTD uses the same categories as Self Assessment. There is a helpful shortcut: if you are a sole trader with turnover below £90,000, you only need to record whether each transaction is income or an expense. Landlords with UK residential property still need to categorise expenses in more detail.

GOV.UK says to create records as close to the date of the transaction as possible. You also need to keep the original records or supporting documents (or copies), such as bank statements and invoices, and keep records for at least 5 years after the 31 January submission deadline for the tax year.

2. You send quarterly updates

A quarterly update is a summary, not a tax return. It contains the totals for each income and expense category. HMRC does not receive your individual receipts or invoices.

Each update covers the tax year so far, from 6 April to the end of the period:

Because each update is "year to date", you can fix a mistake in your records and the correction flows into the next update.

If your accounting period runs from 1 April to 31 March, you can choose calendar update periods instead (ending 30 June, 30 September, 31 December and 31 March). The deadlines are the same. You must choose this in your software before your first update.

3. You still file a tax return

You submit your tax return through your MTD software, by 31 January after the end of the tax year, as before. GOV.UK says Making Tax Digital does not change how you pay tax or the payment due dates.

What about penalties?

GOV.UK says there are no penalties for missing a quarterly update deadline for the 2026 to 2027 tax year. For later tax years, each missed quarterly update or tax return deadline gives you a penalty point. At 4 points, you get a £200 penalty. Do not rely on the grace period, though. Getting into a routine now is much easier.

Can I use a spreadsheet?

Yes. GOV.UK says you can keep records in separate record-keeping software, for example a spreadsheet. You then digitally link the spreadsheet to "bridging software" that sends the updates to HMRC. Allowed links include linked cells, emailed spreadsheets, CSV or XML files, and APIs.

One important rule: once a record has gone into a quarterly update, you must not move it by hand, such as with copy and paste. Make corrections in the spreadsheet itself, then let the link carry them across.

A simple spreadsheet setup

Here is a layout that works for most small sole traders. One row per transaction.

Tips:

• Date in year-month-day format, so the sheet sorts correctly.
• Income or expense as a drop-down list (Data validation), so nobody types "Exp" or "outgoing".
• Category as a drop-down too, using the Self Assessment categories. If your turnover is under £90,000 you may not need this column, but many people keep it anyway for their own planning.
• Receipt file links each row to the saved receipt or invoice.

Add a small summary tab with SUMIFS formulas that total each category from 6 April to the end of the current update period. Those totals are what your update shows, so you can check them before you send.

Preparation checklist

Work through this list once, then keep the monthly routine going.

1. Check if and when you must start. Look at your qualifying income (before expenses) on your last return, and compare it with the table above.
2. Look out for an HMRC letter, and keep it with your tax papers.
3. Choose your software. Either full MTD software, or your spreadsheet plus bridging software that HMRC recognises.
4. Set up the spreadsheet with the columns above, with drop-down lists.
5. Decide your update periods (standard or calendar) before your first update.
6. Put the four deadlines in your calendar: 7 August, 7 November, 7 February, 7 May. Add a reminder one week before each.
7. Record transactions every week, or at least every month. Do not leave three months of receipts for the last weekend.
8. Save receipts and invoices in one folder per tax year, with clear file names.
9. Before each update, check the summary totals against your bank statement.
10. Remember the tax return by 31 January. MTD does not remove it.

Find out what else you could automate

Recording transactions and chasing receipts are perfect jobs for a bit of automation. Our free Small Business Automation Check asks which country you are in, your industry and your tasks, and shows which jobs are easiest to automate and how to start.

Sources

• GOV.UK: Check if you're eligible for Making Tax Digital for Income Tax
• GOV.UK: Work out your qualifying income for Making Tax Digital for Income Tax
• GOV.UK: Use Making Tax Digital for Income Tax: Create digital records
• GOV.UK: Use Making Tax Digital for Income Tax: Send quarterly updates
• GOV.UK: Use Making Tax Digital for Income Tax: Submit your tax return
• GOV.UK: Penalties for Making Tax Digital for Income Tax

This article is general information, not tax or legal advice.