Making Tax Digital for Income Tax: What Sole Traders and Landlords Need to Know

 

Making Tax Digital (MTD) is part of the UK government’s long-term strategy to simplify the tax system and reduce errors by requiring digital record-keeping and online tax submissions. While MTD for VAT has already been implemented, the next major phase – MTD for Income TaxSelf-Assessment (ITSA)  is set to come into effect from 6 April 2026.

This change will have a significant impact on sole traders and landlords, especially those unfamiliar with digital accounting systems. Understanding what’s required and preparing early can help ensure a smooth transition.

Who Will Be Affected?

From 6 April 2026, Making Tax Digital for Income Tax will apply to:

• Sole traders earning more than £50,000 annually
• Landlords with property income exceeding £50,000 per year

From April 2027, the threshold will extend to those earning between £30,000 and £50,000.

If your total income from self-employment or property (or both combined) meets these thresholds, you will be legally required to follow the MTD rules.

What Will Change?

Under MTD for ITSA, you will no longer be able to file a single Self Assessment tax return each year in the traditional way. Instead, you’ll need to:

1. Maintain digital records using HMRC-approved software
2. Submit quarterly updates to HMRC (every three months)
3. Submit an End of Period Statement (EOPS) after the end of the tax year
4. File a Final Declaration (replacing the current annual Self Assessment)

This new process means you’ll be interacting with HMRC at least five times a year, rather than once.

Why the Change?

The aim of Making Tax Digital is to reduce tax errors caused by manual data entry and late submissions. By digitising tax reporting:

• HMRC receives more timely and accurate information
• Individuals get a clearer picture of their ongoing tax position
• Errors and penalties due to missed deadlines can be minimised
• The process becomes more efficient for both taxpayers and HMRC 

How to Prepare

With the 2026 deadline approaching, it’s important to take action early. Here are a few steps sole traders and landlords can take:

1. Review your income – Check whether your income exceeds the relevant threshold.
2. Choose MTD-compatible software – HMRC has a list of approved tools like Xero, QuickBooks, and FreeAgent.
3. Start keeping digital records – Even before the requirement starts, it’s wise to shift to digital bookkeeping now.
4. Speak to an accountant – A professional can help you get ready, advise on software, and ensure you remain compliant.
5. Understand the quarterly deadlines – Familiarise yourself with when and what to submit during the year. 

FAQs About MTD for Income Tax

Does MTD replace Self Assessment?
Yes, for those who meet the criteria. Your final declaration replaces the traditional annual Self Assessment return.

Are payment dates changing?
No. Deadlines remain:

• 31 January – Final payment for the year
• 31 January & 31 July – Payments on account (if applicable)

Will income under £20,000 be included in MTD later?
As of now, there’s no confirmed rollout for those under the threshold. However, the Government is exploring this possibility.

What happens if I don’t comply with MTD?

Failure to comply could result in penalties, including fines for late submissions or failure to maintain proper digital records. HMRC is expected to apply a points-based penalty system for non-compliance.

How can an accountant help with MTD?

An accountant can:

• Help choose the right software
• Train you to use digital tools
• Ensure timely submissions
• Review your records for accuracy
• Provide strategic tax planning advice

MTD for Income Tax is a major change for sole traders and landlords, but it also presents an opportunity to modernise your financial processes. By preparing now, you’ll not only avoid last-minute stress but also benefit from more accurate, timely insights into your tax position. Contact Doshi Accountants today on 020-8239-4999 for expert support with MTD, tax planning, and digital accounting solutions.