MTD for Income Tax: How to switch from Self Assessment

If you’re a sole trader or private landlord then, right now, you’ll probably use the Self Assessment system to provide HMRC with yearly tax returns.

The big news is that, as of April 2026, this will change for millions of tax payers.

If your gross income is over £50,000, you’ll be required to switch to using Making Tax Digital (MTD) for Income Tax.

If your gross income is over £30,000 you’ll be required to switch to MTD for Income Tax as of April 2027. And if it’s over £20,000, you’ll be required to switch to MTD for Income Tax as of April 2028.

There are new requirements with MTD for Income Tax compared to Self Assessment.

That’s what this article is about. Consider it a translation guide, explaining how you do things now – and how you’ll have to do them in April 2026 (or 2027, or 2028).

Here’s what we discuss:

A brief introduction to MTD

Making Tax Digital is the government’s programme to digitalise taxes.

Its first wave started back in 2019, when MTD for VAT was introduced. Now it’s the turn of Income Tax, but only as it relates to those running a business – in other words, sole traders and private landlords.

We cover MTD in depth elsewhere on Sage Advice, but a quick summary is as follows:

• Digital records: MTD-ready software must be used to record income and expenditure relating to your business. For most, this means using cloud accounting software.
• Quarterly updates: You need to use MTD-ready software to provide your business income and expenditure updates to HMRC at least every three months, although it’s good to do so more frequently. Once you provide an update, HMRC will estimate how much tax you’ll owe based on what you’ve told them.
• Digital tax return: By 31 January following the end of the tax year the previous April, you’ll have to use MTD-ready software to create and sign a digital tax return, detailing all your income and expenditure. This might also include details of a host of other income sources like savings interest, if you need to declare them.

All this might sound overwhelming but, don’t worry, that’s what this article is about. Let’s run through how you do things today – and how MTD will change it.

Plus, don’t forget that good accounting software makes it all as easy as possible, and the goal is to make it even more straightforward than it is under Self Assessment.

1. Accounting software for Self Assessment and MTD

Example: You’re a self-employed electrician who has always logged fuel receipts and tool costs in a Microsoft Excel spreadsheet. Maybe you use a desktop accounting package that you’ve relied upon for years.

How you do it now

Almost anything goes. It doesn’t even have to be digital. HMRC doesn’t mind, provided you keep the data required for your income and expenditure accounting records accurately and for the required five years following the end of the tax year.

Excel spreadsheets or an old bookkeeping desktop software package are also fine, so long as you can accurately record your figures and key necessary data into HMRC’s Self Assessment form before 31 January (or complete a paper tax return and post it off by 31 October).

Some people even use book-based ledgers and record income/expenditure by hand.

How it’ll work under MTD

You must keep your income and expenditure records digitally in software that’s compatible with MTD for Income Tax, as listed by HMRC. This is software that is able to link to HMRC’s systems so you can submit the necessary data.

Once you’ve signed-up to MTD with HMRC, you’ll need to configure the software to use MTD for your accounting. If you’re already using Self Assessment, you’ll need to change the settings so MTD is used.

In most cases, being ready for MTD means using cloud accounting software, like Sage Accounting. You may already be using this, in which case you’re already on the way to being prepared.

Cloud accounting is considered the gold standard because, amongst many other things, it means it’s easy to keep your records stay up to date, as well as secure, and it’s simple to share them with HMRC or your accountant.

If you just can’t scrap the spreadsheets, you can keep using them under MTD. But it’s problematic, to say the least. When it comes to quarterly updates and the digital tax return you’ve two choices:

• Transferring the MTD accounting data to MTD-ready accounting software in a way that’s compliant with digital linking. It is not legally allowed to copy/cut and paste the data. All data transfer must be automated in line with HMRC’s digital linking rules. This is very difficult to achieve if you’re not an IT expert.
• Using bridging software. This is an add-on for your spreadsheet that connects to HMRC’s systems to let you submit quarterly updates, and the digital tax return. You tell the bridging software which cells contain the all-important data. As you might guess, this can be somewhat challenging to setup and is prone to breaking should you accidentally overwrite a spreadsheet cell, for example.

A bridging tool doesn’t make you instantly MTD-compliant. You’ll still be responsible for keeping correct digital records and making sure your systems are digitally linked. Get any of this wrong and you’re breaking the law. HMRC could impose penalties.

That’s why many suggest bridging software as just a short-term fix, while you prepare to move onto full MTD-compatible accounting software.

Next steps and notes

• If you’re already using cloud accounting software, speak to your software vendor support to see if (or when) it’ll be ready for MTD.
• Sage Accounting is already MTD-ready, including the free Sage Accounting Individual plan.
• If you’re using desktop software it’ll probably require an upgrade, which may cost money. Could this be a good time to make the leap to cloud accounting software, which is likely to always up-to-date with the latest compliant requirements?
• Ask your accountant to recommend a provider, or use HMRC’s Find Software tool to help you find the right MTD software.
• Trial at least one MTD-compatible software package prior to signing up to MTD for Income Tax.

2. Registering for Self Assessment and MTD

Example: You’re starting-up a hairdressing business. You’re not on the payroll of an employer any longer, and must now find a way to tell HMRC about the income and expenses from your business. It’s your duty to do so, and you should never assume HMRC knows automatically.

How you do it now

Under Self Assessment, any new sole trader or landlord business must register by October following the end of your first tax year in April.

The process of signing-up for Self Assessment is straightforward, but can be protracted.

You must register online with HMRC for Self Assessment, get a UTR (Unique Taxpayer Reference), and you’re set.

You must do this by 5 October following the end of the tax year for which you need to complete a tax return.

You must then log into HMRC’s website to file your return by the end of January, or in future years send a paper version by the end of October. HMRC usually reminds you about this requirement via letter, not long after the tax year ends in April.

How it’ll work under MTD

Perhaps surprisingly, nothing changes.

This is because those new to running a business can’t register immediately for MTD for Income Tax. Instead, you must complete at least one year using the Self Assessment system. This is how HMRC will discover if your income is above the threshold for MTD.

HMRC will then write to you explaining you’ll need to move to using MTD for Income Tax from the start of the next tax year.

You’ll need to sign up for MTD through the gov.uk website. You won’t get automatically transferred across if you’re already using Self Assessment.

Next steps and notes

• If you’re new to running a sole trader or landlord business, follow HMRC’s guidelines for registering for Self Assessment, even if you’re sure your income will be above the MTD inclusion threshold.
• If you’re already using Self Assessment and HMRC has written to you about MTD, ensure you’re registered for MTD before the 6 April 2026 deadline.
• If you use an accountant or bookkeeper, they can handle the registration for MTD on your behalf, but you’ll still need to authorise them in the MTD-ready software you use.
• If you’re already using Self Assessment, you can sign up for MTD voluntarily, no matter what your gross income. In other words, you don’t have to wait until HMRC demands you do so.

3. Taxes under Self Assessment and MTD

Example: As a freelance designer, you’re registered for Self Assessment and are therefore classed as a sole trader. Every year you file a Self Assessment tax return with HMRC. This is your only yearly touchpoint with HMRC (and often your only touchpoint with your accountant, if you use one).

How you do it now

Around January you usually gather all your receipts and invoices, and either complete your own Self Assessment form, or pass all the paperwork to your accountant for them to create your tax return.

Or if you use accounting software, you can click/tap to create a Self Assessment tax return, and both sign and submit it.

You also pay any outstanding tax liability, including any payment on account for the current year.

How it’ll work under MTD

You’ll no longer need to complete a Self Assessment tax return under the MTD for Income Tax rules (although you’ll still need to complete a final one by 31 January for the tax year that ended before you started using MTD).

Instead, under the MTD for Income Tax rules you’ll need to use MTD-ready software to provide HMRC with at least quarterly updates. These updates should reflect your income and expenditure for that previous quarter year (although HMRC realises that sometimes you might have to make adjustments when things change unexpectedly, so 100% accuracy isn’t demanded until the final digital tax return).

You can provide updates more frequently than quarterly if you wish, and this can be good for keeping track of how much tax you owe. As such, it also helps keep on top of your cash flow.

Accounting software will remind you when the quarterly updates are due and, of course, all the data will already be right there in the software. So, all you’ll have to do is review and click/tap to submit.

Then, by 31 January following the end of the tax year, you’ll need to create and sign a digital tax return, again using MTD-ready software. If you’re using cloud accounting, this will be mostly automated and you just have to add in any extra sources of income, then review what’s there, and click/tap to sign and submit.

Notably, your accountant or bookkeeper can create and submit quarterly updates on your behalf. They can create the digital tax return, too – but you’ll need to review, digitally sign, and submit it.

Next steps and notes

• Read up about MTD at HMRC’s website, and speak to your accountant and/or bookkeeper.
• If you run two different businesses, like hairdressing and an Etsy business selling hand-made items, each one must have its own separate quarterly updates. But you only ever need a single digital tax return.
• Rental income requires its own quarterly updates alongside self-employed income. However, if you’re a landlord with more than one UK rental property, you can group them all together as a single “property business” for MTD.
• Foreign property income again requires its own separate quarterly updates, however.

4. Receipts and expenses under Self Assessment and MTD

Example: As a landlord letting out your former family home following inheritance, you buy goods or services for repairs, and consumables like light bulbs. You keep receipts and bills so you can claim them as expenses (and therefore deduct them from your tax bill), as well as track their depreciation.

Sometimes these bills and receipts are digital, such as PDF receipts sent to you, or even just emails. Sometimes they’re printed out, such as till receipts, or printed A4 documents that are sent along with goods you receive.

How you do it now

If you’re like many sole traders and landlords, you might not have the most meticulous system for receipts. They may end up in a folder, a shoebox, or the scrunched up against the windscreen of your van if you operate a trade.

During January, and to meet the 31 January Self Assessment tax return deadline, you or your accountant/bookkeeper sort them out in one big effort.

How it’ll work under MTD

That “shoebox method” won’t cut it anymore.

Under MTD, you must keep digital records of your expenses, with the data from receipts captured and stored electronically.

The good news is you don’t need to type the data manually.

Most MTD-compatible software includes a mobile app that lets you snap a photo of a receipt. Or you can use more powerful data entry software, like AutoEntry, that has a whole range of extra features like being able to send data to your accountant or bookkeeper.

The system reads the date, supplier and amount (using Optical Character Recognition, or OCR) and files it against the right expense category for you. The use of AI means this can be very accurate.

Similarly, using software like AutoEntry, you can forward any receipt/bill email you receive to a special email account and have the data automatically extracted and input into your accounting software.

And you’ll no longer have to gather this data (or have you accountant/bookkeeper do so) just once a year.

Under MTD, you’ll need to do this at least every three months to meet the quarterly update guidelines.

Once you get into the habit, and make good use of MTD-ready software that’s designed to make life as easy as possible, you won’t face that panic of sorting a year’s worth of crumpled receipts.

What’s more, if HMRC ever queries your records, you’ll have neat, digital, date-stamped copies instead of faded paper slips – or nothing at all to show them because you’ve misplaced things.

Next steps and notes

• Try to get into a new habit: As you buy from wholesalers or retailers, photograph the receipt at checkout using your accounting or data entry automation app. By the time you’re back in the van, your software has logged it as “supplies” and filed it neatly.
• Investigate the receipt scanning tool built into your cloud accounting app. Doesn’t have that functionality? No problem. Experiment with expense apps that link directly to your accounting software, and that let you easily share data with your accountant or bookkeeper.
• If you use an accountant or bookkeeper, speak to them about ways you can ensure receipt/expenses data gets to them in a timely manner. If could be something as simple as sending them WhatsApp messages, for example.

5. Invoices and income under Self Assessment and MTD

Example: You operate an office cleaning business comprising yourself, a vacuum cleaner, and a bag of cleaning items. You might have many clients, and each month invoice each for payment for the cleaning work.

How you do it now

If you don’t use accounting software, you may hand write invoices on a duplicate pad, or create simple Word/Excel invoices and post or email them.

Once the invoice is paid, typically via bank transfer, it’s necessary to reconcile it against the invoice so it’s clear which has been paid.  

Sometimes you have to chase up the invoice if it isn’t paid in time. It can be difficult getting that level of visibility if you use a duplicate pad, or if you simply print out invoices. Sometimes invoices go unpaid for months until you realise.

Ideally monthly but at least once a year all these reconciled invoices are added up and thereby let you calculate your income.

How it’ll work under MTD

As mentioned above, MTD means you must keep digital records. This means the invoice data must be within the MTD-ready software ASAP, and definitely before the quarterly update is due to be submitted.

How you ensure the data is digital is up to you.

The easiest method is to use MTD-ready accounting software to issue every invoice. Doing so means the accounting data is automatically digital. What’s more, reconciliation is an easy matter of using the reconciliation feature of the accounting software. Even better: If invoices haven’t been paid then the software will prompt you on a regular basis to chase them.

You could continue to write out or print invoices from Word. But you will need to manually enter the necessary data into your accounting software ASAP. Given the extra work this creates, it just makes sense to use accounting software. Why make life difficult?

Digital invoicing helps eliminate mistakes from manual retyping.

And the software creates professional-looking invoices, with no need to fuss with document templates.

You can email invoices with a Pay Now button, or a QR code, that lets the individual click to pay instantly. This means there can be no more excuses along the lines of not being able to work out the best way to pay!

Your income is automatically logged, making quarterly submission straightforward.

Next steps and notes

• Try issuing a few invoices via accounting software even before MTD requires it.
• Test how customers respond to email-based invoices with online payment options (you shoudl find many pay faster).
• Phase out manual invoicing methods. Writing by hand should be left behind in the 19th century, and printing out from a PC should be left in the 20th century!

6. Working with accountants under Self Assessment and MTD

Example: You have an accountant for your retail business who, you proudly explain, “handles all the accounting side of things” for you.

How you do it now

It’s not uncommon to drop a year’s worth of paperwork on your accountant’s desk at some point in January, and let them crunch through it against the deadline.

They then work everything out and email a tax return for you to sign and submit.

How it’ll work under MTD

You’ll need to collaborate more frequently with your accountant (or bookkeeper). This will have to be at least every three months because of the quarterly updates requirements of MTD.

Then, in January, you’ll need to get in touch to explain any additional sources of income that need to be added to your digital tax return. However, by that point, the accountant should’ve ensured all income and expenditure data relating to your business(es) is already present and correct in your accounting.

Accountants and bookkeepers can submit quarterly updates for you, but only if they have your data in time. A good approach would be to contact them a few weeks before each quarterly deadline, so they can review, tidy, and file accurately.

Quarterly updates are just the minimum. Some software providers like Sage encourage monthly updates, so both you and your accountant always know roughly how much tax is due. This is invaluable for cash flow planning.

Next steps and notes

• Ask your accountant today how they’re preparing their clients for MTD. In technical terms they will need to be an agent acting on your behalf, and will need to configure their MTD-ready software (and you will need to configure yours).
• Set expectations about how often they’ll need your records, and how you’ll get them to them. For example, data entry automation tools can ensure an automated process for expenses and bills.
• Use the next couple of months, while deadlines are quiet, to test a new schedule with them.

Final thoughts

The move from Self Assessment to MTD for Income Tax is a culture change. For many it will mean a move from annual admin to (at least) quarterly habits.

The upside is clear to see: Less stress at year-end, cleaner records through the year, and a clearer picture of what your tax bill looks like. Even better, you have 24/7 insight into cash flow, making for better planning and the ability to anticipate problems.

If your income tips you into the first MTD wave (over £50,000), April 2026 is not far away. Start making small steps now (e.g. speaking to your accountant, setting up your business bank feed) and when the deadline comes, you’ll already be working the MTD way almost without noticing.