Making Tax Digital for Income Tax replaces the single annual Self Assessment return with digital record keeping and quarterly updates sent through software. It started on 6 April 2026 for sole traders with gross self-employment and property income over £50,000, drops to £30,000 from 6 April 2027, and to £20,000 from 6 April 2028. As a self-employed driving instructor, that means most full-time instructors will be inside the system within the next couple of years.
This guide covers who is affected, the key dates, what quarterly updates actually involve, and the practical steps to get ready. All figures and dates come from GOV.UK, linked throughout. It is general guidance, not tailored advice; for anything complex, speak to an accountant.
What is Making Tax Digital for Income Tax?
Making Tax Digital (MTD) for Income Tax is HMRC’s replacement for the way self-employed people report their income. Instead of keeping records however you like and filing one return a year, you must keep digital records of your business income and expenses, send HMRC a quarterly summary through MTD-compatible software, and complete a final tax return through software after the year ends.
It applies to sole traders and landlords registered for Self Assessment, which is exactly what a self-employed driving instructor is. The tax you pay does not change; MTD changes how and how often you report. HMRC’s overview of who needs to use MTD for Income Tax and when is the definitive reference.
Do the thresholds apply to you?
The trigger is your qualifying income: your gross income from self-employment and property combined, before any expenses are deducted. That is turnover, not profit. An instructor who invoices £52,000 of lessons and has £15,000 of running costs is over the £50,000 threshold, even though their profit is £37,000.
HMRC phases the rules in by income tier, based on the figures from a past Self Assessment return:
| You must use MTD from | If your qualifying income was over | On your return for |
|---|---|---|
| 6 April 2026 | £50,000 | 2024 to 2025 |
| 6 April 2027 | £30,000 | 2025 to 2026 |
| 6 April 2028 | £20,000 | 2026 to 2027 |
HMRC writes to you before your start date if your return shows you are in scope. If you teach part-time and stay under £20,000, MTD does not currently apply to you and you carry on with normal Self Assessment. Note that if you also have rental income, it counts towards the same total. The thresholds and dates are set out on GOV.UK.
What changes day to day?
Three things change: your records must be digital, you report quarterly, and your return goes through software.
Digital records
You must record each item of business income and expense digitally, in software or a spreadsheet linked to software. For an instructor that means every lesson payment, fuel receipt, insurance renewal and car cost is logged as it happens rather than reconstructed from a shoebox in January. If you already track income and expenses as you go, this is a small step; if you do not, it is the habit to build first.
Quarterly updates
Every three months your software sends HMRC a summary of your income and expense category totals. HMRC does not receive individual records, receipts or invoices. The standard update periods and deadlines are:
| Update period | Deadline |
|---|---|
| 6 April to 5 July | 7 August |
| 6 April to 5 October | 7 November |
| 6 April to 5 January | 7 February |
| 6 April to 5 April | 7 May (following tax year) |
Each update is cumulative, covering the tax year so far, so if you spot a mistake you simply correct your records and the next update carries the fix. You can also elect in your software to use calendar quarters (1 April to 30 June and so on) with the same deadlines, which some people find easier to reconcile with bank statements.
The tax return and payment
You still complete a tax return for the year, but through your MTD software rather than the HMRC online form. The deadline to file and pay stays 31 January after the tax year ends, and payments on account work as before. Our driving instructor tax guide covers the underlying tax rules, rates and payments on account in detail.
What software do you need?
You need software that works with MTD for Income Tax, either a full record-keeping product that files for you, or bridging software that connects your spreadsheets to HMRC. GOV.UK maintains a list of compatible software, including free and paid options, and your accountant may have a preferred product they can file through on your behalf.
To be clear about where Passly fits: Passly is not MTD filing software and does not send anything to HMRC. What it does is keep your lesson income, credits, expenses and receipts organised digitally through the year via finances and expense tracking, with CSV export. That gives you or your accountant accurate, categorised figures to enter into your chosen MTD-compatible product, which is most of the battle. Knowing which costs to record in the first place is covered in our allowable expenses guide.
What are the penalties?
Late quarterly updates and returns are handled through a points-based penalty system. You receive one point for each missed submission deadline, and when you reach 4 points HMRC can charge a £200 penalty. Points expire over time if you keep a clean record.
HMRC has confirmed there are no penalties for missing quarterly update deadlines during the 2026 to 2027 tax year, the first year of the system. That easement does not apply to the tax return itself: file or pay late and the usual consequences follow. Late payment interest and penalties on tax owed also continue to apply, so the 31 January payment date remains the one to circle.
Can you be exempt?
Yes, in limited cases. If you are digitally excluded, meaning it is not reasonably practicable for you to keep digital records or file through software because of age, disability, location, religious beliefs or another good reason, you can apply for an exemption through GOV.UK. Exemptions can be temporary or, for digital exclusion, sometimes permanent. An agent, friend or family member can apply on your behalf. If HMRC agrees, you continue with Self Assessment as you do now.
How to get ready: a practical checklist
You do not need to do anything dramatic, but doing these in order makes the switch painless:
- Check your qualifying income. Look at the gross self-employment (and any property) income on your last tax return, not the profit, and see which tier catches you.
- Watch for HMRC’s letter. HMRC writes to confirm your start date if you are in scope. Do not ignore it.
- Go digital with your records now. Start logging every lesson payment and expense as it happens. Passly’s income and expense tracking with receipt capture keeps this tidy through the year.
- Choose MTD-compatible software from the GOV.UK list, or ask your accountant what they file through, well before your first quarterly deadline.
- Diarise the quarterly deadlines. 7 August, 7 November, 7 February and 7 May. Four small submissions are easier than one January scramble, but only if they are in the diary.
- Talk to your accountant if you have property income, multiple trades or anything unusual. Their fee is an allowable expense.
The instructors who find MTD easy are the ones whose records are already digital and up to date. Get that habit in place now and the quarterly updates become a ten-minute job. For the wider picture of what you pay and when, read our driving instructor tax guide, and try the tax estimator for a quick view of your likely bill.
