Making Tax Digital for beginners: a step-by-step guide

This article was created in partnership with Sage.

Making Tax Digital for Income Tax (MTD for short) is the biggest tax shake-up in a long time. And if you're a sole trader or landlord, there's a good chance it affects you.

So we’re here with a handy guide to help get you going.

First, a reminder that we can’t give you tax or financial advice. You’ll need to speak to a professional adviser for that.

What’s Making Tax Digital for Income Tax?

Here's the gist: if you fall within the earnings threshold, you need to use HMRC-recognised software to send quarterly updates of your accounting records.

Instead of doing your tax return once a year, with Making Tax Digital you send quarterly updates to HMRC throughout the year, and submit your final return via MTD software. This means your tax data flows smoothly between you and HMRC.

The upside? You always know roughly how much tax you owe. No more nasty surprises in January. Instead, you can plan ahead and stay in control of your cash flow.

When does it start and who does it affect?

MTD for Income Tax is rolling out in phases based on your gross qualifying income (that's your income before expenses and taxes):

April 2026: sole traders and landlords earning over £50,000 in 2024/25
April 2027: sole traders and landlords earning over £30,000 in 2025/26
April 2028: sole traders and landlords earning over £20,000 in 2026/27

Your qualifying income includes everything you earn from self-employment and property. If you've got multiple businesses or rental properties, you add them all together to work out if you're over the threshold. Income from a PAYE job, dividends or partnership income don't count as qualifying income.

Although it’s being rolled out in phases, you can actually start using MTD whenever you want to. If you think about it, you’re likely going to need to make the move at some point. Why not start early and find your new filing flow?

What you need to do

1. Get HMRC-recognised software

You’ll need to use software recognised by HMRC, like ours, built in partnership with Sage, to send quarterly updates and file your end of year return.

2. Sign up for MTD

HMRC is contacting people who need to follow the MTD rules as of April 2026, but it’s still your responsibility to sign up.

You need HMRC-recognised software first, then you can sign up on the HMRC website. If you go with the free MTD software built into Monzo Business, we sign you up as part of the setup. Find out more about how to get MTD ready with Monzo.

Like we said, you don’t have to wait your turn. If your gross income’s less than £50,000 you can still start doing digital tax now and gradually get used to it. Plus, it’s a good opportunity to learn before HMRC’s new penalty system kicks in from 2027/28 onwards.

3. Submit quarterly updates

Every three months (at minimum), you'll send an update to HMRC about your business income and expenses. You can send more frequent updates if you want to.

Here's what the MTD deadlines look like for the 2026 to 2027 tax year:

Q1 update: due 7 August 2026 (covers 6 April to 5 July 2026)
Q2 update: due 7 November 2026 (covers 6 July to 5 October 2026)
Q3 update: due 7 February 2027 (covers 6 October 2026 to 5 January 2027)
Q4 update: due 7 May 2027 (covers 6 January to 5 April 2027)

Updates are cumulative, meaning each one stretches back to 6 April. So you can go back and make changes if you need to.

If you've got multiple businesses, you need to submit separate updates for each.

Monzo’s MTD tool categorises transactions and lets you mark allowable expenses as you go. All it takes is a quick review of the numbers before you submit your update.

“It showed an estimate of what my tax bill will be for the year. I thought that was a pretty neat thing to have.”

- Monzo Business customer on using the MTD tool

4. File your digital tax return

You must submit a digital tax return by 31 January following the end of the tax year in the previous April, using your software. This replaces your Self Assessment return.

This is where you bring together all your data – business income, non-business income, any reliefs you're claiming – to work out your final tax bill. If you use an accountant, they can prepare this for you, but you need to review and digitally sign it yourself.

What about payments?

No changes here. You'll still pay any outstanding tax by 31 January, along with the first payment on account (payments towards your next tax bill) for the next year. Then there’s another payment on account to make by 31 July.

Can you use spreadsheets?

Technically yes, but it’s complicated. MTD requires you to do two things: keep digital records and submit updates to HMRC via approved software. Spreadsheets meet these requirements, but only when there are ‘digital links’ between them and the software you use for MTD. In practice, this means there are two ways of doing MTD:

Use an all-in-one solution that handles both your record-keeping and talking to HMRC. This is how our free MTD software works.
Keep separate digital records and link them to software that talks to HMRC. You’ll see this called ‘bridging software’. If you love spreadsheets or get a kick out of debits and credits, this is how you can make your existing non-MTD set-up meet the rules.

Most experts agree it's simpler and more effective to go with the first option, using an all in one solution. It's more secure, less error-prone, and makes the whole process easier.

What about exemptions?

For some people, MTD for Income Tax doesn't apply.

If you’re exempt, you still need to report your income in a Self Assessment tax return as normal.

Automatic exemptions mean you don't need to apply or contact HMRC. These cover:

those with an income below the threshold
foster carers
people acting under power of attorney.

Exemptions you need to apply for include:

age, health or disability reasons
religious beliefs
lack of internet access or digital exclusion.

Apply for an exemption from MTD on the HMRC website.

If you're currently exempt from MTD for VAT and your circumstances haven't changed, that exemption should carry over to Income Tax, too.

Does Self Assessment end?

For people using MTD for Income Tax, the digital tax return replaces Self Assessment. But if you're outside the qualifying rules, you keep using Self Assessment as normal.

If you're new to being self-employed or renting out property, you'll start with Self Assessment and switch to MTD once you meet the criteria to – or you can volunteer to switch early once you've signed up for Self Assessment.

Can your accountant help?

Absolutely. If you choose MTD software that lets you digitally link to theirs, your accountant or bookkeeper can:

prepare and submit your quarterly updates
create your digital tax return (though you'll need to approve it)
sign you up to MTD for Income Tax if you want.

You can use Monzo’s free MTD software with your accountant, so long as you’re happy to give them access to your account. We’ll ask for your permission to do this when we’re getting you set up.

How long do you keep records?

You need to keep your accounting records for at least five years after the filing deadline – same as before. The difference is they must be kept digitally. You can't just print everything out and stick it in a filing cabinet.

Next steps

Check if you're affected: add up your gross income from self-employment and property. Are you over the threshold for 2026, 2027, or 2028?
Look at software options: start researching MTD-compatible software. Think about what features you need and what you can afford.
Talk to your accountant: if you use one, chat to them about MTD for Income Tax. Work out who's doing what.
Consider signing up early: you can join MTD at any time, even if your gross income is below the starting threshold.
Keep learning: if you sign up for a Monzo business account, which gives you access to our MTD tool, you’ll unlock access to helpful lessons and timelines to get you prepped.

Free MTD software is built into Monzo’s Business Accounts as standard. It’s recognised by HMRC too, so you can file tax straight from Monzo to HMRC without juggling extra tools. Apply for a free business bank account now to access the tool.

Making Tax Digital tool available for sole traders and landlords only. Only sole traders, limited company directors and landlords in the UK can apply for an account. Ts&Cs apply.