Making Tax Digital for Income Tax

A Major Change for Sole Traders and Landlords

The UK tax authority, HM Revenue and Customs (HMRC), is transforming the Self Assessment system.

From 2026, many individuals will be required to report income quarterly under the new Making Tax Digital (MTD) rules.

Who Will Be Affected?

You will fall within MTD if:

• You are registered for Self Assessment, and
• You earn income from:
• Self-employment (sole trader), and/or
• Property rental (landlord)

The key test is your combined gross income from:

• Business income
• UK or overseas rental income

Employment salary, dividends, pensions and savings interest are not included in this threshold.

When Does It Start?

MTD is being introduced gradually:

From 6 April 2026

If your business and/or rental income exceeds £50,000 (based on the 2024–2025 tax year).

From 6 April 2027

If your income exceeds £30,000.

From 6 April 2028

The threshold is expected to reduce further to £20,000.

If you exceed the threshold, you must comply from the following 6 April.

What Will Change?

Under MTD, you must:

✔ Keep digital accounting records
✔ Use HMRC-approved software
✔ Submit quarterly income updates
✔ Submit a final year-end declaration

Important

This does not mean paying tax quarterly.
It means reporting income and expenses every three months instead of once a year.

First Deadline Example

If you enter MTD on 6 April 2026:

First reporting period:
6 April 2026 – 5 July 2026

Submission deadline:
👉 7 August 2026

Further deadlines will fall in November, February and May.

Is There a Penalty in the First Year?

HMRC has announced a one-year "soft landing" period (2026–2027).

Quarterly reporting is still mandatory, but penalty points for late submissions will not initially be applied during the first year.

Why This Matters

Many sole traders and landlords are unaware that:

• Rental income alone can trigger MTD
• The threshold is based on gross income, not profit
• Digital reporting will become compulsory

Early preparation avoids disruption and last-minute stress.

How We Can Help

We can:

• Review whether MTD applies to you
• Assess your income threshold
• Set up compliant accounting software
• Manage your quarterly submissions
• Ensure a smooth transition

Not Sure If You Are Affected?

Contact us today for a personalised assessment and clear guidance on your next steps.