Quick Summary
- MTD for Income Tax starts 6 April 2026 for sole traders and landlords with qualifying income over £50,000 gross
- From April 2027, the threshold drops to £30,000 — capturing significantly more Scottish taxpayers
- You must submit quarterly updates to HMRC using MTD-compatible software (FreeAgent, Xero, QuickBooks, Sage) plus a final annual declaration
- Use our Self-Employed Tax Calculator to see if your income triggers MTD and what you'll owe at Scottish rates
MTD has been delayed four times since its original 2018 start date. It's finally here. If you're self-employed or a landlord in Scotland earning over £50,000, you needed to be ready by April 2026. Here's what's changed and what you need to do now.
Quick Answer: Making Tax Digital for Income Tax requires sole traders and landlords with qualifying income over £50,000 (from April 2026) or £30,000 (from April 2027) to keep digital records and submit quarterly updates to HMRC using MTD-compatible software. Self Assessment still exists — MTD adds quarterly reporting on top. Scottish taxpayers report income through MTD; HMRC applies Scottish tax rates automatically. The main change is moving from one annual return to four quarterly summaries + one final declaration. Penalties use a new points-based system.
Who must comply from April 2026?
You must use MTD if:
- You're a sole trader (self-employed) with gross income over £50,000, OR
- You're a landlord with gross rental income over £50,000, OR
- Your combined self-employment + rental income exceeds £50,000
"Qualifying income" means gross income — total turnover/rental income before expenses. If your gross rental income is £55,000 but profit after expenses is only £25,000, you still need MTD because the £55,000 gross exceeds the threshold.
From April 2027: The threshold drops to £30,000. This captures a much larger group — roughly 2.6 million additional taxpayers across the UK.
Not affected (yet):
- Employees with only PAYE income — even at £200k+
- Limited companies — they already have separate MTD for Corporation Tax requirements
- Partnerships — delayed to April 2025 earliest (no confirmed date as of April 2026)
- Anyone with qualifying income under £30,000 — no confirmed timeline below this threshold
What changes from Self Assessment?
| Self Assessment (current) | MTD for Income Tax (new) | |
|---|---|---|
| Reporting frequency | Once per year (by 31 January) | Quarterly updates + annual final declaration |
| Record-keeping | Can use paper records or spreadsheets | Must use MTD-compatible digital software |
| Submission method | HMRC online portal or paper form | Through MTD software API only |
| Deadlines | 31 January after tax year end | Quarterly (5 July, 5 Oct, 5 Jan, 5 April) + final by 31 January |
| Self Assessment continues? | N/A | Yes — MTD is in addition to, not instead of, SA |
Self Assessment doesn't go away. You still file a Self Assessment return. MTD adds quarterly digital reporting on top.
The quarterly reporting cycle
For the 2026/27 tax year:
| Quarter | Period | Deadline |
|---|---|---|
| Q1 | 6 April – 5 July 2026 | 7 August 2026 |
| Q2 | 6 July – 5 October 2026 | 7 November 2026 |
| Q3 | 6 October – 5 January 2027 | 7 February 2027 |
| Q4 | 6 January – 5 April 2027 | 7 May 2027 |
| Final declaration | Full year | 31 January 2028 |
Each quarterly update is a summary of income and expenses for that period. It doesn't need to be exact to the penny — estimates are acceptable for some items, with correction in the final declaration.
MTD-compatible software for Scotland
HMRC maintains a list of approved MTD-compatible software. The main options for Scottish sole traders and landlords:
| Software | Monthly cost | Scottish notes |
|---|---|---|
| FreeAgent | £16.50 (free with Mettle bank) | Scottish-founded, good for sole traders |
| Xero | From £14 | Strong MTD integration, popular with accountants |
| QuickBooks | From £16 | Simple Start plan covers MTD |
| Sage | From £12 | Long-established, good phone support |
| HMRC MTD software | Free | Basic but functional, direct from HMRC |
| Hammock | From £3 | Landlord-specific, simple for property income |
| GoSimpleTax | From £42/year | Self Assessment + MTD in one |
For Scottish landlords: Hammock or FreeAgent are the simplest. For sole traders: FreeAgent (especially if you use Mettle bank — FreeAgent is free with Mettle).
For Scottish taxpayers specifically: All MTD software submits income data to HMRC. HMRC then applies Scottish tax rates based on your tax code (S prefix). The software doesn't need to "know" you're Scottish — that's handled on HMRC's side.
How Scottish tax interacts with MTD
MTD reports your income. It doesn't calculate your tax. Here's the flow:
- You record income and expenses in MTD software
- Software submits quarterly summaries to HMRC via API
- HMRC aggregates your income across all sources
- HMRC applies Scottish income tax rates if your tax code has an S prefix
- Your tax calculation uses the Scottish 6-band system (19%/20%/21%/42%/45%/48%)
There's no separate Scottish MTD. The system is UK-wide. The Scottish element is handled entirely through your tax code and HMRC's calculation engine.
Worked example: Scottish landlord
Sarah, Edinburgh:
- Employed salary: £40,000 (PAYE)
- Rental income: £55,000 gross (3 properties)
- Allowable expenses: £20,000 (repairs, insurance, agent fees)
- Mortgage interest: £15,000 (20% basic rate credit under Section 24)
MTD requirement: Yes — £55,000 rental income exceeds £50,000 threshold
Quarterly reporting: Sarah submits rental income and expenses quarterly via FreeAgent. Her PAYE salary is already reported by her employer.
Tax calculation (done by HMRC, not the software):
- Total income: £40,000 + £35,000 profit = £75,000
- Scottish Higher rate applies to income £43,663–£75,000
- Section 24 mortgage interest credit: £15,000 × 20% = £3,000
- Scottish tax is higher than English because her £75,000 income hits 42% (not 40%)
Penalties for non-compliance
MTD uses a new points-based penalty system (replacing the old flat £100 penalty):
| Offence | Points | Financial penalty |
|---|---|---|
| Late quarterly update | +1 point per late submission | No financial penalty until threshold reached |
| Reaching penalty threshold (4 points for quarterly filers) | N/A | £200 per further late submission |
| Late final declaration | 2 points | Plus interest on any tax owed |
| Failure to use MTD software | N/A | HMRC can issue penalties under existing powers |
Points expire after 24 months of compliance. So if you miss one quarter, you get 1 point — but if you file on time for the next 24 months, that point drops off.
The financial risk is modest for occasional lateness. The real risk is interest on underpaid tax if your quarterly estimates are significantly wrong.
What you need to do now (April 2026)
If your qualifying income is over £50,000:
- Sign up for MTD via your Government Gateway account (if you haven't been auto-enrolled)
- Choose MTD software and connect it to your HMRC account
- Set up digital record-keeping — import bank transactions, categorise income/expenses
- Submit your first quarterly update by 7 August 2026 (for Q1: 6 April – 5 July)
- Keep your accountant informed — they can submit on your behalf if authorised
If your income is between £30,000 and £50,000: you have until April 2027, but starting now is sensible.
Common mistakes
1. Thinking MTD replaces Self Assessment
It doesn't. You still file a Self Assessment return. MTD adds quarterly reporting. Both are required.
2. Using a spreadsheet and thinking you're compliant
Spreadsheets alone don't meet MTD requirements. You need software that connects to HMRC's API. Some bridging software can submit spreadsheet data through the API, but pure Excel/Google Sheets isn't enough.
3. Missing the "gross income" threshold
Many landlords think "my profit is under £50k so I'm exempt." Wrong — it's gross income (rent received) before expenses that counts.
4. Not claiming all allowable expenses quarterly
You can claim expenses in quarterly updates. If you wait until the final declaration, your quarterly estimates will overstate your income — potentially leading to overpayment on account.
5. Forgetting about the Section 24 interaction
Scottish landlords at Higher rate (42%) are already hit by Section 24 mortgage interest restrictions. MTD doesn't change this calculation, but it does mean you need to track mortgage interest separately in your software for the 20% basic rate credit.
Try it yourself
See your Scottish income tax, Class 2/4 NI, and whether your income triggers MTD reporting requirements.
Open Self-Employed Tax CalculatorNo sign-up required.
Frequently Asked Questions
Do I need MTD if I'm employed and have a small side hustle?
Only if your self-employment or rental income alone exceeds £50,000 gross. Your employment income doesn't count toward the MTD threshold — it's already reported through PAYE. A £60,000 salary with a £5,000 Etsy side hustle doesn't trigger MTD.
Can my accountant handle MTD for me?
Yes. Your accountant can be authorised as an agent and submit quarterly updates on your behalf. Most accountancy fees will increase slightly to cover the additional quarterly work — budget £200–£500/year extra.
What if my income fluctuates above and below £50,000?
You must use MTD for any tax year in which your qualifying income exceeds the threshold. If you earned £55,000 in 2025/26 but only £45,000 in 2026/27, you're still required to use MTD for 2026/27 if you were above the threshold when the obligation was triggered.
Does MTD affect my Scottish tax rates?
No. MTD is a reporting mechanism, not a tax calculation. Your Scottish tax rates are determined by your tax code and applied by HMRC. MTD just ensures your income data reaches HMRC more frequently.
What about VAT-registered businesses?
MTD for VAT has been live since April 2019. If you're already using MTD for VAT, you're familiar with the software and process. MTD for Income Tax is similar but separate — you may need additional software features.
Can I use free software?
HMRC offers basic free MTD software. For simple businesses (one income source, few expenses), it's adequate. For landlords with multiple properties or complex businesses, paid software is worth the investment for automation and error reduction.
Related Articles
- Self-Employed Tax Scotland — full self-employed tax guide at Scottish rates
- Side Hustle Tax Scotland — when to register and what you'll pay
- Best Business Bank Account Scotland — accounts with MTD software integration
- Scottish Tax Year 2026/27 Changes — everything that changed from April
- Buy-to-Let Tax Scotland — rental income tax at Scottish rates
This article is for informational purposes only and does not constitute tax or accounting advice. MTD requirements may change — always check the latest HMRC guidance before acting.
Sources: HMRC — Making Tax Digital for Income Tax, HMRC — MTD-compatible software, HMRC — Penalties for late submission