MTD for Income Tax vs Self Assessment: The Key Differences

How MTD for Income Tax is Replacing Self Assessment in 2026

Making Tax Digital for Income Tax is no longer a future plan. It has now officially started. As of 6 April 2026, many UK sole traders and landlords are already shifted from the traditional Self Assessment system to a more frequent, digital way of reporting their income, known as MTD for Income Tax.

The old approach of gathering a year’s paperwork in January and filing one Self Assessment return no longer applies to everyone. For the first group of affected UK taxpayers, a completely new reporting system has taken its place.

There is still a lot of confusion. According to the research shows that fewer than one in three people affected by Making Tax Digital knew about the changes before they came in. Many still do not know if it applies to them, what they need to do, or what stays the same.

This article on MTD for Income Tax vs Self Assessment answers those questions clearly, so you understand where you stand, what has changed, and what to do next.

MTD for Income Tax vs Self Assessment - The Key Differences

Before diving into the detail, here is a direct comparison for you to compare immediately on what has changed.

The key takeaway from the above table is MTD changes how and how often you report to HMRC. It does not change how much tax you pay, when you pay it, or your right to use an accountant.

What is Self Assessment?

Self Assessment has been the backbone of income tax reporting in the UK for more than 30 years.

Under this system, you are responsible for declaring your income, calculating your tax, and submitting your return to HMRC each year.

How the Self Assessment process works

• You keep records of your income and expenses during the tax year
• At the end of the year, you complete a tax return
• You submit this return to HMRC
• You pay any tax due

For many taxpayers, this has been a once a year reporting that can be completed in a single sitting.

Common challenges with Self Assessment

While the system looks simple, many people face a few well-known issues:

• Last minute filing
  Many taxpayers leave their return until January, which creates pressure and increases the risk of mistakes
• Errors in calculations
  Manual records and rushed submissions often lead to incorrect figures
• Unexpected tax bills
  Without regular tracking, it is easy to lose sight of how much tax you owe until it is too late

Why is it Changing?

HMRC did not introduce Making Tax Digital for Income Tax just to modernise the system. There is a very concrete financial problem driving this change.

The Self Assessment tax gap is around £5.8 billion in 2023/24 tax year. This gap is the difference between the tax that should be paid and what HMRC actually collects. Much of this comes from simple mistakes, not from deliberate evasion. These errors often happen when people try to pull together a full year of records in January under pressure.

HMRC found that paper based and annual filing leads to errors. Records go missing, expenses get missed or counted twice, and figures get entered incorrectly. By the time someone spots the issue, the tax year has already ended.

Making Tax Digital for Income Tax addresses this directly. It requires sole traders and landlords to keep digital records and send updates every quarter. This helps catch mistakes as they happen, rather than a year later. HMRC has said that digital record keeping and regular updates reduce errors and save time on corrections.

The government also expects this change to increase tax revenue by around £1.95 billion by 2029 to 2030. More frequent reporting gives HMRC a clearer view of income across the UK and makes it harder for errors to go unnoticed.

There is also a clear benefit for taxpayers. You can see your estimated tax bill throughout the year, plan your cash flow better, and avoid last minute surprises in January.

What is MTD for Income Tax?

Making Tax Digital for Income Tax is a new way to report your income to HMRC. Instead of submitting one tax return at the end of the year, you report your income and expenses throughout the year using HMRC-approved accounting software.

In simple terms, it replaces the traditional once a year system with a more regular and structured system. You keep your records digitally, submit updates every quarter, and then confirm your final position at the end of the tax year.

Who is Affected by MTD for Income Tax and When?

MTD for Income Tax rolls out in three phases. Your qualifying income, which is your total turnover from self-employment and UK property before expenses, decides which phase applies to you.

What Counts as Qualifying Income?

This is where many people get caught out. Qualifying income means your gross turnover, the total amount you earn before you subtract any expenses, allowances, or deductions.

What counts:

• Gross self-employment income from all sole trader businesses combined
• Gross UK property rental income (residential and commercial)
• Overseas property income that is subject to UK income tax

What does NOT count:

• PAYE employment income
• Dividends
• Pension income
• Savings interest
• Income covered by the £1,000 trading allowance or £7,500 Rent-a-Room relief

Quick example:

You earn £36,000 as a freelance graphic designer and receive £18,000 in rental income from a buy to let.

Your total qualifying income is £54,000, which places you in Phase 1. Even if your profit after expenses is much lower, the threshold is based on your total income before any deductions.

One more important rule: You do not exit MTD simply because your income dips below the threshold in one year. HMRC requires qualifying income to remain below the threshold for 3 consecutive tax years before you can stop complying.

What Changes: The 5 Biggest Differences Under MTD for Income Tax

1. You Now Report Four Times a Year Instead of Once

This is the most significant practical change. Under Self Assessment, you filed one return after the tax year ended. Under MTD, you submit four quarterly updates throughout the year plus a Final Declaration at the end.

For the 2026/27 tax year (which started on 6 April 2026), the quarterly deadlines are:

A critical clarification that confused most people:

Quarterly updates are summaries, not full tax returns. Each update tells HMRC your income and expenses for that period on a year to date basis. They neither calculate your final tax bill and nor trigger any payment. Your tax is still worked out at the end of the tax year.

You can also elect to use calendar quarters (1 April to 31 March) instead of tax year quarters. The submission deadlines remain the same either way.

If you have multiple income sources, say, two sole trader businesses and a rental property. You submit a separate quarterly update for each source. That means up to eight or more submissions per year before the Final Declaration.

2. HMRC-Approved Software is Now Mandatory

Under Self Assessment, you had a choice. You could log into HMRC's own online portal and file your self assessment tax return directly, or use commercial software, or even post a paper form.

Under Making Tax Digital for Income Tax Self Assessment, that choice no longer exists. Once you are in the MTD system, you must use HMRC-recognised, MTD-compatible software for all your submissions.

What does "MTD-compatible" mean in practice? The software must be able to:

• Keep digital records of your income and expenses
• Connect directly to HMRC's systems via their Application Programming Interface (API)
• Submit quarterly updates electronically
• Submit your Final Declaration

Well-known options that meet these requirements include FreeAgent, Xero, QuickBooks, Sage, and a number of specialist products for landlords. HMRC maintains a full, up-to-date list of compatible software, always check there before committing to a product.

A note on spreadsheets: Standard Excel or Google Sheets spreadsheets are not MTD-compliant on their own. If you want to continue using a spreadsheet for your bookkeeping, you must connect it to HMRC via "bridging software". This software reads your spreadsheet data and submits it to HMRC's API. While this works, it adds an extra layer of complexity. Many people find it easier to switch to dedicated accounting software instead.

3. Digital Record Keeping is Now a Legal Requirement

Previously, you could manage your records however you liked, whether through paper receipts, a notebook, a spreadsheet, or accounting software. As long as you could show your records to HMRC if asked, you met the requirement.

Under MTD, paper records alone are no longer sufficient. You must maintain your income and expenses digitally, in MTD-compatible software, throughout the tax year.

The good news is you do not need to keep every single paper receipt. HMRC accepts digital copies, so a photo stored in your software is enough. Once you have a digital record, you can throw away the paper version. What you cannot do is rebuild everything at year end from memory, bank statements, or a pile of unsorted receipts.

HMRC can impose a penalty of up to £3,000 if you don’t keep digital records or if you break the required “digital link” between your records and your submission software. So, it’s worth making sure you get this right.

4. A New Points-Based Penalty Regime Applies

The old Self Assessment penalty system was blunt. If you miss the 31 January deadline, you’d automatically get a £100 fine. With MTD, things are a bit more complex. Now, it’s a points-based system, similar to getting penalty points on your driving licence.

Here is how it works:

• Each time you miss a quarterly deadline or the Final Declaration deadline, you get 1 penalty point.
• When you reach 4 points, HMRC issues a £200 penalty.
• Every further late submission costs you another £200.
• You can only clear your points if you file everything on time for 12 consecutive months, and HMRC has all your returns from the previous 24 months.

There’s some leniency for 2026/27:

HMRC will not issue penalty points for late quarterly updates in the first year of MTD ITSA, which is the 2026/27 tax year, to give people time to adapt this new system. However, this does not apply to the Final Declaration. If you miss the 31 January 2028 deadline for your 2026/27 submission, penalty points will apply in full.

This grace period also does not cover late payment. If you do not pay your tax on time, HMRC applies late payment penalties from

• 3% of what you owe if you’re more than 15 days late.
• Another 3% if you’re still unpaid after 30 days.
• From day 31, you’re charged 10% per year on the outstanding balance.

5. The Annual Return Becomes a Final Declaration

The traditional Self Assessment tax return does not simply disappear. It changes into what HMRC calls the Final Declaration. It’s still due by 31 January after the end of the tax year, just like before. For 2026/27, that’s 31 January 2028. Now, you submit it through your MTD-compatible software instead of HMRC’s portal.

This is where you:

• Confirm the income and expense figures from your four quarterly updates
• Add any income sources not covered by MTD such as PAYE income, dividends, savings interest, pension income, capital gains
• Claim reliefs and allowances - personal allowance, trading allowance, capital allowances, pension contributions, Gift Aid
• Make any adjustments for accounting treatments such as accruals, stock changes, or private use of business assets
• Calculate your final tax bill for the year

If you spot a mistake in a quarterly update even after it’s been submitted, you can correct it in your next quarterly update or fix it in the Final Declaration. Inaccuracy penalties only apply to the Final Declaration, just like with the old Self Assessment return.

What Stays the Same: 6 Things That Have Not Changed

1. The 31 January Deadline

You must submit your Final Declaration by 31 January each year, the same deadline as self assessment return due date. The date stays the same, only the process changes.

2. Tax Payment Dates

Making Tax Digital changes how you report your income, not when you pay your tax. Quarterly updates do not trigger any tax payments. Your tax bill is still due on:

• 31 January - balancing payment for the previous tax year, plus your first payment on account for the current year
• 31 July - second payment on account

3. Tax Rates, Allowances, and Reliefs

MTD is a change in the reporting system, not a tax change. Every rate, threshold, and allowance remains exactly as it was:

• Personal allowance: £12,570
• Basic rate: 20% (£12,571 to £50,270)
• Higher rate: 40% (£50,271 to £125,140)
• Additional rate: 45% (above £125,140)
• Trading allowance: £1,000
• Property allowance: £1,000

You still claim the same reliefs, including pension contributions, Gift Aid, capital allowances, and more. Making Tax Digital does not remove any of these tax reliefs.

4. Your Accountant Can Still Do Everything

You don’t have to change how you work with your accountant. They can still manage your quarterly updates, prepare your Final Declaration, and deal with HMRC on your behalf, just like they did with your Self Assessment return.

What’s different? Your accountant now needs to use an Agent Services Account to act for you in the MTD system, and both your software and theirs must be compatible. If you work with GoForma, you don’t need to worry about any of this. Our team handles everything, from setting up your software to each quarterly submission, right through to your Final Declaration, through Making Tax Digital for Income Tax service.

5. Reporting Other Income Sources

MTD only applies to self-employment and UK property income. All other sources such as your PAYE wages, dividends, pension income, bank interest, capital gains, are still reported on your Final Declaration in exactly the same way it appeared on your Self Assessment return. The mechanism changes; the obligation to declare all your income does not.

6. HMRC's Unique Taxpayer Reference (UTR)

Your UTR number remains the same. It’s still the same 10-digit reference for HMRC, even under the MTD system. There’s no need to re-register or get a new number.

How the Full MTD Process Works in Practice

Here’s how MTD for Income Tax works across a full year, step by step, using the 2026/27 tax year as an example.

Right now (April 2026)

You start recording all your income and business expenses digitally in your MTD-compatible software. You log every invoice, scan each receipt, and track expenses as they happen, not months later.

By 7 August 2026 - Q1 update

Your software brings together your income and expenses for the period 6 April to 5 July 2026. You review the figures, check they are correct, and submit them through the software. HMRC herewith receives a snapshot of your trading position for that first quarter.

By 7 November 2026 - Q2 update

Same process as before, now covering 6 July to 5 October. The software updates your year-to-date totals. If you notice an error from Q1, you can correct it here and it’ll be reflected in the update.

By 7 February 2027 - Q3 update

This time it covers income and expenses from 6 October 2026 to 5 January 2027. By now, you have a clear idea of your likely tax bill, with three quarters of data already submitted to HMRC.

By 7 May 2027 - Q4 update

You submit your final quarterly update, covering 6 January to 5 April 2027, completing the full year’s records.

By 31 January 2028 - Final Declaration

You or your MTD accountant reviews everything, adds any extra income outside MTD, claims all allowances and reliefs, and submits your Final Declaration. HMRC then calculates your final tax bill, and you pay any balance due by the same 31 January deadline.

This is the full cycle. You make 5 submissions instead of one, but each quarterly update is a simple summary, not a full tax return.

MTD-Compatible Software: What You Need and How to Choose

Your software choice is arguably the most important practical decision you make under MTD. Here is how to think about it.

Types of MTD software available:

• Full-service software - handles both quarterly updates and the Final Declaration within one platform (Xero, QuickBooks, FreeAgent, Sage). Best for most users.
• Record-keeping software only - manages digital records but relies on your accountant to handle submissions separately.
• Bridging software - connects your existing spreadsheet to HMRC's API. Useful if you are very comfortable with spreadsheets and do not want to change your bookkeeping method.

What to check before you commit:

• Check if it covers all your income sources. Some tools handle sole trader income well but lack landlord features, or the other way around. If you have both, confirm this clearly.
• Make sure your accountant can access it. GoForma and most firms support major platforms, but always double-check compatibility before signing up.
• Verify that it is genuinely HMRC-recognised. Visit GOV.UK and check the official list instead of relying on the provider’s claims.
• Review the cost. Prices range from free (basic sole trader tools) to £40+ per month for advanced platforms. Good software usually costs less than penalties or wasted admin time.

Exemptions: Who Can Be Excluded From MTD?

Not everyone has to use MTD for ITSA. HMRC offers exemptions in certain cases:

• Digitally excluded individuals - If your age, disability, health condition, or location genuinely prevents you from using digital tools, you can apply for an exemption.
• Religious grounds - Practising members of religious societies whose beliefs conflict with electronic communication are also eligible.
• Temporary circumstances - HMRC may grant short-term exemptions in certain cases, assessed case by case.

Your MTD Action Plan: What You Need to Do Right Now

MTD for Income Tax is already live. If you’re in Phase 1 with qualifying income is over £50,000, your countdown to first quarterly update began on 6 April. Here’s what you need to do right away:

Step 1: Confirm whether you are in scope

Pull out your 2024/25 Self Assessment return. Add together all your self-employment turnover and any rental income, before expenses. If the total is over £50,000, you’re in Phase 1 and the process has started. If you’re between £30,000 and £50,000, you’ll be in Phase 2, which begins in April 2027.  Use GoForma's eligibility checker if you want to verify.

Step 2: Choose and set up MTD-compatible software

If you haven’t done this already, don’t delay. Go to HMRC’s approved software list. Pick one that fits your needs and budget, sign up, and connect it to your Government Gateway account. Remember, your first quarterly update must be submitted by 7 August 2026 and that deadline moves quickly.

Step 3: Start digital record keeping immediately

From 6 April 2026, you are required to keep digital records of all income and expenses as they happen. It’s a good idea to start now and get comfortable with the process. Record income as you receive it, take photos of receipts, upload them, and make sure expenses are properly categorised in your new software.

Step 4: Submit your 2025/26 Self Assessment return early

The deadline for the 2025/26 return, the last one under the old rules is 31 January 2027, but don’t wait until the last minute. File it early and clear it from your to-do list, since you’ll also be handling quarterly MTD updates at the same time. There’s an overlap between the two systems for that year, so the sooner you finish the old return, the better.

Step 5: Talk to a qualified accountant

If you don’t already have an MTD accountant, now is the time to appoint one. The right accountant will help set up your software, manage quarterly updates, catch errors before they become problems, and handle your Final Declaration. If you already work with an accountant, make sure they have an Agent Services Account with HMRC and that their systems are compatible with your chosen software.

Need Help Shifting to MTD? GoForma is Here

Making Tax Digital for Income Tax marks a clear shift from the traditional Self Assessment approach. It is a different way of working, but it becomes far more manageable once you have the right systems in place.

GoForma’s team of ACCA and ICAEW qualified accountants has been preparing UK sole traders and landlords for Making Tax Digital for Income Tax for over a year. We set up your software, manage your quarterly updates, file your Final Declaration, and keep you informed at every stage so you stay compliant with HMRC and never miss a deadline.

Whether you are starting with MTD, switching from another accountant, or catching up on your records, we are here to help.

Book a free 20 minute call with a GoForma accountant today and find out exactly what you need to do next.

FAQs on MTD for Income Tax

What is the difference between MTD and Self Assessment?

The main difference between MTD for Income Tax and Self Assessment is how and when you report your income. MTD for Income Tax requires you to keep digital records and submit updates to HMRC every quarter. Self Assessment involves filing one tax return each year.

Does MTD for Income Tax replace Self Assessment completely?

For sole traders and landlords above the income thresholds, the annual Self Assessment return is replaced by four quarterly updates and a Final Declaration. For partnerships, PAYE employees, and those below the thresholds, Self Assessment stays the same.

Will I pay tax four times a year under MTD?

No. Quarterly updates are for reporting only. They show HMRC your income and expenses for each period, but they do not trigger any tax payment. Your tax is still calculated once a year through your Final Declaration, and you pay on the usual 31 January and 31 July dates.

My gross income is £52,000, but my profit is only £22,000. Do I still need to use MTD from April 2026?

Yes. The threshold is based on your gross qualifying income, which is your total turnover before expenses. If you earn £52,000, you fall into Phase 1, regardless of your actual profit.

Can I still use my accountant under MTD?

Yes. Your accountant can handle everything within the MTD system, from setting up your software to submitting quarterly updates and preparing your Final Declaration. The legal responsibility stays with you, but you can delegate all the work.

What software do I need for MTD for Income Tax?

‍You need HMRC-recognised software that connects directly to HMRC's systems via their API. Common options include FreeAgent, Xero, QuickBooks, and Sage. HMRC maintains the full approved list. Standard spreadsheets do not comply on their own, for which you need either dedicated accounting software or bridging software.

What happens if I miss a quarterly deadline?

In the 2026/27 tax year, HMRC will not issue penalty points for late quarterly updates. This gives you time to adapt the new system. From 2027/28 onwards, each missed deadline adds one penalty point. If you reach four points, you receive a £200 fine, with an extra £200 for each further late submission. The Final Declaration is not part of this grace period. If you miss the 31 January 2028 deadline, penalty points apply straight away.

Do partnerships need to sign up for MTD in 2026?

No. Partnerships are not part of the current Making Tax Digital rollout. They continue to file Self Assessment returns. HMRC has confirmed that partnerships will move into MTD in the future, but no timeline has been announced yet.

Can I exit MTD if my income falls back below the threshold?

‍You can leave Making Tax Digital only after your qualifying income stays below the threshold for three consecutive tax years. You cannot move in and out of MTD each year.

I have both self-employment income and rental income. How does MTD work for me?

You submit a separate quarterly update for each income source, but only one Final Declaration covering everything. If you have a sole trader business and one rental property, you submit eight quarterly updates each year, plus one Final Declaration, making nine submissions in total.

Is the HMRC online portal still available?

‍The HMRC portal remains available for those not yet within the MTD threshold and for those with exemptions. For Phase 1 taxpayers (income above £50,000), all submissions must go through MTD-compatible software.

Disclaimer:

This article is for general guidance only and does not constitute personal tax advice. Tax rules are subject to change. Always speak to a qualified accountant for advice specific to your circumstances. GoForma's accountants are ACCA and ICAEW qualified. Content last reviewed: April 2026.

Sources: GOV.UK Making Tax Digital guidance | ICAEW Tax Faculty | HMRC Transformation Roadmap | House of Commons Library Research Briefing CBP-10573