Making tax digital for income tax: essential insights for sole traders and landlords

The UK tax landscape is evolving, and with it, the obligations of sole traders and landlords with gross income in excess of £50,000. From April 2026, the introduction of Making Tax Digital (MTD) for Income Tax (IT) will redefine the way income and expenditure is reported to HMRC.

Understanding the implications of MTD for IT is crucial. In this article, we explore the key changes, their potential impact on your financial affairs, and the steps required to ensure compliance.

Digital transformation of tax reporting

MTD for IT is a government initiative designed to modernise tax reporting. From April 2026, sole traders and landlords with gross income exceeding the £50,000 threshold must maintain digital records and submit quarterly updates to HMRC using compatible software. For these individuals, the traditional self-assessment tax return will be replaced by this more dynamic system, which includes quarterly submissions, and an annual digital return. The initiative aims to enhance accuracy, reduce errors, and provide greater transparency into tax liabilities throughout the financial year, with each quarterly update giving an indicative tax liability.

Building on the successful rollout of MTD for VAT, which began in April 2019 for VAT-registered businesses, MTD for IT paves the way for further digitalisation of the tax system.

Determining your MTD for IT obligations

The first phase of MTD for IT applies to sole traders and landlords with annual gross income exceeding £50,000. These individuals will be required to comply starting in April 2026. The second phase will extend to those with gross income between £30,000 and £50,000, who must adhere from April 2027. The government has said that those with gross income of £20,000 or more will be brought in before the end of this Parliament.

If your combined self-employment and rental gross income exceeds the relevant threshold, you will be obligated to follow the new MTD framework. Taking proactive steps now to adapt to these changes will help you avoid disruption and ensure a smooth transition when the regulations come into effect.

The implications for sole traders and landlords

The introduction of MTD for IT signifies a fundamental change in financial administration. The requirement for quarterly reporting means that businesses and landlords will need to review and submit their income and expenditure details more frequently. The new structure eliminates the once-per-year tax return process, replacing it with a system designed to promote real-time accuracy and ongoing compliance.  It is important to appreciate that the minimum number of quarterly updates will be four. For example, a sole trader and landlord will need to submit eight quarterly updates.

Additionally, the requirement to use HMRC approved accounting software means that manual record-keeping practices will become outdated. Ensuring that financial systems are digitised and compliant in advance will be essential to avoiding penalties.

Exemptions from MTD for IT

While most sole traders and landlords will need to comply with MTD for IT, there are some exemptions. For instance, individuals who do not have a National Insurance number on 31 January will be automatically exempt from MTD IT for the following year. The date for mandating partnerships is yet to be agreed. Moreover, individuals who are digitally excluded may also be eligible for an exemption, though the process for applying has not yet been confirmed.

Other exemptions may apply, and more detailed information can be found on GOV.UK.

Preparing for compliance

Transitioning to MTD for IT requires careful preparation. The first step is to assess whether your gross income meets the mandatory threshold and, if so, to familiarise yourself with approved digital accounting software. Implementing these tools early will provide the opportunity to refine processes and reduce disruption before the new regulations take place.

Seeking expert guidance at this stage is invaluable. Our team of highly skilled professionals can review your current processes, identify which software would be the most suitable, and work with you to implement these solutions into your daily operations, ensuring full compliance while maximising tax efficiency. Additionally, we offer one-to-one support with any software we recommend making sure you get the most out of its features, helping you meet reporting obligations with ease.

How we can help you

At HB&O, we take a proactive and personalised approach to tax, combining our expertise in digital compliance and tax strategy to ensure clients are fully equipped for new regulations such as MTD for IT before they take effect.

If you would like more information, please get in touch with our tax specialists.

Email: [email protected]

Phone: 01926 422292