Making Tax Digital is here: What sole traders and landlords need to do now to keep up with changes
17th July 2026
For years, Making Tax Digital (MTD) felt like one of those tax changes that was always “coming soon” but those deadlines have now arrived loud and clear for a whole swathe of individuals.
From April 2026, hundreds of thousands of sole traders and landlords are being brought into
HMRC’s new digital reporting system. HMRC has described Making Tax Digital for Income Tax as the biggest change to Income Tax reporting since Self Assessment was introduced more than 30 years ago
For many taxpayers, the headline message has been simplified into “quarterly tax returns”. While not entirely wrong, that description misses some important detail, and has caused considerable confusion.
The reality is that MTD for Income Tax changes not just how often information is reported to HMRC, but also how records must be kept, how software is used and how taxpayers manage their financial information throughout the year.
For those affected, preparation now will be far easier than trying to adapt after the rules become mandatory.
What Is Making Tax Digital?
Making Tax Digital for Income Tax is HMRC’s system for reporting self-employed and property income.
Instead of relying solely on annual Self Assessment reporting, taxpayers within MTD must maintain digital records throughout the year and submit information to HMRC using compatible software.
- Keep digital records
- Use HMRC-compatible software
- Submit quarterly updates to HMRC
- Complete an end-of-year final declaration
The objective is to reduce errors, improve record-keeping and give taxpayers a more up-to-date view of their tax position throughout the year.
Importantly, MTD does not currently replace the need for an annual tax submission entirely.
Many people mistakenly believe they will submit four tax returns each year instead of one.
In reality, quarterly updates provide HMRC with summary income and expense information throughout the year, followed by a final end-of-year submission that confirms the tax position and makes any necessary adjustments.
Who Is Affected?
The rollout is being phased in over several years.
The first group affected are sole traders and landlords whose qualifying income from self-employment and property exceeds £50,000. They must comply from 6 April 2026.
The scope then expands as follows:
- Income over £30,000 from April 2027
- Income over £20,000 from April 2028
One of the most important points is that the thresholds are based on gross income, not profit.
For example:
- Rental income: £28,000
- Freelance income: £24,000
- Combined gross income: £52,000
Even if substantial expenses reduce profits significantly, that taxpayer would still fall within MTD requirements.
Certain taxpayers may qualify for exemption from MTD requirements where it is not reasonably practical for them to use digital tools because of age, disability, location or other specific circumstances. Exemptions are not automatic and generally require HMRC approval.
The people most likely to be affected
While MTD is often discussed in terms of traditional self-employed businesses, many people who do not think of themselves as “business owners” may be brought into scope.
This includes:
- Freelancers and consultants
- Tradespeople
- Content creators and influencers
- Online sellers operating as sole traders
- Property landlords
- Individuals with multiple income streams
- Gig economy workers such as Uber and Deliveroo drivers
Many people have become accustomed to managing these activities through spreadsheets, paper records or annual bookkeeping exercises. While spreadsheets can still be used in some circumstances, MTD requires digital record-keeping and electronic submission through compatible software.
What actually changes?
The most significant practical change is the requirement to keep digital records throughout the year.
HMRC-approved software must be used to:
- Record income and expenses
- Maintain digital accounting records
- Submit quarterly updates
- Complete the final declaration process
For some taxpayers this may require a complete change in how financial information is managed and a carrier bag full of receipts handed to an accountant every January is unlikely to be sufficient going forward.
Understanding the quarterly update system
One area that has caused confusion is the introduction of quarterly reporting.
Many taxpayers assume this means paying tax four times per year, but this is not the case.
MTD introduces quarterly reporting, not quarterly tax payments. Tax payment deadlines remain separate.
Taxpayers submit updates showing income and expenses during the year, giving HMRC visibility of business performance before the annual declaration is completed.
The quarterly deadlines are generally one month and seven days after the end of each reporting period.
For taxpayers using standard quarterly periods final deadlines would therefore be:
- 7 August
- 7 November
- 7 February
- 7 May
The annual final declaration remains due by 31st January following the end of the tax year.
What systems should be put in place now?
Businesses and landlords who prepare early will experience a far smoother transition.
Some practical steps include:
1. Separate business finances
One of the simplest improvements is opening a dedicated bank account for business or property income.
Mixing personal and business transactions creates complications under any accounting system, but particularly when digital records must be maintained throughout the year.
2. Adopt software early
Waiting until the first mandatory submission deadline is likely to create unnecessary pressure.
Many providers already offer MTD-compatible software, including options aimed at freelancers, landlords and sole traders. A range of compatible software solutions is available, including some low-cost and free options.
3. Improve record-keeping habits
Taxpayers should begin collecting and categorising:
- Income records
- Expense receipts
- Invoices
- Mileage information
- Property-related costs
The more organised the records are now, the easier quarterly reporting becomes later.
4. Speak to your accountant
Many accountants are already helping clients prepare for MTD implementation.
Early conversations can help identify:
- Whether you fall within the regime
- When your obligations begin
- What software is appropriate
- Whether changes to bookkeeping processes are needed
Common pitfalls we are already seeing
Assuming it does not apply because profits are low
The threshold is based on gross income rather than profit. Many landlords in particular are surprised to discover they fall within the regime despite relatively modest net profits.
Believing quarterly updates must be perfectly accurate
Another misconception is that each quarterly update must be finalised with complete tax accuracy. In practice, reasonable estimates and provisional figures may be corrected later through the end-of-year finalisation process where appropriate.
Quarterly updates are intended to provide HMRC with ongoing information rather than serve as the final tax calculation.
Leaving software decisions too late
Many taxpayers underestimate the amount of time required to become comfortable with new systems. Even relatively simple bookkeeping software requires some setup, familiarisation and testing.
Assuming accountants will handle everything automatically
Accountants will continue to play a vital role, but MTD places greater emphasis on real-time record keeping. Professional advisers can only work effectively if accurate information is provided throughout the year.
What about penalties?
HMRC has introduced a points-based penalty system for late submissions.
Under this system, taxpayers receive a penalty point each time a submission deadline is missed. Once a specified points threshold is reached, a £200 financial penalty can apply, with further penalties arising for subsequent missed submissions.
For taxpayers joining MTD from April 2026, HMRC has confirmed that penalty points will not be issued for late quarterly updates during the first year of operation (2026/27). However, this concession does not apply to all obligations. Penalties relating to year-end submissions, late payment of tax and other compliance failures may still apply.
That grace period should not be viewed as a reason to delay preparation. It is intended to help taxpayers adapt, not postpone compliance.
Further support and what to do now
Making Tax Digital is not simply a software change. It represents a fundamental shift in how self-employed individuals and landlords interact with HMRC.
For some taxpayers, particularly those who already use cloud accounting systems, the transition may be relatively straightforward. For others who have relied on annual bookkeeping habits for years, the adjustment could be significant.
The key message is that preparation matters.
Understanding whether you fall within the regime, selecting appropriate software, improving record-keeping processes and seeking advice where necessary will make the transition substantially easier.
The taxpayers who start adapting now are unlikely to find MTD particularly disruptive.
Our team is here to help you navigate these MTD changes. We can help you set up your systems and software, embed supporting financial tracking processes and ensure quarterly reporting and end of year submissions are done accurately and efficiently. For individuals with more complex affairs, professional advice may be particularly valuable where multiple businesses, property portfolios or mixed income sources are involved.
HMRC has also created a dedicated MTD information hub, guidance documents and webinars designed specifically for sole traders and landlords.
