Why has HMRC written to me about MTD for Income Tax?

If you are self-employed, a sole trader, freelancer or landlord, you may have received a letter from HMRC about Making Tax Digital (MTD) for Income Tax. Or maybe you’ve already spotted ads featuring an animated yellow radio warning, “There’s no avoiding it, tax is changing”. We’re here to explain what it’s all about.

HMRC is highlighting the biggest reform to income tax reporting since Self Assessment launched more than 30 years ago. Starting from April 2026, MTD for Income Tax is the new way many sole traders and landlords will report tax. Out go the old-style online and paper tax returns; instead, you’ll now file fully digital records quarterly to HMRC, and an annual final declaration confirming all your year’s numbers.

FreeAgent’s Chief Accountant, Emily Coltman FCA, says the main thing is not to panic but not to ignore the letter either. “If you’ve been contacted, it’s likely HMRC thinks you’re obliged to begin using MTD for Income Tax from April 2026, so you need to start making plans now. This may feel quite daunting, especially if you’ve not been used to using software for your bookkeeping, and unless you’re registered for VAT you won’t be used to making quarterly updates. 

“But don’t panic. There is help out there and if you start learning now what it is you need to do, that’ll hopefully take a lot of the stress and worry out of the change.”

Follow this checklist to make sure you’re on track and prepared for MTD for Income Tax.

1. Check if you need to comply with for MTD for Income Tax

MTD for Income Tax will become compulsory for most self-employed business owners and landlords over the next few years. These are the deadlines:

• from April 2026 for those with qualifying income over £50,000
• from April 2027 for those with qualifying income over £30,000
• from April 2028 for those with qualifying income over £20,000 

You will not have to comply until you hit the relevant threshold - but it pays to get prepared as soon as you can. 

Although partners cannot yet register for MTD for Income Tax, and business partnership income will still be reported through Self Assessment, HMRC has said that it will announce a timeline for them to join at a later date. Any partner in a business who is also a sole trader or landlord will have to use MTD for Income Tax to report their non-partnership income when it reaches the threshold.

2. Make sure you understand what qualifying income means

Qualifying income is: your sales before costs or expenses are deducted (not your profit) for sole traders, and your rental income for landlords. From a property ownership perspective, MTD for Income Tax only applies to unincorporated landlords, which means you own the property yourself rather than it being owned by a limited company. Find out more about qualifying income in our handy guide.

3. Add all your relevant qualifying income sources together

If you have qualifying income from multiple sources - for example if you are self-employed and also rent out a property you own - you have to combine all your sources of qualifying income to see if you’ve reached the threshold. The total will determine when you are required to use MTD for Income Tax. 

4. But don’t count wages from employment 

If you’re employed, your wage from an employer is not part of your qualifying income. So if you are employed, and are also self-employed, have a side-hustle or rent out property, only count your self-employed or side-hustle income and property rentals. Don’t add in your wages from employment.

5. If you think you may be exempt, you will have to apply to HMRC

Switching from old-style Self Assessment to MTD for Income Tax is mandatory - but there are very limited exemptions, for example if you cannot access the internet or are a member of a religious society that prohibits its use. If you have not applied for - and received - an exemption, you will be expected to comply with MTD for Income Tax. HMRC has more information on exemptions here.

6. You must manually register with HMRC to use MTD for Income Tax

HMRC won’t automatically register you for MTD for Income Tax - you have to do this yourself. So if you’ve checked your qualifying income and it meets the threshold, you must register as soon as possible. You can sign up through HMRC right now. If you want to find out more about signing up, and how you can sign up early read our guide.

7. Check you’ve got the right software 

You must use MTD-compatible software that’s officially recognised by HMRC (like FreeAgent) to file your quarterly updates online and to send your final declaration each year. Your quarterly updates will be a summary of your business income and expenses for the preceding three months, and can be a ‘best guess’ if you don’t have final figures yet. But before you hit send on your final declaration, all your figures must be fully checked, confirmed and accurate. 

You will no longer be able to submit figures through HMRC’s website or using a paper form - all your record-keeping and filing must be done with compatible software.

8. Mark the new dates in your calendar

During the transition from Self Assessment to MTD for Income Tax, many people will still be filing one last Self Assessment in the January - even though they have already begun to send their digital quarterly updates to HMRC in the new system. So it’s really important to make sure you are aware of all the deadlines that are coming your way.

This is what your dates will look like if your income is over £50,000, and you are therefore in the first wave of people to be required to follow MTD for Income Tax rules.

Quarterly updates do not mean quarterly tax bills, you will still only get one bill per year. But you must submit these updates by the deadline. All quarterly updates and final declarations will be sent straight to HMRC from your MTD for Income Tax-compatible software. There are penalties if you miss the final declaration deadline, but not (yet) for missing a quarterly update deadline.

9. Try it out now (if you’re eligible)

If you’re eligible to be part of HMRC’s test programme, it’s possible to sign up right now, so you feel more confident using MTD for Income Tax by the time it officially starts. And you can try using FreeAgent’s MTD for Income Tax software in our testing phase now, if you have a FreeAgent account and meet our eligibility criteria. Find out how here.

10. Good job, time for a cuppa

If you’ve ticked off everything on this list, well done - you’re ready for MTD for Income Tax!

“As you can see, there are a few steps to take to be ready for MTD for Income Tax, so don’t bury your head in the sand and hope it will all take care of itself,” adds FreeAgent’s Chief Accountant Emily. 

“Start preparing now. Choose which software you’re going to use and start keeping your records on it, and ideally start making quarterly updates, so that you’re comfortable with the new system by the time it becomes compulsory for you.”

Emily has answered lots of questions from our customers about MTD for Income Tax in a webinar, which you can watch on-demand in full here - or read about it here. And our Support teams are here if you have questions about FreeAgent’s HMRC-recognised software.

But if you’re still feeling a bit overwhelmed by MTD for Income Tax - which is entirely understandable! - you can always enlist the help of an accountant. Have a look through our FreeAgent-accredited Accountants Directory. We’ll help you get MTD done.