What is Making Tax Digital?

What is Making Tax Digital in simple terms?

Making Tax Digital is HMRC's plan to move UK tax reporting away from a single annual return and towards regular, in-year digital record-keeping and quarterly submissions through approved software.

Under the current system, most landlords file one Self Assessment tax return per year, typically by 31 January, covering the previous tax year. They gather up 12 months of income and expense records, fill in their return (or hand it to an accountant), and pay any tax owed.

Making Tax Digital changes this in three fundamental ways:

• Digital records from day one. Every item of rental income and every expense must be recorded digitally in HMRC-approved software as it occurs — not at the end of the year.
• Quarterly updates. Instead of one annual return, you submit four updates to HMRC during the year — one for each quarter — summarising your income and expenses for that period.
• Final Declaration at year-end. After the tax year closes, you submit a Final Declaration that replaces the old Self Assessment return, confirming your figures and claiming any adjustments or reliefs.

Importantly, Making Tax Digital is not a new tax. It does not change what you owe, what you can claim, or how tax is calculated. It only changes how and when you report.

The software does most of the heavy lifting. Once you connect your bank account and categorise transactions as they come in, the quarterly update is typically a matter of clicking submit when the deadline approaches. The system handles the formatting and transmission to HMRC automatically.

Why is HMRC introducing Making Tax Digital?

HMRC is introducing Making Tax Digital primarily to close the estimated £9 billion annual tax gap caused by avoidable errors, and to spread tax administration more evenly across the year rather than concentrating it in the January rush.

The UK tax gap — the difference between tax legally owed and tax actually collected — stood at an estimated £39.8 billion for 2022/23 according to HMRC's own figures. Of that, roughly £9 billion is attributed to avoidable mistakes, many of which occur because taxpayers are working from imperfect annual records and rushing to file by the January deadline.

Making Tax Digital addresses this in several ways:

• Reduces end-of-year errors. When records are kept throughout the year in digital software, there are fewer opportunities for income to be forgotten, expenses to be double-counted, or figures to be transposed.
• Spreads tax admin across the year. Instead of a single high-pressure filing season, taxpayers engage with their figures four times a year. Each submission is smaller and more manageable.
• Improves HMRC's visibility. Quarterly updates give HMRC a running view of your income throughout the year, enabling more accurate tax estimates and reducing the chance of large underpayments at year-end.
• Brings the UK into line with digital-first countries. Many European countries, including Sweden, Norway, and the Netherlands, already operate similar in-year digital reporting systems. The UK has been comparatively late to adopt this approach.
• Helps taxpayers understand their tax position in-year. One often-overlooked benefit: when your software is tracking quarterly income and expenses, you can see a live estimate of your likely tax bill at any point. There are no nasty surprises in January.

Making Tax Digital for VAT (for businesses above the VAT threshold) has been mandatory since 2019 and was extended to all VAT-registered businesses in 2022. HMRC considers that rollout a success — error rates for VAT dropped significantly — and the Income Tax phase follows the same model.

What does Making Tax Digital mean for landlords specifically?

For landlords, Making Tax Digital means keeping digital records of rental income and expenses in approved software, submitting four quarterly updates each year, and filing a Final Declaration that replaces the old Self Assessment return.

Here is what changes in practice:

Quarterly updates: four times a year

The tax year runs from 6 April to 5 April. Under Making Tax Digital, it is divided into four quarters:

Each quarterly update is a summary of your gross income and allowable expenses for that period. It is not a full tax return — HMRC uses it to track your position in-year. You have one month after each quarter closes to submit.

End of Period Statement and Final Declaration

After the tax year ends, you submit an End of Period Statement (EOPS) for your property business, followed by a Final Declaration. This is where you make any adjustments, claim reliefs such as the property allowance or replacement of domestic items relief, and confirm your total tax position for the year. The Final Declaration deadline is 31 January — the same date as the current Self Assessment deadline.

Digital records: mandatory from the start of your first MTD year

From the moment you are required to use MTD (or from when you voluntarily sign up), you must keep digital records. This means recording every item of rental income and every expense in approved software. You cannot keep paper records and enter them all at once at the quarter-end.

Tax payment dates: unchanged

Making Tax Digital does not change when you pay your tax. Payment on account dates (31 January and 31 July) and the final balancing payment date (31 January following the tax year) all remain the same. This is a source of confusion for many landlords — the common fear that MTD will require quarterly tax payments is unfounded.

Which income sources are included?

For landlords, Making Tax Digital covers:

• Residential rental income (including HMO income)
• Commercial property income
• Income from furnished holiday lettings (FHL, though the FHL regime itself ended April 2025)
• Income from land (parking, storage, grazing, etc.)
• Overseas property income if you are a UK taxpayer

If you also have self-employment income (for example you run a business alongside your property portfolio), both income streams must be reported under MTD once your combined qualifying income exceeds the threshold.

The three phases of Making Tax Digital for Income Tax

Making Tax Digital for Income Tax rolls out in phases: April 2026 for those earning over £50,000, April 2027 for those earning over £30,000, and April 2028 for those earning over £20,000 (legislation pending).

HMRC has deliberately staged the rollout to give taxpayers and software providers time to prepare. The phases are based on qualifying income thresholds:

What counts as “qualifying income”?

This is the detail that catches many landlords out. Qualifying income is your gross income — the total before any expenses or deductions. It is not your profit.

For example: if your rental properties generate £55,000 in rent per year but your allowable expenses (mortgage interest, repairs, insurance, letting agent fees, etc.) total £30,000, your gross qualifying income is £55,000 and you are in scope for April 2026. Your taxable profit of £25,000 is irrelevant for determining whether MTD applies.

If you have both property income and self-employment income, the two are combined to determine your qualifying income. A landlord earning £30,000 in rent and £25,000 from self-employment has £55,000 in qualifying income and is in scope from April 2026.

The tax year used to assess your threshold is the one two years before. Your 2024/25 income determines whether you need MTD from April 2026.

What software do you need for Making Tax Digital?

You must use HMRC-recognised MTD-compatible software that can submit quarterly updates directly to HMRC's API. Spreadsheets, paper records, and standard accounting tools without MTD certification are not sufficient.

HMRC maintains an official list of approved MTD software on gov.uk. The list is updated regularly as new products gain approval. For landlords, the key categories are:

Landlord-specific software

Purpose-built for the UK rental market. These tools understand property-specific categories (mortgage interest vs. capital repayments, rental income by property, HMO room-by-room tracking), which makes categorisation easier and reduces the risk of errors in quarterly updates.

• LandlordOS — Free tier for 1-2 properties, MTD-ready with integrated quarterly submission
• Hammock — Accounting-focused, designed around the landlord tax workflow
• Landlord Vision — Established platform with property management and accounting

General accounting software with MTD functionality

Major accounting packages have added MTD for Income Tax capabilities. These work well for landlords who already use them, but may lack property-specific features.

• QuickBooks — Widely used, MTD compatible, strong bank feed integration
• Xero — Popular with accountants and small businesses
• FreeAgent — User-friendly, good for smaller portfolios
• Sage — Enterprise-grade accounting with MTD compliance

What features to look for

When choosing MTD software as a landlord, prioritise:

• HMRC MTD approval (non-negotiable — check the official gov.uk list)
• Bank feed integration (automatically imports transactions from your bank, saving hours of manual entry)
• Property-by-property income and expense tracking
• Correct categorisation of mortgage interest, capital repairs vs. maintenance, and landlord-specific allowances
• Built-in quarterly submission to HMRC
• End of Period Statement and Final Declaration generation
• Reminders and deadline alerts

What about bridging software?

For VAT, HMRC accepted “bridging software” that takes spreadsheet data and submits it digitally. For MTD for Income Tax, HMRC has stated that pure bridging software (where the underlying records are kept in a spreadsheet) is not compliant. Your records must be maintained in digital software from the start, not just exported to a bridge at quarter-end.

You must choose and set up your MTD software before signing up for MTD with HMRC. The sign-up process requires you to authorise your software to connect to HMRC's API, so the software must already be in place.

What is Making Tax Digital NOT?

Making Tax Digital is not a new tax, does not change when you pay tax, does not require quarterly tax payments, and does not require you to hire an accountant.

Misconceptions about Making Tax Digital are widespread. Here are the most common ones, corrected:

When does Making Tax Digital start?

Making Tax Digital starts on 6 April 2026 for landlords with qualifying gross income above £50,000. Your 2024/25 income is the reference year — if you exceed the threshold that year, MTD is mandatory from April 2026.

The key reference year is 2024/25. If your qualifying income in 2024/25 (running from 6 April 2024 to 5 April 2025) exceeds £50,000, you are in the first mandatory cohort. From 6 April 2026, you must:

1. Be signed up for MTD with HMRC
2. Have HMRC-approved software in place and authorised
3. Be keeping digital records from 6 April 2026
4. Submit your first quarterly update by 5 August 2026

The soft landing period

HMRC has confirmed that no penalty points will be issued for late quarterly updates during the 2026/27 tax year — the first year of mandatory MTD. This is sometimes called the “soft landing.” It applies to the four quarterly updates only, not to the Final Declaration (which remains due 31 January 2027 with existing penalties).

This grace period is designed to give landlords time to adjust to the new rhythm of quarterly filing. It does not mean you can ignore MTD entirely during 2026/27 — you still need to be signed up and using the software. It simply means that if you submit a quarterly update a few days late, HMRC will not issue a penalty point during this first year.

For the April 2026 deadline in full detail, including an action plan for what to do right now, see our dedicated guide.

How to check if you need Making Tax Digital

To check if you need Making Tax Digital from April 2026, add up your gross rental income and any self-employment income from 2024/25. If the combined total exceeds £50,000, you must comply from 6 April 2026.

Follow these steps:

1. Gather your 2024/25 figures. Look at your bank statements or your last Self Assessment return (or the one you are currently preparing for 2024/25).
2. Add up gross rental income. Include all rent received across all properties in 2024/25, before any deductions. Do not subtract mortgage interest, repairs, management fees, or any other expenses.
3. Add any self-employment income. If you have trading income from self-employment (not employment — PAYE income does not count), add the gross turnover to your rental income figure.
4. Compare to £50,000. If the combined gross total is above £50,000, you are in scope for April 2026.

Examples

For a full breakdown of how the MTD income thresholds work, including edge cases for jointly owned properties and furnished holiday lettings, see our dedicated threshold guide.

Making Tax Digital vs the old Self Assessment: what actually changes

Making Tax Digital replaces the single annual Self Assessment return with four quarterly updates plus a Final Declaration, requires year-round digital record-keeping, and introduces a new points-based penalty system.

The fundamental tax calculation — which income is taxable, which expenses are allowable, which reliefs you can claim — does not change. MTD is purely a reporting mechanism.