Compliance
How Making Tax Digital Will Transform UK Record-Keeping from April 2026
With Making Tax Digital (MTD) for Income Tax becoming mandatory for many sole traders and landlords from April 2026, it’s time to overhaul how you keep records, file returns and plan ahead.
By NomadicTax Research Team • 5-8 min read • March 29, 2026
## What is Making Tax Digital (MTD) for Income Tax?
Making Tax Digital for Income Tax is a UK government initiative requiring eligible sole traders and landlords to use **compatible software** to:
- keep and preserve digital records of self-employment and property income and expenses; and
- send **quarterly summaries** of those records to HMRC, along with an end-of-year return, all through compatible software. ([gov.uk](https://www.gov.uk/government/publications/update-notice-for-making-tax-digital-for-income-tax?utm_source=openai))
These rules start to apply from **6 April 2026** for those with gross income over £50,000 in self-employment and property; with lower thresholds phased in for later years (eg over £30,000 from April 2027; over £20,000 from April 2028). ([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))
## Who is affected & who’s exempt?
| Category | Mandatory from | Exemptions / Special Cases |
|----------|----------------|-----------------------------|
| Sole traders & landlords with gross income > £50,000 | 6 April 2026 | Ministers of religion, Lloyd’s underwriters, non-UK resident entertainers etc., have permanent or deferred exemptions. ([gov.uk](https://www.gov.uk/government/publications/making-tax-digital-for-income-tax-and-penalty-reform?utm_source=openai)) |
| Income > £30,000 | 6 April 2027 | Same exemptions apply. |
| Income > £20,000 | 6 April 2028 | Optional until mandate hits. |
## What digital records look like in practice
Start from now to put in place the following:
- **Sales, takings, income** records: date, amount, category.
- **Expenses**: travel, office, stock, repairs—identifiable amount, date, and whether it relates to self-employment or property. ([gov.uk](https://www.gov.uk/guidance/use-making-tax-digital-for-income-tax/create-digital-records?utm_source=openai))
- **Property income**- for UK and foreign property businesses separately; even Rent-a-Room scheme income counts if other property income or if you used that scheme last year. ([gov.uk](https://www.gov.uk/guidance/use-making-tax-digital-for-income-tax/create-digital-records?utm_source=openai))
- **Software**: must be MTD-compatible; it helps reduce errors/divergence with HMRC. Agents can use agent services in the same way. ([gov.uk](https://www.gov.uk/government/publications/agent-update-issue-118/issue-118-of-agent-update?utm_source=openai))
## Penalties & transitions
- A **points-based penalty system** will replace the older late-filing sanctions. Penalties kick in once enough points are accumulated, not immediately. ([gov.uk](https://www.gov.uk/government/publications/making-tax-digital-for-income-tax-and-penalty-reform?utm_source=openai))
- During **testing phases**, late quarterly updates will not lead to penalty points; the end-of-year return deadline can still lead to penalties if missed. ([gov.uk](https://www.gov.uk/government/publications/edition-2-ready-steady-file/edition-2-ready-steady-file?utm_source=openai))
- HMRC will write to those identified as needing to comply, based on the previous year’s return, so you know ahead of time. Agents can also help clients sign up early. ([gov.uk](https://www.gov.uk/government/publications/agent-update-issue-128/issue-128-of-agent-update?utm_source=openai))
## Actionable steps for businesses, landlords, and agents
1. **See if you qualify**: Check your combined self-employment & property gross income for 2024-25 to see if over £50,000. If so, you’ll need to begin from April 2026.
2. **Choose software early**: One that meets HMRC’s digital requirements.
3. **Set up your bookkeeping**: Even if you’re low income now, starting digital early saves time when thresholds drop.
4. **Review exemptions**: If you're an exemption case, like a non-UK entertainer, check the rules.
5. **Plan your cashflow around penalty reforms**: Late payments or quarterly updates after the point-threshold will cost money; avoid delay.
## Examples
- **Landlord with multiple properties**: If you own 3 UK properties and rent them out, keep separate digital records for all property income & expenses. Even if some income is from Rent-a-Room, digital record-keeping likely applies.
- **Sole trader side hustle**: If your main employment income plus side hustle self-employment income grosses above £50,000 before expenses, you must use MTD software from April 2026.
- **Agent preparing clients**: If a client reported >£50,000 gross self-employment/property in 2024-25, ensure they’re signed up and software ready; run dry runs in year prior.
## Why this matters now
- **Compliance risk**: Waiting until the last minute increases chance of errors.
- **Better time-spreading**: Quarterly updates help avoid income bunching and surprise tax bills.
- **Digital readiness**: Systems need time to set up; for some, switching software & changing habits takes months.
- **Future thresholds**: Lower mandates in 2027 & 2028 affect many more – better to be ahead than play catch up.
Making Tax Digital for Income Tax represents one of the biggest rewrites of UK tax compliance in decades. With careful planning and timely action, taxpayers and advisers can make the transition smoothly and even gain efficiency.