Making Tax Digital for Income Tax: your questions answered by our expert

Whether you’ve just heard about Making Tax Digital (MTD) for Income Tax or it’s already firmly on your radar, there are big changes ahead - and the details can be confusing. But FreeAgent’s Chief Accountant, Emily Coltman FCA, has come to the rescue!

Starting from April 2026, Making Tax Digital for Income Tax will begin to replace Self Assessment for most self-employed individuals and unincorporated landlords in stages. Instead of filing a tax return on paper or via the internet once a year, you will have to keep digital records and file updates to HMRC each quarter, as well as completing an annual final declaration.

We know self-employed business owners and landlords have a lot of questions, so we asked our FreeAgent community what you want to know. We put your questions to Emily in an on-demand webinar (which is still available to watch in full here) and we’ve also pulled together some of your most burning questions in this article. 

When do I have to start using MTD? 

If you are a sole trader or a landlord, HMRC will look at what’s called ‘qualifying income’ - which is your rental income or sales before any costs come off. It’s not your profit, it’s your income. If you’re a sole trader and also a landlord, you’ve got to add your income streams together because both count as qualifying income. You will be eligible for MTD when your total qualifying income hits a certain threshold. Those thresholds are: £50,000 a year from April 2026; £30,000 a year from April 2027; and £20,000 a year from April 2028. For more information on qualifying income, read our explainer.

Is it just one number every three months that we send to HMRC - simply what we’ve earned in that time? Or is it more complex? 

What you’ll be submitting is your total income and your total costs - taking one away from the other gives your profit for the quarter. All you need to do in FreeAgent is carry on keeping your books as you normally do, then in order to file your quarterly update go to the Self Assessment area of FreeAgent, make sure the numbers are correct, push the button, put in your HMRC login details and off it goes.

Will FreeAgent complete and send the quarterly returns when required - and also the final declaration?  

FreeAgent won’t push the button to make it happen, that’s down to you because FreeAgent can’t know if your records are complete or not. So it is on you to make sure the figures are correct, then you push the button and off it goes to HMRC.

Are there any exemptions to MTD for Income Tax? 

If your qualifying income is under the threshold - that’s £50,000 in 2026, £30,000 in 2027 and £20,000 in 2028 - you’ll not be in Making Tax Digital for Income Tax yet. 

If your income is above those thresholds, then exemptions are very limited - you may potentially be exempt if by reason of age or disability you are unable to operate a computer and send the information to HMRC. Or if you are a member of a religious society that means you can’t use computers, or perhaps you live in a rural area and your internet just simply is not strong enough to submit the updates to HMRC reliably, you may be exempt. 

You need to apply for those exemptions. MTD for Income Tax is not a voluntary thing, it is mandatory.

For more information on exemptions, see HMRC’s guidance.

I’m a partner in a partnership, also a self-employed tutor, and have a half-share in a rental property with my husband. How will MTD work for me? And do I need a separate FreeAgent account for each? 

At the moment you cannot report partnership income to HMRC through MTD for Income Tax. So even if your qualifying income from your other two sources of income hits the threshold, you cannot join MTD for Income Tax just yet, because there is no mechanism to report partnership income. 

You do need separate FreeAgent accounts for your partnership, your income as a landlord and your sole trade because they’re separate income streams. So, if you were signing up for MTD and you were not in partnership, you would file your sole trade quarterly updates from your sole trade account, your landlord quarterly updates from your landlord account, and make any year end adjustments from each of the two separate accounts; and then one final declaration to cover all your sources of income. 

But at the moment you cannot join MTD for anything - except MTD for VAT of course - because you are a partner in partnership.

Will FreeAgent be issuing software for the trial year with HMRC in 2025-26 - and will it be free? 

FreeAgent’s software is ready to go, and you can now join the test phase if you are eligible (find out how here). If you have an eligible NatWest Group business bank account - that’s NatWest, Royal Bank of Scotland, Mettle or Ulster Bank - you can get FreeAgent for free (add-ons may be chargeable).

How are landlords who make mortgage payments that include capital repayments meant to prepare quarterly figures when they only receive a statement once a year? 

HMRC has said they don’t expect the quarterly updates to be completely to-the-penny accurate. They fully understand that quarterly updates may include estimated figures, and may not include expenses or something that has been missed off. At the moment, there is no penalty if your quarterly update doesn’t turn out to be exactly correct. I would suggest using your best judgment when you’re filing a quarterly update. But when you make your end-of-year adjustments and your final declaration, you need to ensure those figures are correct.

My income as a landlord is below the £20,000 threshold for MTD in 2028, but with dividends and interest on savings this threshold will be exceeded. Will I need to go to MTD or stick with Self Assessment?

It is only the income from a sole trade or a landlord rental that would be qualifying income for whether you have to join MTD for Income Tax. If you’ve got dividends, or savings income like interest, they’re not qualifying income. So, if they push you over the threshold sooner - it doesn’t matter, you just literally look at your sole trader sales and your landlord rentals.

When will your software be updated so that landlords can submit MTD returns? 

Good news, it already is. HMRC are putting Making Tax Digital through its paces at the moment in what they call a testing phase. So you can now join the test phase using FreeAgent, if you are eligible (find out how here).

Do you have more MTD for Income Tax questions?

Watch our full, on-demand webinar answering lots more customer queries here. Or explore our collection of Making Tax Digital guides.