Will it deliver compliance, or will It spark more creative evasion schemes?
The phased introduction of Making Tax Digital (MTD) for Income Tax follows the successful implementation of MTD for Value Added Tax (VAT), which now helps more than two million businesses reduce errors and save time on their tax affairs. Although the success of MTD for Value Added Tax (VAT) remains debatable, as the VAT tax gap rose from 5.9 per cent of total VAT liabilities in 2021-22 to 7.8 per cent in 2022-23, an increase of £4.7 billion. From 6 April 2026, the UK government’s plan to deliver economic growth rolls out MTD for Income Tax Self-Assessment (ITSA) sole traders and landlords. The Finance (No. 2) Act 2017, Sections 60 and 61, and Schedule 14 (Digital Reporting and Record-Keeping) (Appointed Day) Regulations 2021 will bring these provisions into force. When you need to start using MTD for Income Tax depends on your qualifying income within a tax year.
Who is affected?
If your qualifying income is over:
- £50,000 for the 2024 to 2025 tax year, you will need to use it from 6 April 2026
- £30,000 for the 2025 to 2026 tax year, you will need to use it from 6 April 2027
- £20,000 for the 2026 to 2027 tax year.
It is expected that around 780,000 people with business or property income over £50,000 will join the MTD for ITSA service from April 2026, with a further 970,000 joining from April 2027. The government however, has set out plans to introduce legislation to lower the qualifying income threshold.
What exactly changes in 2026?
You, or an agent on your behalf, will need to use commercial software that works with MTD for Income Tax to:
- Create, store and correct digital records of your self-employment and property income and expenses
- Send your quarterly updates to HMRC
- Submit your tax return by 31 January the following year.
There are different types of software to help you use MTD for Income Tax. You can get software that either:
- creates digital records
- connects to your existing records, such as those held in spreadsheets.
What the policy on digitalisation aims to do
- reduce the risk of unintentional customer errors
- save them time when customers come to submit their end-of-year tax return
- support wider productivity and less time managing paperwork through the use of digital tools
- enable HMRC to better tailor services to customers
Here are some quick questions and answers to help self-employed people understand what MTD will mean for them
Does MTD replace my Self-Assessment?
MTD doesn’t replace Self‑Assessment entirely, but for sole traders and landlords over the threshold, it turns the single yearly tax return into quarterly updates plus a final declaration submitted through approved software.
What if I have multiple income sources? For example, I am a sole trader and a landlord?
If you’re both a sole trader and a landlord, HMRC will add all your income together to see if you meet the MTD threshold, and if you do, you’ll send separate quarterly updates for each income stream but only one final declaration. Plus, the good news is that you can manage multiple income sources within a single software setup, avoiding the need for multiple subscriptions.
Can I still use my existing paper records or spreadsheet?
You cannot use paper records or basic spreadsheets for MTD, as all your information must be kept and submitted digitally via HMRC-recognised software.
What are the benefits of starting MTD for income tax early?
Starting MTD early gives you peace of mind if you are near the threshold and lets you take advantage of quarterly financial visibility, fewer year-end surprises, and better cash‑flow control. As an eligible taxpayer, you are encouraged to sign up to a testing programme now to get ahead of the changes.
Should I use HMRC-compatible software or bridging software for MTD?
It comes down to ease and control. Choosing HMRC-compatible software over bridging tools generally gives you far more ease and control, as fully integrated software reduces manual spreadsheet work, cuts errors, and provides real-time insights that make quarterly updates and cash‑flow planning a lot smoother.
Who is exempt from MTD for Income Tax?
There are different reasons why you may be exempt from MTD for Income Tax. For example, you could be exempt if you are digitally excluded. If you are exempt, you will not have to use MTD for Income Tax, but you must continue to report your income and gains in a Self-Assessment tax return. You can find out if you can get an exemption from Making Tax Digital for Income Tax.
What to do if you need to use the service?
If you need to use MTD for Income Tax, you should prepare and sign up for the service before you need to use it. You can find more information about what you need to do to prepare and sign up if:
Common Pitfalls to take note of
- Missing quarterly deadlines.
- Not keeping all property income records in one place.
- Joint ownership complications. Each owner must report their share separately.
- Using software that is not MTD-ready.
Having explored the need-to-know basis of the principal requirements for MTD for income tax, in practice, shifting millions into a new regime can generate friction, and where there is friction, there is the risk of new evasion and avoidance. DoesMTD ITSA nudge us toward better compliance, or does it simply re-route bad behaviour into more sophisticated channels?
The evasion risk: why MTD could backfire (if we let it)
Digital doesn’t automatically mean truthful or guarantee accurate reporting. If income is missed or mis‑categorised at the source, quarterly updates can simply scale up inaccurate data. It is for risks such as these that evidence-based research is required. One such study was conducted by Mohammed Sadiq on the Impact of Making Tax Digital on Small Businesses, in which he highlighted the need for support and clearer guidance on compliance for the 3.5 million sole trader businesses, which generate £1.9 trillion of wealth for the UK.
As tax systems digitise, evasion tactics evolve too. From creative expense labelling to splitting income to stay under thresholds. While HMRC frames the reform as a modernisation effort to reduce errors and improve efficiency, many taxpayers see something entirely different. During earlier research interviews on MTD for VAT, a few interviewees offered insights that feel strikingly relevant as MTD for ITSA approaches. Their reactions shed light on why the upcoming reform is already proving controversial, and why its success may depend less on technology and more on human behaviour. Several self‑employed individuals expressed genuine anxiety about the digital obligations that will soon become mandatory. As one participant put it;
“HMRC knows only a few will comply, maybe only 50%, and it will take years to convert everybody.”
For many, the concern is not resistance to paying tax, but resistance to a system they consider inaccessible, unfamiliar, or simply overwhelming.
A common theme was digital capability. An interviewee emphasised that many sole traders, especially in trades such as construction, plumbing, or domestic services, are not computer-literate, they do not keep organised records, and in some cases, they do not retain receipts at all. The gap between daily working habits and HMRC’s expectations appears wide. Perhaps the most revealing comment came from an interviewee who described a mindset that policymakers may have underestimated. Reflecting on the attitudes of many self-employed trades people, he said:
“They just want to be an electrician or a plumber or a window cleaner. They don’t want to be bothered with sitting down at the end of the day working on the computer, typing and putting all their invoices.”
This captures the tension at the heart of MTD for ITSA. The system assumes routine digital engagement. Many taxpayers, however, built their livelihoods around manual work, not digital administration. The risk is that the reform may push some individuals not toward compliance but toward avoidance behaviours, whether through omission, disengagement, or more deliberate evasion.
As April 2026 approaches, MTD for ITSA stands at a crossroads. It has the potential to modernise tax administration and reduce non-compliance, but only if it recognises and responds to the lived realities of the taxpayers it governs. Failure to do so could transform a well-intentioned reform into a driver for the very behaviours it seeks to prevent.
Either way, the law and the legal profession will be busy.
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