Skip to Content

What does Making Tax Digital mean? All the MTD terms you need to know.

From April 2026, self-employed people and landlords will need to keep digital tax records and send updates to HMRC four times a year. The system shake up is called Making Tax Digital for Income Tax, and it’s a big change. So if tax lingo leaves you lost, here's a handy cheat sheet to help you out.

Before we get into the details, a reminder that we can’t give you tax or financial advice. If you need personalised tax guidance, it's best to check with a professional adviser.

What's Making Tax Digital for Income Tax?

Also known as MTD, or MTD for IT if you’re really big on acronyms (that’s Making Tax Digital for Income Tax), it's a new way to manage taxes if you're self-employed or a landlord. It’s worth noting, this is different from Making Tax Digital for VAT, which is for VAT-registered businesses. 

Instead of submitting one tax return a year, you'll keep digital records and submit them to HMRC every three months using approved software. You’ll still send your main tax return by the usual January deadline, though. 

You’ll be able to do this straight from your Monzo account. Apply for a free business bank account to get on the waitlist (only sole traders or limited company directors in the UK can apply. Ts&Cs apply.)

What does HMRC mean?

HMRC stands for His Majesty's Revenue and Customs. It's the UK government department that collects taxes and manages some benefits. When you pay tax or submit a return, it's HMRC you're dealing with.

What's income tax?

Income tax is just what it sounds like, you pay tax on your income. So it’s paid on things like your salary, self-employment profits, rental income, and pension income. You get a tax-free allowance called a personal allowance, and only pay tax on money above that amount.

What's Self Assessment?

Self Assessment is the current system for reporting and paying tax if your income isn't taxed automatically. You fill out a tax return each year. With Making Tax Digital, you'll send updates quarterly, but the amount you owe won't change.

What's qualifying income?

This is your gross income (before expenses or taxes) from property rental or working as a sole trader (also known as self-employment income). This figure is used to decide when you need to switch to the new Making Tax Digital system. Pay from a job, dividends or partnership income don't count as qualifying income.

Let’s look at an example. Say Priya makes £35,000 in a year from her freelance graphic design work. She also earns £20,000 from renting out a flat she owns. That means Priya’s qualifying income is £55,000 (£35,000 from self-employment + £20,000 from property). Even if she gets £10,000 from a part-time job and £2,000 in dividends, those don’t count – her qualifying income is just the £55,000.

What's your gross income?

This is everything you earn from self-employment and/or rental property before expenses and tax get taken off. It's used to check if you hit the qualifying income level for Making Tax Digital.

Here’s another example. Imagine Chris is a freelance web developer. This year, Chris brings in £55,000 from clients. That’s his gross income from self-employment. It doesn’t matter yet how much he’s spent on things like laptops or travel, and this is before paying any tax. 

What are income thresholds?

These are the cut-off points set by the government. If your gross income from self-employment and/or property goes over a certain amount, you'll need to use Making Tax Digital. The income thresholds are as follows:

  • Over £50,000 in the 2024/25 tax year → you'll need to start from 6 April 2026

  • Over £30,000 in the 2025/26 tax year → you'll need to start from 6 April 2027

  • Over £20,000 in the 2026/27 tax year → you'll need to start from 6 April 2028 

What's a sole trader?

You're a sole trader if you work for yourself. You might be freelance, run your own business or have a side hustle. If your business income is over the threshold, Making Tax Digital will apply.

If you run your business through a limited company then you aren’t a sole trader, as it’s the company, not you, that runs the business.

Who counts as a landlord?

If you get income from property you own (whether in the UK or overseas), you're a landlord. If you earn above the Making Tax Digital threshold from rentals or leases, you'll need to go digital.

If you run your landlord business through a limited company then you won’t be affected by Making Tax Digital. That’s because it’s the company, rather than you, that runs the business.

What's a tax year?

The tax year runs from 6 April one year to 5 April the next. Lots of tax rules, thresholds, and deadlines are based around this 12-month window.

What are quarterly updates?

Quarterly updates are a key part of the Making Tax Digital timeline. They’re short reports you send to HMRC every three months, showing your income and expenses so far. The tax year is split into four periods, each with its own deadline. The standard reporting quarters are:

  • 6 April to 5 July

  • 6 July to 5 October

  • 6 October to 5 January

  • 6 January to 5 April

Alternatively you can choose to report using calendar quarters, these are:

  • 1 April to 30 June

  • 1 April to 30 September

  • 1 April to 31 December

  • 1 April to 31 March

What's an in-year estimate?

After each quarterly update, HMRC gives you a running estimate of your tax bill based on all the information they have at the time. This is one of the main benefits of Making Tax Digital – no more guessing or nasty surprises when the bill lands in January.

What are digital records?

These are electronic versions of your business income and expense records. These can be in spreadsheets, accounting software or in an MTD tool. 

What's Making Tax Digital-compatible software?

This is HMRC-recognised software for Making Tax Digital. The software needs to either create digital records, or link to existing digital records. It needs to be able to send quarterly updates and annual returns to HMRC. 

What's digital exclusion?

Digital exclusion means you genuinely can't use digital tools or the internet to keep tax records or send returns. It covers things like:

  • Disability, health issues or age making digital tools hard to use

  • No internet where you live

  • Religious beliefs that don't allow digital tech

  • Other serious reasons that make it impossible

If you're digitally excluded, you can apply for an exemption and continue using Self Assessment the old way.

What are exemptions?

Exemptions are situations where certain people or organisations don't need to use Making Tax Digital at all. You're exempt automatically if:

  • You're a trustee, a personal representative of someone who's died

  • You don't have a National Insurance number

You can apply for an exemption if you're digitally excluded. Always check if you qualify before spending time and money on Making Tax Digital, because you might not need to use it.

What's an agent services account?

An agent services account is an online account that accountants and tax agents set up with HMRC. If you work with an accountant, they'll use this account to handle your Making Tax Digital updates for you. Here’s how it works:

  • Your agent signs up with HMRC

  • You authorise them to act on your behalf

  • They can submit your digital updates and returns

You'll need to give your agent permission, but once you do, they can support you through the whole Making Tax Digital process.

Need more help with any of these terms, or not sure if you need to use Making Tax Digital? It's always a good idea to check in with a qualified accountant or tax adviser. They'll have your back.

You can file tax straight from Monzo to HMRC, ready for HMRC’s new rules coming in April 2026. Apply for a free business bank account to get on the waitlist.

Only sole traders or limited company directors in the UK can apply. Ts&Cs apply.