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

HMRC’s Making Tax Digital for Income Tax (MTD for IT) programme continues to move closer, bringing significant changes to how sole traders and landlords keep records and report their income. While the aim is to modernise the tax system, the new requirements will represent a major shift for many individuals.

Below is a clear overview of what’s changing, who will be affected, and how to prepare.

What is Making Tax Digital for Income Tax? 

MTD for IT is part of HMRC’s wider digital transformation of the tax system. It requires eligible taxpayers to:

• Keep digital records of income and expenses

• Use MTD-compatible software

• Submit quarterly updates to HMRC

• File an end-of-year final declaration, replacing the traditional Self-Assessment return
  

The intention is to improve accuracy, reduce errors, and give taxpayers a more up-to-date view of their tax position throughout the year.

Who Will Be Affected and When?

MTD for IT will be mandatory from 6 April 2026 for:

• Sole traders

• Property landlords
  

…who generated more than £50,000 of gross trading and/or rental income in the 2024/25 tax year. This combined figure is referred to as qualifying income.

If your income exceeds this threshold, you will be required to comply with MTD rules, regardless of whether you complete your tax return yourself or use an accountant.

What Will Be Required?

If you fall within the scope of MTD for IT, you must:

·      Keep digital records of business and/or property income and expenses

·      Use HMRC-approved, MTD-compatible accounting software

·      Submit quarterly summaries to HMRC

·      Complete an end-of-year submission confirming your final figures and allowances

Quarterly updates are summaries, not tax bills, but they will give HMRC a clearer picture of income as the year progresses.

Penalties: A Transitional Soft Landing

In a welcome development, the government has confirmed that:

No penalties will be charged for late quarterly submissions during the first year for individuals mandated into MTD for IT in 2026/27.

This offers some breathing space while taxpayers adjust to the new system. However, penalties may still apply for late end-of-year submissions or inaccuracies, so compliance remains important.

Why Preparation Matters

Even with the initial penalty relaxation, MTD for IT represents a fundamental change in how income tax is reported. Common challenges include:

• Choosing suitable accounting software

• Changing record-keeping habits

• Understanding quarterly reporting obligations

• Ensuring income is categorised correctly
  

Early preparation can help avoid disruption and ensure a smoother transition when MTD becomes mandatory.

How SJC, Chartered Accountants Can Help

MTD for Income Tax is not just a compliance issue, it is also an opportunity to improve financial visibility and planning. SJC, Chartered Accountants can support you with:

• Assessing whether MTD for IT will apply to you

• Selecting and setting up MTD-compatible software

• Ongoing bookkeeping and quarterly submissions

• End-of-year reporting and tax planning advice
  

If you are a sole trader or landlord approaching the £50,000 threshold, now is the time to start planning. Getting ahead of MTD will make compliance simpler and less stressful when the rules take effect.