Making Tax Digital for Income Tax (MTD for Income Tax) is the biggest change to how sole traders and landlords report their earnings in a generation, and year one starts in April 2026. If your combined self-employment and property income is above £50,000, you will need to keep digital records and send HMRC updates every quarter through compatible software instead of filing one Self Assessment return a year. This guide walks through year one of MTD for Income Tax step by step, and names the tools, including FreeAgent, that you can shortlist now.
The short answer: from 6 April 2026, affected sole traders and landlords must record income and expenses digitally, submit four quarterly updates per business or property source, and finalise the year with a digital “final declaration” that replaces the old tax return. You cannot do this on paper or with a spreadsheet alone unless that spreadsheet is linked to HMRC through bridging software. The sooner you pick your system and get comfortable with it, the calmer year one will be. Our roundup of the tools every owner should consider in 2026 is a sensible place to start your shortlist.
Who has to comply, and when
MTD for Income Tax is being rolled out in stages based on your qualifying income, which HMRC defines as your gross (pre-expenses) turnover from self-employment plus your gross rental income. The thresholds matter, so check where you sit:
- From April 2026: qualifying income above £50,000.
- From April 2027: qualifying income above £30,000.
- From April 2028: qualifying income above £20,000 (confirmed by the government as the next step in the rollout).
HMRC works out whether you are in scope using the figures from your most recent submitted Self Assessment return. So the 2024/25 return you file by 31 January 2026 is the one that decides whether you are pulled into the first wave. If you are close to the threshold, that return deserves extra care. Our overview of the HMRC Self Assessment changes the ACCA has flagged is worth reading alongside this.
A worked example: Priya runs a graphic design business turning over £38,000 and rents out a flat that brings in £16,000 a year. Her qualifying income is £54,000, so despite neither source topping £50,000 on its own, she is in the first wave from April 2026. Landlords in particular are often caught out here, so short-let and buy-to-let owners should read this alongside the lessons for UK short-let owners.
What you actually have to do in year one
MTD for Income Tax changes the rhythm of your tax admin from once a year to five touch points. Here is the shape of it:
- Keep digital records of every business and property transaction, with the date, amount and category, in software that connects to HMRC.
- Send four quarterly updates per income source. The standard quarters end on 5 July, 5 October, 5 January and 5 April, with submission deadlines roughly a month after each. These updates are cumulative totals, not detailed returns, and you will not pay tax on the strength of them.
- Submit a final declaration after the tax year ends, by 31 January. This is where you add any other income (savings, dividends, employment), claim reliefs and confirm the year. It replaces the Self Assessment return.
Crucially, your payment dates do not change. You will still pay by 31 January and, where relevant, make payments on account by 31 July. What changes is the record-keeping and the quarterly reporting, not when the money leaves your account.
Choosing MTD-compatible software
You must use software that HMRC recognises as compatible. There are two broad camps. Full accounting packages such as FreeAgent, Xero, QuickBooks and Sage do everything from bank feeds to invoicing to the quarterly submission. Then there are specialists and bridging tools such as Hammock, built for landlords, Coconut, aimed at sole traders and the self-employed, and 123 Sheets, which links a spreadsheet to HMRC if you would rather keep your existing workflow.
A point worth knowing for FreeAgent in particular: it comes at no extra cost with a NatWest, Royal Bank of Scotland or Mettle business current account, which makes it one of the cheapest routes into MTD for many sole traders. Always check current pricing and MTD readiness on each provider’s own site before you commit, as products and prices move.
| Tool | Best for | Indicative UK price | Notable point |
|---|---|---|---|
| FreeAgent | Sole traders and landlords wanting a full package | Around £19+ a month; free with eligible NatWest, RBS or Mettle accounts | Strong UK focus and popular with contractors |
| Xero | Growing businesses needing scalability | Roughly £16+ a month depending on plan | Large app ecosystem and accountant support |
| QuickBooks | Self-employed and small firms | From around £10+ a month for lower tiers | Frequent promotional discounts for new users |
| Sage | Established firms and those with an accountant on Sage | From around £15+ a month | Long-standing UK accounting name |
| Hammock | Landlords and property portfolios | Subscription, priced per portfolio size | Built specifically for rental income and MTD |
| Coconut | Sole traders wanting simplicity | Low monthly subscription | Designed around self-employment tax |
| 123 Sheets | Spreadsheet loyalists | Budget bridging fees | Connects your own spreadsheet to HMRC |
Prices above are indicative and change; confirm the latest figures with each provider. If you are reviewing your whole tech stack at the same time, our guide to the tools every UK owner should consider in 2026 and our roundup of the best payroll software for UK small businesses are useful companions.
A practical setup plan for year one
1. Confirm whether you are in scope
Add up your gross self-employment turnover and gross rental income for your latest tax year. Over £50,000 combined means you are in from April 2026. Between £30,000 and £50,000 gives you until April 2027.
2. Separate your finances
A dedicated business bank account makes digital record-keeping far cleaner, because software can pull transactions automatically through a bank feed. Providers such as Starling, Tide, Mettle and ANNA are popular with sole traders, and some bundle accounting tools.
3. Pick and set up your software before April
Do not wait until the first quarter is running. Choose your tool, connect your bank feed, set up income and expense categories, and process a few months of real transactions so the routine feels familiar before it counts.
4. Decide who presses the button
You can do the quarterly updates yourself or have an accountant or bookkeeper do them. Many accountants will move you onto their preferred platform. Talk to yours early, because their capacity in the first busy quarters will be stretched across every client at once.
What this means for a small business
For most sole traders and landlords, MTD for Income Tax means more frequent admin but not necessarily more tax. If you already use accounting software with a bank feed, the leap is modest: you are largely swapping one annual return for four lighter updates and a final declaration. If you still run on a shoebox of receipts and a spreadsheet catch-up every January, this is the prompt to modernise, and the good news is that keeping records as you go usually means fewer missed expenses and a clearer picture of what you owe.
The real cost is time and habit. Reconciling little and often, ideally monthly, turns each quarterly update into a five-minute job rather than a scramble. Getting on top of cash flow also helps if you deal with slow-paying clients; our piece on pushing back on late payment pairs well with tighter bookkeeping.
Frequently asked questions
Do I still file a Self Assessment tax return under MTD?
No. Once you are in MTD for Income Tax, the annual Self Assessment return is replaced by four quarterly updates plus a final declaration submitted by 31 January. The final declaration is where you add other income and claim reliefs, so it does a similar job to the old return but through compatible software.
Can I keep using a spreadsheet?
Yes, but only if it is linked to HMRC through bridging software such as 123 Sheets. A standalone spreadsheet with no digital link does not meet the rules. Many people find a full package like FreeAgent or QuickBooks simpler than maintaining a spreadsheet and a bridging tool.
What if I have both self-employment and rental income?
Your qualifying income is the two added together, so it is easy to cross the threshold even when neither source is large on its own. You will report each source separately, meaning a landlord who is also a sole trader could be sending multiple quarterly updates. Software that handles both, or landlord-focused tools like Hammock, helps keep this manageable.
Are there any exemptions?
Some people can apply for an exemption, for example on grounds of digital exclusion where it is not reasonable for them to use the software, or age, disability or location affecting internet access. Certain groups are also deferred. Check your circumstances on the official guidance rather than assuming you qualify.
When exactly does year one start?
The first mandatory period begins on 6 April 2026 for those with qualifying income above £50,000. Your first quarterly update covers the period from that date, with the deadline falling shortly after the quarter ends.
What to do next
- Work out your number. Add gross self-employment and rental income together and check which threshold and start date apply to you.
- Read the official rules. Confirm the detail on the gov.uk Making Tax Digital for Income Tax guidance, including deadlines and exemptions.
- Choose and trial your software now. Shortlist two or three from the table, test them against your real transactions, and set up a bank feed before April 2026.
- Speak to your accountant early. Agree who handles the quarterly updates and get onto their preferred platform before the first busy quarter arrives.
