Your step-by-step guide to Making Tax Digital preparation from choosing software to submitting your first quarterly update. Everything you need to be HMRC-compliant before the April deadline.
Why This Matters Now
If you’re a sole trader or landlord earning over £50,000 gross income, Making Tax Digital for Income Tax (MTD-ITSA) becomes mandatory in less than two months.
Here’s the challenge: HMRC estimates that over 60% of affected businesses haven’t started preparing yet. These businesses are heading toward a last-minute scramble in late March and likely, penalty points by August.
MTD isn’t just “digital Self Assessment.” It’s a fundamental change requiring:
✓ Four quarterly submissions per year (not one annual return)
✓ Daily digital record-keeping in HMRC-approved software
✓ Digital links between your records and HMRC (no manual data entry)
✓ Year-end reconciliation through an End of Period Statement
✓ A Final Declaration that replaces your traditional Self Assessment
This guide walks you through the entire preparation process week by week, step by step so you’re ready before 6 April 2026.
Part 1: Do You Need MTD? (5 Minutes to Check)
The Income Threshold Test
MTD for Income Tax applies if your gross business income meets these thresholds:
2026/27 tax year (starting 6 April 2026): £50,000+
2027/28 tax year (starting 6 April 2027): £30,000+
2028/29 tax year (starting 6 April 2028): £20,000+
What Counts as “Gross Income”?
✓ INCLUDED:
- All self-employment turnover (sales before expenses)
- All UK property rental income
- All overseas property rental income
- Combined total if you have multiple income sources
✗ NOT INCLUDED:
- PAYE employment salary
- Limited company dividends
- Investment income or capital gains
Quick Example
You have:
- £40,000 PAYE salary ✗ (doesn’t count)
- £15,000 self-employment income ✓
- £10,000 rental income ✓
Your MTD threshold income = £25,000 (self-employment + rental)
Result: Not caught in 2026/27, but you will be when the threshold drops to £20,000 in April 2028.
The Six Submissions You’ll Make
Once MTD applies, here’s your annual filing schedule:
Quarterly (4x per year):
- 5 August — Q1 update (6 Apr – 5 Jul)
- 5 November — Q2 update (6 Jul – 5 Oct)
- 5 February — Q3 update (6 Oct – 5 Jan)
- 5 May — Q4 update (6 Jan – 5 Apr)
Year-End (by 31 January):
- End of Period Statement (EOPS) reconciles all four quarters
- Final Declaration your annual tax return (replaces Self Assessment)
Each quarterly update is just a summary: total income, total expenses, profit/loss. That’s it. No detailed breakdowns, no tax calculations (those happen at year-end).
Part 2: Your 4-Week Preparation Plan
Week 1: Choose & Sign Up for Software
Action: Select MTD-compatible software and start your free trial.
Top 5 Options:
| Software | Cost | Best For | Trial |
| Xero | £15/mo | Most businesses | 30 days |
| QuickBooks | £12/mo | Budget-conscious | 30 days |
| FreeAgent | £14/mo (free with NatWest/RBS) | Freelancers | 30 days |
| Sage | £14/mo | Payroll integration | 30 days |
| Zoho Books | £10/mo | Multi-currency | 14 days |