MTD for Self Assessment: What It Means & How to Comply

Did you know that the UK rolled out Making Tax Digital (MTD) for Self Assessment in April 2026?

If you’re self-employed or a landlord, this isn’t just a small tweak – it is a complete change in how you report your income and expenses. Sounds complex? 

With the right tools, it doesn’t need to be.

Read on to learn more about MTD for Self Assessment and the necessary steps to prepare for it, so you can make the transition smooth and painless.

Key points

• MTD changes how and when you report tax 📅
  If you are a sole trader or landlord above the MTD thresholds, you will need to keep digital records and submit quarterly income and expense updates using HMRC-approved software.
• Whether MTD applies to you depends on your qualifying income 💷
  HMRC rolls out MTD in phases. The first phase started in April 2026 for those earning over £50,000, and it will expand over the coming years. 
• Compliance is about process, not perfection ✅
  Staying compliant means keeping digital records, using approved software, maintaining digital links without copy-pasting, and reviewing and reconciling regularly. 
• The right software can make or break the MTD experience 💻
  Good MTD software should be HMRC-approved, easy to use, digitally linked, and capable of generating clear quarterly previews. The more manual work involved, the higher the risk of errors and missed deadlines.
• ANNA offers a simple way to meet MTD requirements with less effort 🚀
  ANNA brings your business account, bookkeeping, and all tax calculations and submissions into one automated system built for business owners. This way you can stay compliant without juggling tools or complex setups.

What is MTD for Self Assessment?

MTD for Income Tax Self Assessment is HMRC’s way of modernising the tax system. 

It requires UK sole traders and landlords to keep digital records and submit income and expense updates digitally throughout the year, rather than waiting for the annual deadline.

MTD is part of HMRC’s broader strategy to make tax reporting more accurate and less stressful.

Key points to know:

• You’ll report income and expenses quarterly (on 7 August 2026, 7 November 2026, 7 February 2027, and 7 May 2027).
• A final annual declaration is still required, but it will now be pulled from your digital records.
• You must use HMRC-approved software.

Keep in mind that you’ll still need to digitally submit the Self Assessment by 31 January 2027.

Why MTD in the first place?

• To make things more accurate (fewer human errors because you put the wrong number in a spreadsheet)
• To help HMRC, and you, get a clearer picture of your income and expenses throughout the year
• To modernise the system, reduce paperwork, and streamline the admin

Who does MTD apply to?

Not everyone is required to jump on board immediately. HMRC is rolling out MTD in three phases to make the transition smoother.

The idea is to gradually bring more taxpayers into the digital reporting system based on their qualifying income. 

You will officially start using MTD on 6 April, the beginning of a tax year, after HMRC has determined that you meet the threshold.

For example, if you reported £35,000 from self-employment and £18,000 from UK property rental income in 2024/25, your qualifying income is £53,000. This means you fall within the first MTD phase.

The first phase started on 6 April 2026. If your 2024/25 Self Assessment tax return showed qualifying income of more than £50,000, you should now be using MTD for Income Tax. 

This first phase covers sole traders and landlords with higher qualifying incomes. If you meet the threshold, you must keep digital records, use MTD-compatible software, and submit quarterly updates to HMRC.

Phase 2 — From 6 April 2027: £30,000 threshold

From 6 April 2027, the threshold drops to £30,000 of qualifying income. In other words, if your 2025–26 qualifying income exceeds £30,000 but is below £50,000, you’ll be brought into MTD at this phase. 

For example, a sole trader or landlord earning £28,000 from self-employment and £5,000 from rental income in 2025–26 has £33,000, and they will need to start MTD from April 2027.

Phase 3 — From 6 April 2028: £20,000 threshold

Plans are in place for phase 3, bringing down the threshold again to £20,000 from 6 April 2028. 

This phase will capture many smaller businesses, part-time traders, and additional landlords not previously required to comply.

What is included in qualifying income?

Qualifying income includes:

• Total sales/turnover
• Fees, commissions, or freelance income
• Cash and card payments
• Online platform income, such as Etsy, Uber, or Airbnb (if classified as self-employment)

Don’t forget to use gross income, which is your total income before deducting business expenses, tax, or allowances.

If you are a landlord, you should include property income:

• UK rental income
• Overseas rental income
• Holiday lets (UK or overseas)

You can sign up for MTD early, even if you’re below the threshold or before your official start date. 

This may be useful if:

• You want to spread the workload of switching to digital accounting
• You’re close to a future threshold
• You want to familiarise yourself with quarterly reporting ahead of time

What isn’t included in qualifying income?

On the other hand, qualifying income doesn’t include: 

• Pay-as-you-earn (PAYE) employment income
• Dividends (including from your own company)
• Pension income (state or private)
• Interest on savings
• Capital gains 
• Most partnership income (special rules may apply) 
• Student loans or grants

Even if you earn revenue from these other sources, only self-employment and property income are checked against the MTD thresholds.

4 key things you need to do to comply with MTD for Self Assessment

Compliance with MTD boils down to four main actions:

1. Keep digital records

You must keep digital records of your income and expenses from the start of the tax year.

A digital record is an electronic entry that shows:

• The date of the transaction
• The amount
• The category, such as sales, travel, or utilities

You are required to keep the record in accounting software or a digital spreadsheet that links to HMRC via bridging software.

You don’t need to upload every receipt to HMRC, but you do need to keep digital records in case HMRC asks to see them.

Did you know?

When using ANNA’s solutions, you only need to connect your bank account, and everything else happens automatically, including calculations and filings.

This way, all your tax needs are digital, organised, and securely stored from day one. The best part? You can save hours of admin work thanks to our cutting-edge engineering, full automation, and advanced AI that replaces expensive manual work.

2. Use HMRC-approved software

MTD submissions must be made through compatible software. HMRC won’t accept manually submitted quarterly updates through the Government Gateway.

There are two main ways to do it:

1. Full accounting software

These are complete bookkeeping systems that:

• Track income and expenses
• Often link directly to your bank account
• Automatically prepare quarterly updates
• Submit figures directly to HMRC

This option works well if:

• You have regular transactions
• You want less manual input
• You prefer an ‘all-in-one’ solution

2. Spreadsheets + bridging software

If you already use spreadsheets, you don’t have to abandon them.

Bridging software can:

• Connect your spreadsheet to HMRC
• Convert your figures into the required digital format
• Submit quarterly updates on your behalf

This option works well if your finances are relatively simple and you’re comfortable with spreadsheets. On the downside, it requires more manual work, making it more error-prone.

Whichever option you choose, the software must appear on HMRC’s approved MTD software list. Using incompatible software will make you non-compliant, even if your records are digital.

Before you choose your software, ask yourself the following questions:

• How much time will this save me?
• How confident will I feel using it?
• Will it reduce stress at deadlines?
• Will it scale if my income grows?

The answers will help you look for non-negotiable features the right software should have. Additionally, your choice should also have the following features:

Did you know?

ANNA is HMRC-approved software built specifically for business owners, not accountants.

That means:

• No painful onboarding
• No complicated setup
• No paying for features you’ll never actually use

Our solution runs 24/7 with full automation, so there are no slowdowns or delays, even during peak filing times.

3. Maintain digital links

A digital link is an electronic connection between your source data (bank transactions, invoices, expenses) and the software that submits your figures to HMRC.

Why is it important for MTD?

Under MTD, HMRC doesn’t just want your records to be digital; they want them to be digitally linked from start to finish. In simple terms, that means no copy-and-paste between systems.

Also, you can’t export figures to Excel or manually adjust totals. Even if the numbers are correct, copy-paste breaks the digital link, and HMRC considers that non-compliant.

Keep in mind that HMRC requires you to keep digital records for five years after the 31 January submission deadline, or six years if you’re a CIS contractor.

These records must be:

• Easily accessible
• Readable in digital format
• Available if HMRC requests a compliance check

4. Review and reconcile

Reconciling means comparing your bank statements to your digital records and making sure every transaction is recorded once and correctly.

Doing this monthly helps you:

• Spot missing income
• Catch duplicate expenses
• Correct miscategorised transactions
• Avoid unpleasant surprises later

A great perk of using software is that it generates a quarterly summary preview, showing:

• Total income
• Total expenses
• Estimated tax position

What happens if you get MTD for Self Assessment wrong?

MTD penalties are less about one-off mistakes and more about patterns of non-compliance. MTD uses a points-based penalty system rather than instant fines for every mistake.

No penalty points apply to late quarterly updates during the initial 2026/27 tax year (6 April 2026 to 5 April 2027), providing a grace period for adaptation.

The points-based system activates for the 2027/28 tax year, and it will accumulate points for late and obligatory updates:

• 1 point per instance
• 2 points for repeated failures

It translates into a £200 fixed penalty after 2 points within 12 months, plus daily and tax-geared fines.

While quarterly updates are new, the Final Declaration deadline hasn’t changed, and you must submit it by 31 January following the tax year.

A quick tip:

If your quarterly records are kept properly, the final declaration is usually quicker and far less stressful than before.

Why does preparing early for MTD for Self Assessment give you an advantage?

Here are some of the advantages of being proactive:

• Better cash flow insight: Quarterly data gives you a more accurate view of where you stand this year.
• Reduced last-minute stress: Rather than rushing your bookkeeping (and possibly missing something), you’re consistently on top of it.
• Lower risk of penalties: Timely, accurate submissions reduce mistakes and help avoid penalties.
• Growth-friendly: Digital records make it easier to spot trends (profit up/down, expenses creeping) and make informed decisions.
• Future proofing: Even if you’re below the threshold now, it’s wise to make the switch early.

How can you easily prepare for MTD for Self Assessment with ANNA?

ANNA is an all-in-one business account and admin assistant that combines company registration, tax, invoicing, expenses, and bookkeeping tools.

This makes it far easier to stay organised without juggling multiple software or drowning in admin.

How ANNA helps you stay MTD-compliant

🔥 Keeps all your business records and documents securely stored, organised, and easily accessible, in line with MTD record-keeping requirements

🔥 Maintains accurate, up-to-date digital bookkeeping automatically, creating a continuous digital trail from transactions to HMRC

🔥 Handles everything tax-related in one place, calculating liabilities and preparing and filing MTD-compliant submissions for automated company accounts, Corporation Tax, VAT, Self Assessment, and PAYE directly with HMRC

🔥 Automatically captures and categorises income and expenses, helping ensure quarterly updates are accurate and on time

🔥 Helps you save a percentage of your income into the smart money pots automatically, so that you are not left with a big tax bill unprepared

🔥 Creates and sends invoices and chases overdue ones, with automatic payment matching

🔥 Provides real-time, up-to-date accounts so you can review figures before quarterly MTD deadlines

🔥 Prepares year-end financial statements using data already submitted throughout the year, reducing last-minute corrections

🔥 Provides real-time tax estimates so you know how much you owe to HMRC at any time

🔥 Submits required statutory filings, including confirmation statements, without breaking digital links.

👀 Check this out

For your first year, we offer a 100% discount on our MTD service, and you only pay £150 per year after that period. Limited offer: We will file your 2026/27 Self assessment for free too.

Try ANNA today so you can get ready for the upcoming MTD for Self Assessment without setting up complex systems.