Compliance
How Making Tax Digital for Income Tax Affects Sole Traders and Landlords from April 2026
From 6 April 2026, many sole traders and landlords must adopt digital record-keeping and quarterly reporting under MTD for Income Tax. This article unpacks who’s in scope, what has to change, and how to stay compliant.
By NomadicTax Research Team • 5-8 min read • May 9, 2026
## What is Making Tax Digital (MTD) for Income Tax?
Making Tax Digital for Income Tax (MTD for ITSA) is a reform requiring certain self-employed individuals and landlords to maintain digital business records and send updates quarterly to HMRC, rather than doing a single annual Self Assessment return. The change aims to make filing more frequent and accurate, and to ease end-of-year burdens. ([kpmg.com](https://kpmg.com/uk/en/insights/tax/tmd-making-tax-digital-for-income-tax-is-now-live.html?utm_source=openai))
## Who is in Scope as of April 2026?
- Sole traders and landlords whose **gross trading or rental income** (not profit) in the tax year **2024/25** exceeds **£50,000** must comply from **6 April 2026**. ([tax.org.uk](https://www.tax.org.uk/new-tax-year-new-rules-what-s-changing-this-april?utm_source=openai))
- Those with income below this threshold are exempt until later phases (April 2027 and 2028) when thresholds will be lowered. ([tax.org.uk](https://www.tax.org.uk/new-tax-year-new-rules-what-s-changing-this-april?utm_source=openai))
- Everyone in scope must use **compatible digital software** for record-keeping and quarterly submissions. ([kpmg.com](https://kpmg.com/uk/en/insights/tax/tmd-making-tax-digital-for-income-tax-is-now-live.html?utm_source=openai))
## Key Changes and Actions to Take
| Area | What’s New | Action Items | Example |
|------|------------|--------------|---------|
| Record Keeping | Must maintain digital records of income & expenses. | Choose and set up approved software; keep backups. | A landlord using spreadsheets must migrate to software like Xero or FreeAgent. |
| Quarterly Reporting | Submit four updates per year instead of one. | Align accounting period; set reminders; budget for time. | A sole trader books income monthly and submits four “updates” during the year. |
| End-of-Year Finalisation | Complete final submission replacing traditional SA return. | Ensure all income streams included; reconcile expense claims. | If you rent one property and run a small shop, combine both in final submission. |
## Benefits and Challenges
**Benefits:**
- Smoother cash flow tracking and fewer surprises at year-end.
- Improved digital infrastructure and more up-to-date financial data.
- Reduced chance of errors or omissions thanks to ongoing tracking.
**Challenges:**
- Learning new software could be time-consuming.
- Initial setup costs or subscription fees.
- Quarterly deadlines need discipline to avoid non-compliance penalties.
## Compliance Tips & Practical Checklist
1. Check gross income for 2024/25 – does it exceed £50,000?
2. If yes, register for MTD for Income Tax in HMRC’s system before first deadline.
3. Choose software that’s compatible: must support digital records and quarterly updates.
4. Break profit & loss data into correct categories: trading vs rental, avoid mixing.
5. Set internal deadlines ahead of HMRC’s to ensure timely submission.
6. Retain all supporting documents (receipts, invoices) in digital form for at least 5 years.
## What Happens If You Don’t Comply?
Late or incorrect submissions can lead to penalties under HMRC regime. Also, inaccurate income declarations may lead to interest charges, or over-/under-stated tax bills. Staying compliant ensures smoother audits, and reduces risk of being caught by fiscal drag as thresholds and allowances stay frozen. ([gov.uk](https://www.gov.uk/government/publications/the-personal-allowance-and-basic-rate-limit-for-income-tax-and-certain-national-insurance-contributions-nics-thresholds-from-6-april-2026-to-5-apr/income-tax-personal-allowance-and-the-basic-rate-limit-and-certain-national-insurance-contributions-thresholds-from-6-april-2026-to-5-april-2028?utm_source=openai))