HM Revenue & Customs (HMRC) has issued a warning that more than 860,000 sole traders and landlords will be brought within the scope of Making Tax Digital (MTD) for Income Tax from 6 April 2026.
The reforms are part of the government’s wider programme to modernise the UK tax system, and will affect how many individuals report income, moving from annual self-assessment towards a system of digital record keeping and periodic reporting.
While HMRC presents the changes as a way to reduce errors and improve efficiency, the operational impact for taxpayers and advisers is substantial, particularly in the short term as systems and processes are adjusted.
Who will be affected from April 2026
From 6 April 2026, MTD for Income Tax will apply to individuals with qualifying income of more than £50,000 from self-employment and or property, based on their 2024 to 2025 tax year figures.
This includes sole traders, landlords and those with a combination of trading and property income exceeding the threshold. The rules apply to individuals rather than businesses, meaning multiple income streams are aggregated when determining whether the threshold is met.
The regime will be extended in later phases. From April 2027, the threshold will reduce to £30,000, and from April 2028 to £20,000, significantly expanding the population within scope.
What MTD for Income Tax requires
Individuals within MTD are required to keep digital records of income and expenses using compatible software and submit quarterly updates to HMRC. These updates provide summary figures rather than full tax computations, but they represent a move to more regular reporting.
Those affected by the new requirements will have to maintain digital records of business and or property income and expenditure, submit quarterly updates of income and expenses to HMRC and complete an end of year return using data drawn from those updates.
HMRC has described the quarterly updates as ‘light touch’. However, the requirement to maintain accurate digital records throughout the year introduces a continuous compliance obligation rather than a single annual exercise.
Key dates and transitional position
The 2025 to 2026 tax year remains within the existing self-assessment framework. Individuals who come within MTD from April 2026 will still file a traditional tax return for that year by 31 January 2027.
The first MTD reporting cycle will apply to the 2026 to 2027 tax year, with quarterly updates due during that year and the final tax return due by 31 January 2028.
Key dates include:
- First quarterly update deadline: 7 August 2026
- Second quarterly update: 7 November 2026
- Third quarterly update: 7 February 2027
- Fourth quarterly update: 7 May 2027
- MTD tax return deadline: 31 January 2028
This creates a transitional overlap, with taxpayers moving from annual reporting into a more frequent submission cycle within a short period.
Penalties and the soft landing period
HMRC has confirmed that a points-based penalty regime will apply to late submissions under MTD. Each missed deadline will result in a penalty point, with a financial penalty of £200 applied once four points are reached.
For those joining MTD from April 2026, HMRC has introduced a 12-month soft landing period for quarterly updates. During this period, penalty points may still be recorded, but the approach is intended to allow time for taxpayers to adapt to the new system.
This reflects HMRC’s expectation that compliance will improve over time as digital processes become embedded.
Practical implications for taxpayers
The move to MTD changes both the timing and method of tax compliance. Individuals who currently rely on manual records or year-end reconciliation will need to adopt compliant software and maintain up to date records throughout the year.
This will involve adopting MTD-compatible software, establishing processes for real-time record keeping and managing quarterly submission deadlines alongside existing obligations.
The reform is therefore likely to shift interactions with professional advisers away from annual filing cycles towards more regular engagement, which may affect accountancy and tax-related costs.
Compliance risk and exemptions
MTD introduces new compliance risks, particularly where digital records are incomplete or submissions are missed. Over time, repeated failures can lead to financial penalties under the points based system.
There is also a risk that inaccurate real time data may increase the likelihood of HMRC queries or interventions.
Exemptions are available for individuals who are genuinely unable to use digital tools, but these are limited and subject to HMRC approval. In practice, most taxpayers within scope will be expected to comply with digital reporting requirements.
HMRC position and next steps
HMRC has indicated that more than 20,000 quarterly updates have already been submitted through its testing programme and that a range of software solutions is available, including some free options.
With the April 2026 start date approaching, HMRC is advising affected individuals to review the guidance, select appropriate software and, where relevant, speak to their tax adviser to prepare for the transition.
From a compliance perspective, early preparation is likely to be critical in managing the operational impact of the new regime and reducing the risk of errors during the first year of reporting.
Author
Gill Laing is a qualified Legal Researcher & Analyst with niche specialisms in Law, Tax, Human Resources, Immigration & Employment Law.
Gill is a Multiple Business Owner and the Managing Director of Prof Services Limited - a Marketing & Content Agency for the Professional Services Sector.
