Compliance
How Making Tax Digital Is Reshaping Compliance for Sole Traders and Landlords
The UK’s rollout of Making Tax Digital (MTD) for Income Tax introduces quarterly updates, new penalty regimes, and thresholds tied to income levels—transforming how sole traders and landlords approach tax compliance.
By NomadicTax Research Team • 5-8 min read • June 18, 2026
## What’s Changing with MTD for Income Tax
From **6 April 2026**, sole traders and landlords in the UK whose gross income from self-employment and property exceeds **£50,000** (as reported in the 2024-25 tax year) must:
- Keep **digital records** using compatible software.
- Submit **quarterly summaries** of income and expenses.([gov.uk](https://www.gov.uk/guidance/use-making-tax-digital-for-income-tax/before-you-use-this-guide?utm_source=openai))
- Continue to file the full Self Assessment tax return by **31 January 2028**, but much data will already be in HMRC’s system.([gov.uk](https://www.gov.uk/government/news/act-now-864000-sole-traders-and-landlords-face-new-tax-rules-in-two-months?utm_source=openai))
There are further stages: if your income drops to £30,000, the requirement kicks in from **April 2027**; and for incomes over £20,000 from **April 2028**.([gov.uk](https://www.gov.uk/government/publications/update-notice-for-making-tax-digital-for-income-tax?utm_source=openai))
## New Penalty System
A **points-based penalty regime** will be introduced to support MTD:
- You’ll receive **penalty points** for late or missed submissions.
- A financial penalty occurs **only after multiple points are accrued**, not immediately following a single missed deadline.([assets.publishing.service.gov.uk](https://assets.publishing.service.gov.uk/media/6807527fe16c376084e7c751/making-tax-digital-for-income-tax-agent-toolkit.pdf?utm_source=openai))
- For those joining MTD in April 2026, there will be **no penalty points** for late quarterly updates for **the first 12 months**, giving a grace period for transition.([gov.uk](https://www.gov.uk/government/news/act-now-864000-sole-traders-and-landlords-face-new-tax-rules-in-two-months?utm_source=openai))
## Exemptions and Opt-Outs
Digital exclusion is considered: if you can’t reasonably use digital tools, you may apply for an exemption.([gov.uk](https://www.gov.uk/guidance/apply-for-an-exemption-from-making-tax-digital-for-income-tax?utm_source=openai))
Also, if your qualifying income stays **below the thresholds** (£30,000 or £20,000) for **three consecutive years**, you may **opt out** once that is confirmed.([gov.uk](https://www.gov.uk/guidance/use-making-tax-digital-for-income-tax/if-your-circumstances-change?utm_source=openai))
## Actionable Advice for Sole Traders and Landlords
1. **Assess your qualifying income** first—look at your latest returned income from self-employment + property to see whether the threshold applies.
2. **Choose compatible software** early—ensure it supports quarterly updates and record keeping required by HMRC. Update to the latest version, especially once API changes take effect.([gov.uk](https://www.gov.uk/government/publications/edition-1-making-tax-digital-for-income-tax-software-developer-newsletter/edition-1-making-tax-digital-for-income-tax-software-developer-newsletter?utm_source=openai))
3. **Set reminders for quarterly update due dates**: 7 August, 7 November 2026; 7 February and 7 May 2027, for those whose accounting period ends on 5 April.([gov.uk](https://www.gov.uk/guidance/use-making-tax-digital-for-income-tax/before-you-use-this-guide?utm_source=openai))
4. If you think you're **digitally excluded** or exceptions apply, **apply for exemptions early**—don’t wait until deadline closes in.([gov.uk](https://www.gov.uk/guidance/apply-for-an-exemption-from-making-tax-digital-for-income-tax?utm_source=openai))
5. For existing or new advisers: get familiar with the penalty points system and ensure compliance to avoid escalation. Staying on top of deadlines and using new systems properly will reduce stress come end-of-year.
## What This Means Long-Term
- Better spread of tax admin throughout the year versus last-minute rushes.
- Likely smoother cash flow forecasting for those whose income fluctuates.
- Increasing pressure on digital tools and software providers to be reliable and aligned with HMRC updates.
- Transparent interactions with HMRC = lower error risk.
**Real Example:**
> Jane owns two rental properties and does freelance graphic design. Her combined property + self-employment income in 2024-25 was £60,000. From 6 April 2026, she must keep digital records for both businesses, send quarterly updates, use compatible software; but won’t be penalized for missed quarterly updates until after 12 months if this is her first year under MTD. Meanwhile she should prepare for annual return by 31 January 2028 with most data already compiled by her software via quarterly submissions.
By embracing digital record-keeping and scheduling quarterly updates in advance, sole traders and landlords can reduce compliance risk and better manage their tax burden over time.