Making Tax Digital for Income Tax: The Timeline and What Sellers Need to Do

If you sell on eBay as a sole trader, the way you report your income to HMRC is changing, and the change is not a tweak to the form. From 6 April 2026, sole traders and landlords whose qualifying income is above a set level must keep their records in compatible software, send HMRC a summary every three months, and then finish the year with a tax return submitted through that same software. The level starts at £50,000 and, on the dates HMRC has published, falls to £30,000 in April 2027 and £20,000 in April 2028. The scheme is called Making Tax Digital for Income Tax, usually shortened to MTD for Income Tax or MTD for ITSA.

The question most sellers actually have is simpler: does this apply to me, and when? The answer depends on a figure that catches resellers out, because it is your turnover, not your profit. A seller who dropships low-margin goods can clear a threshold on sales alone while keeping a small slice of it. This guide sets out the dates as they stand on GOV.UK in October 2026, how qualifying income is worked out, what you have to do each quarter and at year end, what the penalties are, and what to do next depending on where you are today.

1. What Making Tax Digital for Income Tax actually is

Under the existing Self Assessment system, you keep records however you like, and once a year you report the totals on a tax return. MTD for Income Tax replaces that rhythm for the people it covers. HMRC's step-by-step guidance for sole traders and landlords says you must use compatible software to do three things: create, store and correct digital records of your self-employment and property income and expenses; send quarterly updates to HMRC; and submit your tax return and pay the tax due by 31 January the following year.

It is worth being clear about what it is not. It is not a new tax, and it does not change how profit is calculated or what the tax rates are. HMRC's step-by-step guidance still has you submit the return and pay the tax due by 31 January the following year. What changes is the process: records kept digitally throughout the year, a quarterly summary, and a return completed in software rather than through the older routes.

If you are not sure whether your eBay selling is a trade at all, read our plain-English Self Assessment walkthrough first, because MTD only applies to people registered for Self Assessment with self-employment or property income.

2. The timeline: three start dates, three income tests

HMRC's tool for working out whether you need to use the scheme, published as "Find out if and when you need to use Making Tax Digital for Income Tax", sets out the phases. Each start date depends on the qualifying income you reported on a return for the tax year before it.

Read the table as a chain. Your 2024 to 2025 return decided whether you were in from April 2026. Your 2025 to 2026 return, which you file by 31 January 2027, decides whether you are in from April 2027. Your 2026 to 2027 return decides the April 2028 group. A seller can therefore be outside the scheme this year and inside it a year or two later simply because turnover grew.

Where the lower thresholds come from: HMRC's policy paper on reducing the threshold from £30,000 to £20,000, published on 24 March 2026, says the change takes effect from 6 April 2028 and refers to the Income Tax (Digital Obligations) Regulations 2026. It records that the extension to £20,000 was announced at the Spring Statement 2025 and that the £30,000 level had been confirmed at Autumn Budget 2024. It does not mention any threshold below £20,000 or any plan for one, so this guide does not either. Partnerships are not in these phases: the tool page says they will need to use the service later, with a timeline to be announced.

HMRC is also signing people up

You do not have to wait for a letter. But HMRC's guidance says that from September 2026 it will start signing up people who need to use the service for 2026 to 2027 and have not yet signed up, but only where its records show qualifying income over £50,000 in 2024 to 2025. If it signs you up, there is a separate GOV.UK page, "Check what to do if HMRC has signed you up for Making Tax Digital for Income Tax", which is the place to go.

The same guidance also says HMRC reviews your return each year and writes to you if you are over the threshold, and that if you did not receive a letter you are still responsible for checking your own obligations. Do not treat a quiet post box as proof that you are out of scope.

Worth remembering: the three dates are tied to three different tax years of income. The 2025 to 2026 year, which ended on 5 April 2026, is the one that decides whether you start in April 2027.

3. Qualifying income: why turnover is the number that matters

For the threshold test HMRC does not look at profit. Its guidance on working out your qualifying income says it is your total self-employment and property income before expenses, which it calls turnover, taken from the Self Assessment return you filed for the previous tax year. HMRC's own worked example adds £25,000 of rental income to £27,000 of self-employment income to reach qualifying income of £52,000.

For an online reseller that has a sharp consequence. If you sell goods and pay a supplier for each one, your turnover is the money coming in from sales, and the cost of the goods is an expense that does not reduce the qualifying-income figure. So a seller who turns over a high figure at a thin margin can be over a threshold while the profit is modest.

An illustrative example

These numbers are invented to show the arithmetic and are not typical of anyone. Suppose a seller's turnover for a tax year is £34,000, the goods cost £26,500, and eBay fees, postage and other costs add up to £4,200.

On those invented figures the seller's profit is £3,300, but turnover is £34,000, which is above £30,000. If that were the 2025 to 2026 year, the HMRC timeline above would put the seller into MTD for Income Tax from 6 April 2027. Check your own turnover, not your profit, against the table in section 2.

What counts and what does not

HMRC's qualifying income page lists inclusions and exclusions. Relevant to sellers:

• Self-employment income and property income are added together, so a seller who also lets a property combines both.
• Your share of jointly owned property income counts. HMRC's example: £50,000 split equally gives £25,000.
• Your share of partnership profit as an individual partner is excluded from qualifying income, though you still report it in the return. Personal self-employment or property income that a partnership tells you about is included.
• Employment income (PAYE), dividends including from your own company, the State Pension and private pensions are excluded.
• If you use the cash basis and choose to include VAT in your income, that VAT is part of the figure.

The page does not mention the trading allowance. The press release HMRC issued a year before the launch describes qualifying income as gross income before allowances or expenses are deducted, which matches the turnover description. So the £1,000 trading allowance, which GOV.UK describes as a tax exemption of up to £1,000 a year, does not lower the figure you compare with a threshold. That is an inference from those two sources rather than something the page states, so confirm it on the qualifying income page if your income sits close to a threshold.

If you have not yet worked out what your turnover was, our bookkeeping guide for dropshippers shows where the sales figure comes from, and our explanation of Managed Payments covers why the money that lands in your bank is not the same figure as your sales.

4. What you actually do once you are in

GOV.UK's guide for people using the service lays out the sequence. In order:

1. Choose compatible software before you sign up.
2. Sign up through the online service, using the same user ID and password you use for Self Assessment. You may be asked to prove your identity using an app with a passport or driving license.
3. Authorise your software to connect to HMRC before you create digital records.
4. Check that your accounting period is set correctly in the software.
5. Create digital records as transactions happen.
6. Send four quarterly updates.
7. Make any end-of-year adjustments, add other income and submit the return.

To sign up you must be registered for Self Assessment and have submitted a tax return in the last two years. You will be asked for details such as your business name as it appears on invoices, the business address, the nature of the trade, the business start date if it began in the last two tax years, and the tax year you will start using the service. If you have several income sources, you are asked to check each one and add any that are missing.

Authorising the software

HMRC's guidance on digital records says to check, before creating them, that you have followed all the sign-up steps, including authorising your software.

Digital records

Each digital record has to contain three things: the amount, the date the income was received or the expense was incurred, and a category. The categories are the same ones used on the Self Assessment return, and which ones apply depends on your business.

• Create records as close to the transaction date as possible, and before the quarterly deadline or the update itself, whichever is earlier.
• Keep the original records or copies, such as bank statements and invoices, as you do now.
• Keep the digital records for at least five years after the 31 January submission deadline for that tax year. HMRC's example on its page about changing circumstances is that records for 2026 to 2027 must be kept until at least 31 January 2033.
• Correct errors as soon as you find them.

If your software pulls transactions from a bank feed, the page warns that you may need to add details such as the Self Assessment category, that some transactions may not appear in full in the feed and must be recorded separately, and that you are responsible for checking accuracy before each update is sent. Sellers who take payment through eBay should think about this: the money paid out to your bank account is not each individual sale, so a pure bank feed may not give you your sales figure by itself. Our guide to how eBay pays you explains the gap between a payout and the sales behind it.

5. The quarterly updates, date by date

A quarterly update is a summary, not a tax return. HMRC's page says it contains totals for each income and expense category, using the categories on the Self Assessment return, and no individual receipts or invoices. You do not make accounting or tax adjustments before sending. You have to send one for a period even if there was no income or expense.

Three details that trip people up:

• Each update is cumulative. It shows your total income and expenses for the tax year so far, not just the last three months. Your software calculates the figures for you to check before sending.
• You can send early. You can send an update from the end of its period up to the deadline, and also up to 10 days before the period ends if you do not expect further transactions. You can send more often than quarterly as long as each one covers the full period from 6 April.
• Calendar periods must be chosen early. Software defaults to standard periods. If your accounting year runs from 1 April to 31 March, you select calendar periods before your first update, and you cannot change them for the rest of that tax year once you have sent one.

If you have more than one business, you send separate updates for each. Sole traders with several businesses also keep separate records for each.

Sorting each transaction into a category is the same question as in our guide to what counts as a business expense, and our companion piece on allowable expenses, line by line goes through the categories.

6. Finishing the year: adjustments, other income and the return

HMRC's page on adjustments says that after your fourth quarterly update, HMRC holds your full-year totals, and you then make any adjustments before completing the return. Most adjustments are made by updating the annual total for an expense category rather than editing individual records. The kinds it lists:

• Reliefs and allowances that reduce taxable income, such as the trading income allowance.
• Tax adjustments for disallowable expenses. HMRC's example: if one phone is used for both business and personal use, reduce the phone and office-costs total to the business share.
• Accounting adjustments, which apply only if you use traditional accounting rather than the default cash basis. HMRC's examples: a £1,200 annual insurance premium paid in January would be split £300 into the first tax year and £900 into the next, and consultant services received in March 2026 but not yet invoiced can be recorded in 2025 to 2026.
• Capital allowances, which you record in your software before submitting the return.

If you are weighing the cash basis against traditional accounting, our guide on cash basis or traditional accounting for a small reseller covers the choice.

The return itself

On HMRC's submission page, you complete and submit the return in your MTD-compatible software after making all adjustments, check the tax calculation, and make the declaration. The deadline is 31 January following the end of the tax year, and you can submit early: the 2025 to 2026 return can be submitted from 6 April 2026 to 31 January 2027. A late return earns a penalty point. Changes can be made within 12 months of the submission deadline.

An important change from the old routine: errors in your digital records should be corrected in the records before submission, not in the return afterwards. And for tax years before you joined, the usual Self Assessment submission and correction processes still apply.

Worth remembering: the cumulative nature of the quarterly updates means the fourth update (due 7 May) is effectively your year-end set of totals. HMRC's page tells you to make adjustments after it, not before.

7. Choosing software, including whether a spreadsheet can survive

HMRC does not provide MTD software. Its page on choosing software says you pick a compatible product before signing up, and that listed software has passed HMRC's recognition process while HMRC does not recommend any specific product or provider. It separates two kinds:

• Software that creates digital records, which imports bank transactions, scans receipts and invoices, or accepts manual entry. These usually meet all requirements, including quarterly updates and return submission.
• Bridging software, which connects to records you already keep in spreadsheets or other tools and submits them to HMRC.

So a spreadsheet is not banned. But the digital records page says spreadsheets used as record-keeping software must be digitally linked to your bridging software, and corrections are made in the spreadsheet and then re-linked. Once a record has been sent in a quarterly update, you should not move it manually by retyping, copying or cutting and pasting. Acceptable links include linked spreadsheet cells, emailing a spreadsheet for import, portable storage devices, CSV or XML import and export, and automated or API transfer.

If you are deciding between a spreadsheet and accounting software, our piece on what accounting software does that a spreadsheet cannot is written for exactly this choice.

Whatever you choose, keep a copy of your records somewhere that does not depend on the software company. Our guide on backing up the records your business depends on goes through that, and the same thought applies to the five-year retention period.

8. Exemptions, opting out and leaving the scheme

HMRC's exemptions guidance splits exemptions into those that apply automatically and those you must apply for.

Automatic

• Qualifying income of £20,000 or less.
• No National Insurance number before the start of the tax year.
• A 2024 to 2025 return that included certain claims or pages, such as Lloyd's membership (SA103L) or a Blind Person's Allowance claim.

By application

• Digitally excluded individuals.
• Partners who claimed, or expect to claim, averaging relief on the SA104 page.

HMRC says some exemptions are temporary, lasting until April 2027, and others are permanent unless your circumstances change. If you are exempt you do not use MTD but still report your income and gains in a Self Assessment return as normal.

Opting out later

The "if your circumstances change" page sets out the opt-out route. You can opt out if you amended the previous year's return to bring qualifying income below the threshold, or if your qualifying income has been below it for three consecutive years. You select the option in your HMRC online services account, and it only appears if you are eligible. Opting out means you stop creating digital records and sending quarterly updates, updates already sent for the opt-out year are deleted, and you still send a Self Assessment return for that year, though not necessarily with MTD software.

9. Penalties: what changes and what does not

The penalty rules on GOV.UK work on a points system for late submissions and a separate regime for late payment.

Late submissions

• Each missed quarterly update (for tax years after 2026 to 2027) or missed tax return deadline earns one penalty point.
• You get only one point per deadline, even with more than one business.
• The penalty point threshold is four points. Reaching it brings a £200 penalty, and another £200 each time you miss a further deadline.
• If you become exempt in 2027 to 2028, the threshold drops to two points, and existing points are reduced so you are no closer to the new threshold.
• VAT penalty points are separate from MTD for Income Tax points.

For 2026 to 2027, HMRC's pages say there are no penalty points for late quarterly updates, but you must still keep digital records and send the updates before submitting your tax return, and late tax returns still earn points. For volunteers, the quarterly update page says there are no penalties for late updates, while late tax returns earn points and two points trigger a £200 penalty.

Late payment

In the first year of the new penalties you get 30 days from the due date before penalties start, and after that it is 15 days. You only get the 30-day period once. Late payment penalties do not apply to payments on account, and late payment interest runs from the first day a payment is late. HMRC's page says contacting it promptly about a payment plan can pause penalties from the date you contact it, if a plan is agreed and kept to.

10. New sellers, growing sellers and what to do now

Your 2025 to 2026 turnover was over £30,000

You are due in from 6 April 2027. The sensible window to prepare is the months between now and then: pick and test software, check how it handles your eBay payouts, decide on standard or calendar update periods, and run a dummy quarter on your current figures. You can also join early. HMRC's sign-up page says voluntary sign-up is possible for the current or next tax year, with any missed quarterly updates for the year so far sent using compatible software.

You are starting a new business

The page on adding or ceasing income sources says that for a new self-employment source you add it in your HMRC online services account before submitting the tax return that includes it. Digital records and quarterly updates for a new source start only after you submit a return that includes it for the first time. HMRC's example is a source starting on 1 July 2026, which appears in the 2026 to 2027 return due by 31 January 2028, with quarterly updates beginning 6 April 2028. That is an example about when a new source's updates begin, and applies if you are in scope. Separately, HMRC says normal Self Assessment record keeping continues alongside digital records.

11. Common mistakes

• Comparing profit with the threshold. The test is turnover from the previous year's return. A low-margin seller is the likeliest to be caught out.
• Waiting for a letter. HMRC's guidance says you are still responsible for checking your own obligations if no letter arrives.
• Buying software after the start date. The software has to be authorized and the records created before the first update, so leave time to test.
• Copying figures by hand between a spreadsheet and the software. That breaks the digital link HMRC expects once records have been sent in an update.
• Picking the wrong update periods. You cannot change between standard and calendar after your first update in a tax year.
• Treating the quarterly update as the end. You still have to submit the return and pay by 31 January.
• Assuming exempt means no tax return. An exempt person does not use MTD but still reports income in a Self Assessment return.
• Relying on a bank feed alone. The page says you are responsible for the accuracy of what is sent, and some transactions may need separate recording.

Sources and how we checked

Facts in this guide were checked against these official pages in October 2026. Rules and figures change, so confirm anything that affects a decision. This is general information, not legal or tax advice.

• Making Tax Digital for Income Tax (HMRC, GOV.UK)
• Making Tax Digital for Income Tax for sole traders and landlords: step by step (HMRC)
• Find out if and when you need to use Making Tax Digital for Income Tax (HMRC)
• Work out your qualifying income for Making Tax Digital for Income Tax (HMRC)
• Sign up for Making Tax Digital for Income Tax (HMRC)
• Choose the right software for Making Tax Digital for Income Tax (HMRC)
• Create digital records (HMRC)
• Send quarterly updates (HMRC)
• Adjust your self-employment and property income (HMRC)
• Submit your tax return (HMRC)
• If your circumstances change (HMRC)
• Add or cease income sources (HMRC)
• Penalties for Making Tax Digital for Income Tax (HMRC)
• Find out if you can get an exemption from Making Tax Digital for Income Tax (HMRC)
• Reduction of the mandation threshold from £30,000 to £20,000 from April 2028 (HMRC)
• One year until Making Tax Digital for Income Tax launches (HMRC)
• Tax-free allowances on property and trading income (HMRC)

Questions people ask