Making Tax Digital for Income Tax: who it applies to, the dates and what changes in Xero

Short answer: Making Tax Digital for Income Tax (MTD for IT, sometimes MTD ITSA) is mandatory from 6 April 2026 for UK sole traders and landlords whose qualifying income (gross turnover from self-employment and property combined, before expenses) was £50,000 or more on their 2024-25 Self Assessment return. The threshold drops to £30,000 from April 2027 (checked against the 2025-26 return) and to £20,000 from April 2028. Once you’re in, you keep digital records in software like Xero and send four quarterly updates a year instead of one annual return, then a Final Declaration by 31 January that replaces the old Self Assessment return. It does not change when your tax is due or how much you pay: the Final Declaration still settles the bill by 31 January, at the same rates as before. There is no penalty for a late quarterly update in the first mandatory year, 2026-27, but the obligation to send them still applies.

Who has to join, and when

From	Qualifying income (previous tax year)	Checked against
6 April 2026	£50,000 or more	2024-25 return
6 April 2027	£30,000 or more	2025-26 return
6 April 2028	£20,000 or more	2026-27 return

Qualifying income is your gross turnover from self-employment and UK or overseas property combined, added together before any expenses, reliefs or allowances. A sole trader with £35,000 of turnover and a landlord with £20,000 of rent in the same return has qualifying income of £55,000, over the £50,000 threshold, even though neither amount alone is.

It only applies to individuals: sole traders and landlords who file Self Assessment. Limited companies are not in scope (MTD for Corporation Tax has no mandation date yet), and partnerships (general partnerships, LLPs and limited partnerships) have been indefinitely deferred, with no start date set. An individual partner can still be personally in scope if they also have self-employment or property income of their own.

What actually changes

• Digital records. Every business and property transaction has to be kept in MTD-compatible software, not a shoebox of receipts or a spreadsheet you re-type once a year. Xero already keeps records this way; a spreadsheet can still work with bridging software that files from it.
• Four quarterly updates a year, each a running total of income and expenses by category for the period, sent to HMRC. They are not a tax return: no tax is calculated or collected at this point, and there’s no quarterly payment to find.
• A Final Declaration by 31 January, replacing the Self Assessment return. It pulls together the four quarterly totals, adds anything outside qualifying income (employment, dividends, savings interest), applies allowances and reliefs, and is where the tax bill is actually worked out and confirmed.

What does not change: the tax due date (still 31 January after the tax year), the rates and personal allowance (the UK sole trader tax calculation still applies), and payments on account if your bill is over £1,000 (how much to set aside for tax covers that). MTD for IT changes the reporting, not the tax.

The 2026-27 dates (the first mandatory year)

Quarter	Period	Update due
1	6 April – 5 July 2026	7 August 2026
2	6 July – 5 October 2026	7 November 2026
3	6 October 2026 – 5 January 2027	7 February 2027
4	6 January – 5 April 2027	7 May 2027
Final Declaration for 2026-27		31 January 2028

HMRC has confirmed there is no penalty for a late quarterly update in 2026-27: the points-based penalty for missed quarterly updates (one point per miss, a £200 penalty once a mandated taxpayer reaches 4 points) starts from the 2027-28 tax year. The updates still have to be sent before the Final Declaration can be completed, and digital record-keeping is required from day one, so the soft landing is about the penalty, not the obligation.

A worked example: a graphic designer in Bristol

These figures are made up. Priya is a self-employed graphic designer with no property income.

Her 2024-25 Self Assessment showed turnover of £54,000, over the £50,000 threshold, so she must use MTD for Income Tax from 6 April 2026.

Her four quarterly updates for 2026-27, each the quarter’s income and expenses from Xero:

Quarter	Income	Expenses
Q1 (to 5 Jul)	£13,200	£2,800
Q2 (to 5 Oct)	£14,100	£2,950
Q3 (to 5 Jan)	£15,600	£3,250
Q4 (to 5 Apr)	£12,600	£3,000
Total	£55,500	£12,000

Net profit for the year: £55,500 − £12,000 = £43,500. At the 2026-27 personal allowance (£12,570) and rates, her taxable profit is £43,500 − £12,570 = £30,930: income tax of 30,930 × 20% = £6,186.00, plus Class 4 National Insurance of 30,930 × 6% = £1,855.80, a total of £8,041.80, confirmed on her Final Declaration by 31 January 2028. None of the four quarterly updates asked her to pay anything; they only reported the running totals that the Final Declaration later turns into a bill.

A landlord crossing the next threshold looks different: Tom’s buy-to-let brought in £28,000 of rent in 2024-25 (under £50,000, so not mandated in 2026). His portfolio grows and 2025-26 rent comes to £32,000, over the £30,000 threshold checked for that year, so Tom joins MTD for Income Tax from 6 April 2027, a year after Priya.

Doing it in Xero

1. Keep records current through the quarter, not just before the deadline. A quarterly update is only a summary of what’s already in Xero for that period, so the real work is reconciling the bank and coding transactions correctly as you go (the month-end checklist is the same discipline MTD now runs four times a year instead of one).
2. Split income and expenses by business or property if you have more than one qualifying source (a sole trade and a rental, say, or two rental properties); each is reported separately within the same quarterly update.
3. Keep the tax money separate as you go, since the quarterly updates don’t collect anything but the bill still lands on 31 January. How much to set aside for tax works out a percentage of profit to move aside each month.
4. Check your software is MTD for Income Tax compatible, not just MTD for VAT compatible: they’re separate checks even inside the same product. Xero’s own HMRC recognition covers both.

Common mistakes

• Testing against profit instead of turnover. The £50,000/£30,000/£20,000 thresholds are gross qualifying income before expenses. A business with thin margins can be well over the threshold on turnover while making a modest profit.
• Confusing MTD for Income Tax with MTD for VAT. They are different regimes with different thresholds and different software checks; being MTD-for-VAT ready does not automatically mean a product or spreadsheet is MTD-for-IT ready.
• Treating a quarterly update as a mini tax return. No tax is worked out or due at that point; the four updates feed into the Final Declaration, which is where the bill is confirmed.
• Assuming the 2026-27 soft landing means the updates are optional. It removes the penalty for a late one, not the requirement to send it, and records still have to be kept digitally from day one.
• Leaving an accountant to “sort it out later.” Digital records and quarterly submission are an ongoing habit, not something that can be caught up in one sitting the week before 31 January.

Common questions

What is Making Tax Digital for Income Tax? A requirement for UK sole traders and landlords above an income threshold to keep digital records and send HMRC four quarterly summaries of income and expenses, then a Final Declaration by 31 January that replaces the old Self Assessment return and settles the tax.

Who has to join, and when? Anyone with qualifying income (gross self-employment and property turnover combined) of £50,000 or more on their 2024-25 return joins from 6 April 2026; £30,000 or more on the 2025-26 return joins from 6 April 2027; £20,000 or more on the 2026-27 return joins from 6 April 2028.

Does it apply to limited companies or partnerships? No. Limited companies are not in scope (MTD for Corporation Tax has no mandation date). Partnerships have been indefinitely deferred. It applies to individuals filing Self Assessment as a sole trader or landlord.

Do I pay tax every quarter now? No. The quarterly updates only report running totals of income and expenses; no tax is calculated or collected until the Final Declaration, due by the same 31 January deadline as the old Self Assessment return.

What happens if I miss a quarterly update deadline? For the 2026-27 tax year there is no penalty. From 2027-28, missed quarterly updates earn penalty points, with a £200 penalty once a mandated taxpayer reaches 4 points, and a further £200 for each missed update after that.

Can I use Xero for Making Tax Digital for Income Tax? Yes. Xero is HMRC-recognised software for Making Tax Digital for both VAT and Income Tax; check your specific plan covers the Income Tax submission, since it’s a separate check from VAT.

Seeing it every Monday

ReportPilot reads your Xero figures and sends a short plain-English email every Monday: sales and profit against last month and the same month last year, cash in the bank, who owes you and bills due soon. It doesn’t send your quarterly updates or your Final Declaration, but keeping an eye on turnover every week is exactly how you’ll notice crossing £50,000, £30,000 or £20,000 before the next tax year’s return makes the decision for you. It asks Xero for read-only access, and there is a 14-day free trial with no card.